Six lessons startups must learn to succeed in the Direct-to-Consumer space
The Direct-to-Consumer (DTC) boom is here to stay, and it’s time to figure out if there’s a formula for success in this space by studying the elements successful DTC brands share.
The recently concluded holiday season brought to the forefront a rather curious shift in consumer behaviour. Shoppers, it seems, are venturing away from their favorite online and offline shopping haunts in pursuit of alternative experiences. They are increasingly fulfilling their needs straight from the manufacturers, as opposed to the traditional retail route. Why bother with middlemen (or should we say, middle stores?) when you can just reach out to the manufacturer directly to get top product for not-so-top dollar, right? The Direct-to-Consumer (DTC) boom is upon us and it is here to stay, despite the casualties by the wayside. Traditional brick-and-mortar stores are fast waning in popularity in most sectors. Even online big box retailers are starting to, ever so slightly, lose their luster.
A staggering 40 percent of popular brands already have at least a single channel to directly supply to consumers. Nike beat its own goal of reaching $5 billion in DTC sales by over $1.5 billion in 2015, and expects to reach almost thrice the number by 2020. The model is slowly assimilating several product categories into its borg-like fold – from personal apparel and hygiene to food, mattresses, and home products. What originally started as an off-beat selling innovation has planted its roots firmly and grown exponentially within the last decade.
But how new is the DTC model really?
The philosophy of cutting out the middleman and connecting the manufacturer to the consumer, basically joining the relative ends of the supply chain, has actually been in place for centuries, harkening back to the mail-order catalogues (and brides) of the 19th century. The philosophy was just implemented in different ways over the years, as more and more technologies became widely accessible, and as cultures changed. On the heels of the widespread reach of the postal network came the ubiquitous presence of televisions in households, which led to the rise of tele-shopping in the 20th century. Post-war American women wanted some measure of financial independence and party-plan selling (think Tupperware) was a huge enabler. The dawn of the internet era brought with it catalogues being shared with even more numbers of people via online BBS. And ever so gradually, the modern era of 21st century DTC selling as we know it came about. This begs the question – why now? That is, why are DTC companies finding exponential success just now, while their precursors were relegated into a niche sort of pensioner’s pastime and struggled to gain solid traction?
Brands such as Warby Parker, Casper, and their ilk – which essentially drove the modern DTC success story – did a few things differently. They had very unique business models and they had VC funding. Here, we use business model as an all-encompassing term to cover obvious elements such as a definite online presence, creative marketing, quality products and more. Basically, everything that enabled these brands to entice consumers to not just try their products, but eventually become voluntary evangelists.
As for VC money, sometime in the mid-2000s, a curious shift in investments began to occur in favour of nascent DTC ventures as opposed to traditionally favoured verticals with lower overheads such as software. With the limited success of precursors to Warby Parker such as diapers.com, VCs got an early taste of the potential that the modern DTC model could unlock.
A lot can be learned from such forerunners and current successes of the DTC space. In fact, many of the successful brands have enough subtle elements in common that manifest somewhat of a formula for success in this space.
1. Branding consumer minds
Inconspicuous common element number one: branding. Every single successful DTC company you can think of has created a strong and unique identity for itself from scratch. Red Antler, arguably one of the world’s best ad agencies, shares the same philosophy and tries to incorporate it whenever it works with a startup. Any of their work would serve as an excellent example, but let’s take the most recent well known one. Brandless established its identity as the better, healthier, yet cheaper (relatively, at least) alternative to mainstream branded grocery products, by cutting down on unnecessary frills like fancy layered packaging, the so-called BrandTax, and the DTC staple of eliminating the middleman.
The Brandless brand started to be viewed as the no-nonsense practical and economical approach to grocery shopping just because of how its brand was starting to be perceived. How did Red Antler push this message across? By making sure everything from the packaging, labels, the logo itself and the website signalled values such as minimalism and simplicity. This was achieved by ample use of white space and lightbox photography to highlight products. The gamble paid off – from starting off with just 110 products, Brandless has expanded to 300+ products with no signs of stopping and raised $50 million in funding so far.
Key takeaway: You need to push and promote a clear sense of brand identity, not just your product.
2. Less choice is… Good!
More choice is always better right? Apparently not. Most of the successful companies in the DTC space made it big by selling just ONE product. They didn’t even have to reinvent the wheel – they simply took an everyday thing and proceeded to make one best variant that was simultaneously versatile, practical, appealing, and economical. Consumers, contrary to popular belief, are tired of being bombarded with choices. They dislike having to weigh merits and demerits of each option and alternative and picking one over another, only to face buyer’s remorse generally souring their entire experience.
