Not too long ago, during the depths of lockdown, the direct-to-consumer (DTC) model was hailed as the saviour of retail and the future of the industry. Crucially, it gives brands the opportunity to claim ownership of customer relationships, by way of the data that it generates.
In practice, however, two opposing strategies have emerged. Some major brands are doubling down on their efforts to reach customers directly, strengthening buyer relationships and increasing retail margins. Meanwhile, others are returning to a more traditional wholesale approach to increase their visibility in the eyes of consumers.
The growth of omnichannel shopping is causing the retail landscape to evolve, and there’s no one-size-fits-all solution. To thrive, DTC brands must harness multiple opportunities to build closer bonds with their target customers. Then, they can leverage advanced logistics, supply chains, and customer experience (CX) solutions to unlock their full, dynamic potential.
Going direct: every capability counts
A poster child for a modern DTC brand is sportswear giant Nike. The company has been steadily culling its roster of retail partners since 2017, and recently withdrew from major fashion retailers like Urban Outfitters to focus on online growth, brick-and-mortar expansion, and customer proximity.
While this DTC model gives brands full ownership of their relationships with customers and the data associated, it also incurs additional costs. It takes investment, put towards everything from logistics and supply chain management, to creating great customer experiences and hiring the necessary talent.
Without proper preparation or a fluid strategy, these costs can swallow up profits. In fact, research has emerged that, for some manufacturers, wholesale could still prove more profitable than DTC in the long run. So, if brands want to maximise the potential benefits of DTC, and pivot from serving hundreds of retailers to millions of customers, they need to be versatile—from their supply chains to their customer services.
Flexible supply chains
A DTC model places greater pressure on businesses to ensure they have enough stock, at the right times, to meet customer demand. After all, a failure to do so reflects poorly on them directly, rather than the high-street retailer who would be hosting them. A wholesale model also softens the DTC stockout blow due to the fact that there are other brands nearby to stand in.
DTC retailers must therefore bake proactivity into their supply chains. They should prepare plan Bs, Cs, and even Ds to ensure they can always access the required raw materials to respond to market trends, or even pivot to different products if suppliers can’t deliver on usual goods. The pandemic highlighted the importance of this. As high streets closed and supplies were diverted, some brands were able to make the best of difficult circumstances. For instance, the designer clothing brand Ralph Lauren pivoted its available resources to produce free medical gowns for healthcare workers and commercial face masks for consumers. This switch not only opened an unlikely new revenue stream – it offered a timely PR boost, too.
Still, any type of pivot is a tough challenge, particularly in today’s climate. Highly publicised
vulnerabilities, such as the semiconductor shortage, are expected to impact manufacturing
for years to come. Here, demand planning and inventory forecasting become more important than ever. If possible, brands should operate digitised, automated supply chain forecasts that harness machine learning to instantly spot buyer patterns and adjust inventory accordingly.
DTC, particularly within e-commerce, has transformed the importance of fulfilment from relatively undifferentiated to a potential competitive advantage.
Now, consumers expect fast, free, on-time deliveries, with a third of shoppers abandoning their carts if they face lengthy delivery dates. Conversely, brands that offer next or same-day shipping, or convenient alternatives such as parcel lockers, are near-guaranteed to attract and retain their customers and build long-term relationships.
A DTC model gives businesses the freedom to optimise their logistics and delivery services to meet these demands. It also enables them to streamline operations costs, by corralling logistical components, for example, to make synchronised deliveries. This extra control then allows brands to drive business value by meeting stakeholder demands over wider concerns, like a reduction in their carbon footprints.
Iterative Customer Experience
Ultimately, CX will make or break a brand’s DTC strategy. As with stock, brands can no
longer rely on retailers to shoulder the responsibility for customer services. With DTC, it’s up to the manufacturer alone.
To enjoy sustained success, a DTC brand should try to offer 24/7 support, even if only through a simple chatbot, for closer ties with customers. Its website must be intuitive and modernised to the latest online trends and customer expectations, like accurate fit suggestions and opportunities to highly filter search results according to personal preferences. Similarly, much of DTC-based retail is trend-driven. So, manufacturers should adopt a fast speed to market – whether through new products, or upgrades to their digital services.
Inventory management that centers the voice of the customer helps brands to keep pace with trends and evolving demands, and opens up the profitable prospect of targeted content, personalised service offerings, and tailored discounts. However, this must all be underpinned by a customer data platform (CDP) to capture, manage, and leverage the earned customer information.
The cost-control tradeoff
The DTC landscape is fragmented because a pure-play model isn’t right for every retailer. Pure-play DTC has been praised for the datastream it provides, but it’s really about how retailers utilize that data to strengthen their customer relationships. The amount of control standalone DTC can facilitate certainly comes with extra costs, responsibilities, and upgrades. Understandably, even some larger, more established retailers are reluctant to invest the time and expense that accompanies the technologies needed to gain full ownership over customer relations. Whether or not, and how to go DTC is extremely variable, but thinking about it as a gateway to consumer connection, rather than as a gateway to data, is crucial.