[Guest Post] Should Retailers Embrace a DTC Model?

Going direct to consumer is all the rage these days. Yet many consumer goods brands can’t quickly and efficiently adopt a DTC model without first addressing the common challenges many modern companies are facing in the digital age.

Let’s explore these common questions and see where your business lands on the “To go DTC or not?” spectrum. Because that is the ultimate question.

1. Why DTC and why now?

Consumers are altering how they’re buying. While many of these trends were visible before the COVID-19 pandemic struck, the quick acceleration and adoption of new consumer behaviors and digital reliance for brand engagement only grew. Consumers were also altering what they were buying, with a trend toward new native DTC brands gaining hold of more market share.

Early in the pandemic, consumer goods brands saw a 91% increase in online sales. CPGs were no longer able to compete by filling shelves at retailers and airing national TV campaigns alone.

Finally, companies wanted to become more consumer-centric, which meant a need for consumer insights. Historically, CPGs have not had access to a rich source of consumer data. By adopting a DTC model, these same companies gain first-party data—the key to creating an engaging brand experience.

2. When should (or shouldn’t) an established brand go DTC?

First, there are many reasons why a company would pursue a DTC strategy. For some companies, the ability to gather data on their consumers and generate insights is a valuable resource. For others, DTC offers an opportunity to create an experience that pays off the brand essence. DTC can also be used to eliminate the middleman (e.g. Target, Walmart, or Amazon), thereby creating a more efficient and profitable sales channel.

3. Is there only one DTC model?

No. DTC represents a spectrum of viable business models:

• Consumer-to-consumer model in which marketplaces like eBay connect individuals
• First-party B2B2C in which a brand sells its products to online retailers not through them (e.g. Amazon)
• Direct-to-consumer in which transactions on a website are owned and operated by the brand

The objectives of your DTC model should dictate the strategies and tactics for each brand or company.

4. How do CPG brands going DTC maintain good relationships with wholesalers and affiliates?

For many years, CPG brands have been concerned about developing DTC experiences due to their important retail-partner relationships. But it’s time for a reality check.

The speed at which brands are developing DTC relationships forces the question about the future of the relationship. Every brand must evaluate a retail partner’s place in their overall sales strategy.

A brand may offer exclusive pricing and products online through DTC and other exclusive products and pricing in store. Or you may develop an online-only brand that doesn’t compete with other product offerings that are in store. Working closely with partners and establishing objectives that both parties can support is imperative to your success.

5. What additional focus should brands have when going DTC?

Brands must not forget the key function of retention marketing. While acquiring new customers is a top priority early on, retention is key to long-term success.

Retention marketing is driven by a strong analytics team coupled with relationship marketing experts. Beyond emailing discounts and asking customers to “buy again,” retaining customers takes an omnichannel approach.

True retention marketing discovers how existing customers behave across channels over time and identifies triggers that result in keeping a customer “alive.”

6. What technology should DTC brands invest in?

DTC brands use three main platforms: ecommerce, automated marketing, and a customer data platform (CDP).

CPG brands are experts in knowing how to ship a pallet to a distributor but not a box to an individual consumer. This challenge can be a significant barrier for getting DTC off the ground because many top ecommerce platforms aren’t built to enable selling in this manner. Make sure yours does.

One-to-one messaging is an essential part of any DTC strategy. Marketers need to be able to efficiently and effectively capture leads, nurture them further down the funnel, and analyze consumer behavior and campaign performance. Leveraging a robust automated marketing platform—like Salesforce Marketing Cloud—is one way to activate data-driven personalized marketing at scale.

As companies interact with their customers across more channels, they’ll need to orchestrate all marketing efforts with a CDP, which unifies and enriches data to provide a complete and real-time view of customers and prospects.

7. What are the greatest challenges a brand faces in their first few years after going DTC?

Acquisition and retention.

All marketers know it’s much more expensive to acquire a new customer than to retain and grow relationships with customers you already have. This lesson is particularly clear in the DTC space.

Digital marketing is an essential acquisition strategy for brands with DTC sales models. Targeted social, paid search, and digital campaigns are all efficient and measurable digital marketing tactics.

However, due to the increasing demand for online marketing, customer acquisition costs are increasing sometimes to the point of being higher than a customer’s average order value. Focusing on one-and-done purchasers will result in a losing strategy. As a result, brands need to pay close attention to customer lifetime value (CLV).

As customer acquisition costs increase, returning customers are the best source of recurring revenue at no extra cost. You pay to acquire them once and every subsequent order makes up for this initial investment. Therefore, each new sale comes at a better margin.

Finding the right DTC partner

At DEG, we understand there is no one-size-fits-all DTC model for every brand. Rather than adopt methodologies or tactics that don’t suit your needs, we work with you to conduct a thorough business and operational audit to develop a roadmap for growth.

We’ve helped national and global brands—including PepsiCo, Hershey’s, and Johnson & Johnson—actualize first-party, data-driven strategies for improved personalized communications and customer engagement.

Sound too good to hear? Let’s chat about how we can help your brand do the same.

About DEG

DEG is a full-service digital agency crafting data-driven, creatively led, and customer-centric experiences that resonate at the point of greatest impact. We fuse creativity, strategy, and technology to transform our clients’ businesses and engage their customers in the moments that matter most, and have done so for brands like PepsiCo, Gap Inc., Purina, and Shell. DEG can be found at www.degdigital.com and on Twitter @DEGdigital.