Article written by: Joseph Safina | Published by: Forbes Finance Council
The past few years have seen a dramatic uptick in the number of direct-to-consumer (D2C) brands. This explosion has shifted the brand/consumer relationship — no longer are upcoming brands (or traditional ones, for that matter) relying on physical stores or intermediaries to showcase their products or services to the public.
Consumers can now buy everything from makeup and eyeglasses to household items and vitamins online, direct from brands themselves, effectively cutting out retailers. Today’s consumers own this buy/sell relationship, in a sense.
The majority of today’s D2C brands were born on the internet. Their target audience is the younger generation — the digital native, so to speak. This audience demands — and these brands provide — a much more intimate experience. These brands are normally startups and have greater potential margins than their traditional e-commerce counterparts.
A great example of D2C branding is Harry’s. The brand began as a D2C company focused on providing a subscription-based product directly to consumers. Once its founders realized the potential of their product, they then branched out to offering their product in various retail chains, such as Target and Walmart.
According to one study, over 80% of consumers plan to make purchases from D2C brands by 2023. For an industry that barely existed a decade ago, that’s quite amazing. So, what are the driving factors of this success, and what can traditional brands take away from it?
D2C brands are, or focus on:
• Being 100% digital.
• Advocating for their target communities.
• Personalizing their products on a massive scale.
• Providing (and proving) their mission and values are meaningful.
• Exploiting the weaknesses of traditional brands.
D2C brands provide insight into strategic digital asset execution, customer advocacy, product or service benefits, and hyper-personalization within a scalable digital ecosystem that proves profitable over time. They’ve created the ultimate blend of trust and trendiness. As more traditional brands research this model and launch their own versions of the D2C model, they, too, can capture extended revenue, or at least protect their current streams.
There are three major challenges facing D2C brands — none of which is insurmountable with the right approach. These challenges include:
• Proper control of customer relationship management data: Your customers’ data isn’t just a stream; it’s more like opening a floodgate. Those data waters come pouring in throughout various touch points. This isn’t a bad thing if you can properly handle it all. Within this challenge is being able to manage, make sense of, and interpret everything quickly and efficiently. If you can identify data that allows you to proactively meet your customers where they are, you’ll not only serve them better; you’ll delight them.
• Proper handling of transactions: Dynamic insight into the life cycle of an entire customer order is a necessity, from original transaction until product or service delivery. Having this insight visible across departments throughout the purchase life cycle allows everyone from sales to support to understand where the customer is within that life cycle.
• Preparing comprehensive customer snapshots: It’s now standard to have seamless service across channels. But what long-term effects are created when meeting customer needs at each interaction? In other words, if you provide great interactions, do they impact your brand the same over the long-term compared to negative interactions? If you have a system that connects as many touch points as possible, for instance, customer service agents can see necessary information regarding a customer’s loyalty status, account size or VIP level. This information is crucial for support to provide the type of service that specific customer expects. Over time, as you record this information, it provides helpful insight to all departments.
Before making the ultimate decision, you should be able to answer these questions about your brand:
• Do you own your brand’s customer relationships? To what degree?
• Does this relationship ownership provide enough leverage for increasing the lifetime value of your customers?
To answer these questions, you require a different mindset. There are different aspects of your brand, such as customer loyalty, you have to measure. Most traditional brands look at key performance indicators, such as impressions, organic reach and frequency of interaction. The resulting numbers can be overwhelming and easily confuse marketers as to the brand’s actual sway. And a brand’s engagement doesn’t always equate to revenue.
The KPIs a traditional brand looking to venture into D2C should look into include:
• Actual number of purchases.
• Number of repeat purchases: Either the number of purchases made by a customer or the number of times said customer returns to purchase the same product.
• Average value of each order.
• Total lifetime value of order revenue.
Build your sales funnel around the resulting metrics. It may take some getting used to this new mindset if you’re brand new to D2C, but it can pay off in the end.
There are a lot of reasons brands decide to make the switch, or at least integrate D2C into their current business model. Having retail partners or other intermediary distributors often isn’t a great fit for a company even if it does put your brand in the face of consumers.
A lot of manufacturers find that designing a product is the easy part — actually selling it can be difficult. This is why so many brands choose the traditional route. It offers a ready-made audience, even if it does put the brand’s fate in the hands of brand outsiders, i.e. retailers. But there are many reasons these types of relationships (business to business) aren’t always the best fit for a brand, and opting for D2C opens up a whole new world.
ABOUT THE AUTHOR:
Joseph Safina is CEO of Safina Capital, specializing in large-scale funding,
M&A, business development and marketing.