Which is why Casper found great success when it launched with just one mattress option. It boldly debunked the notion that people differ in the way that they sleep - meaning, some sleep on their sides, some sleep on their backs etc. As it turns out, most people sleep every which way, and hence one style of bed should satisfy most people. That gamble paid off majorly. In four years, it’s grown to become a $750 million company and while it has expanded its product offering to three beds now, it’s still better than the dozens of options on any typical mattress shopping site.
Moreover, as Hick's Law suggests, presenting more number of choices increases the decision making time logarithmically. Of course your best products must actually be the ‘best’ in terms of quality. Significant budgets must be allocated to vastly improving the quality-to-price ratio of the product to find any measure of success.
Key takeaway: A few “best” products will attract more consumers than having a large selection of choices.
3. You need some new-age marketing wizardry
Social media is a devastatingly powerful tool that can cut both ways – it can help you reach consumers you normally wouldn’t have access to, and at the same time it can amplify negativity about your brand exponentially. Your ad campaigns on social media need to be good enough to leap at and grab the consumer’s attention in an arena where 10 other advertisements try to do the same. There is no better example of a brand that successfully navigated this minefield than Glossier.
The brand caused a flywheel effect by reaching out to several well-picked micro-influencers on Instagram, christening them “Glossier Representatives”, and getting them to sell products to their followers – a weird hybrid evolution of the party plan if you will. Now, almost 70 percent of Glossier’s revenue comes from these kinds of sales. The company created a trendy hashtag and posted community photos on its homepage and had its influencers share it and generate hype, thereby getting the company extraordinary exposure, which invariably led to more sales.
Key takeaway: Creative and catchy ad campaigns in underutilised channels will help expand your customer base.
4. Consumer is king
Sure, it’s an old adage, but in the brave new world of DTC selling, the phrase encompasses even more than it ever did previously. The most common thing ALL successful DTC brands have in common is pampering the consumer. Right from the ordering experience to after-sales service, the consumers are looked after and the experience is carefully crafted to be as painless and enjoyable as possible.
DTC brands try to build meaningful relationships with their consumers to try and foster a community, a sense of belonging in the people that use their products, and deep-rooted brand loyalties.
Feedback (and particularly criticism) is well received within the DTC domain. In fact, successful DTC brands try to incorporate suggestion from consumers in the next iterative release or upgrade. With this, the idea that “consumers have a voice” and it's being heard is reinforced. The best example of this would be Soylent. Amid questions about its manufacturing hygiene and the arduous task of completely inventing a new class of product, the brand worked hard to create a community of like-minded people they could unite under a single banner. From creating active discussions on Reddit to making their product open source yet distinctly Soylent, they made their consumers feel like they shared a real connection with the company and that paid off.
Key takeaway: Pamper your consumers and treat them right – foster relationships and communities, not just sales.
5. Clicks to bricks: coming full circle
Sometimes, nothing beats walking into a store to actually see and feel what you are buying. And after deliberately avoiding the brick-and-mortar route, many major DTC companies are opening up stores in several locations. They’ve fully grown and established themselves as brands in the online space, and matured in terms of inventory and identity; they can now open up specialised retail locations to expand their brand further.
But they are always careful to maintain the “online-first, retail-second” mindset, which allows them to continue reaping the DTC success benefits, instead of lapsing into the listless lull most retailers seem to fall into. The need for this backward integration of sorts has even spawned “Retail As A Service” platforms such as “Built By B8ta” stores. Such avenues may help small DTC companies have some kind of physical presence, should or when the need arises.
Key takeaway: Sometimes, the best of both worlds is what brands should strive for.
6. What not to do
Now that we’ve gone over some of the key elements of success in the DTC space, perhaps it’s fitting that we conclude this guide by look at some of the challenges. If you are planning to be “the next Warby Parker of <insert product category>”, understand that some products are just not meant to be sold directly. Secondly, fledgling DTC startups should take care to learn from the mistakes of those that came before them. Say you are a DTC company specialising in a niche category like non-toxic products. The taste of success could spur you on to wider pastures at the cost of losing focus on your original products.
A small misstep could send the whole house of cards tumbling down and rapidly cost you sales in all verticals.
Brands should also have their monetisation strategy in place before committing to their business plan, lest they are forced to change prices (or strategies) midway, which could be disastrous. A popular, or rather, once popular DTC brand engaged in beauty subscription boxes didn’t really think through how they were going to make money and had to desperately scrabble for funding even after high initial seeds from VCs. The brand provided makeup samples monthly in nice packaging but did not really provide any incentives for the consumers to purchase the full-size product from them, leading to consumers just trying out the samples and never the complete product, which was disastrous.
Key takeaway: There are a lot of roadblocks and potential challenges, and a brand must take care to avoid mistakes that have already been made.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)