Is Your Enterprise Ready for Direct-to-Consumer Business?

Evolving shopper preferences show that the direct-to-consumer (DTC) model is growing steadily for reasons that benefit both product and service providers and their customers. In fact, in a Forrester Research report, 81 percent of consumers surveyed indicated they plan to purchase from a DTC company within the next five years. Traditional retailing will not disappear, as shoppers will continue to frequent physical stores to browse, compare colors, and check quality or fit prior to purchasing, but the final point of sale in an omnichannel marketplace is shifting.

Nike is among many retailers investing in DTC by expanding its e-commerce presence and opening brick-and-mortar stores worldwide. A majority of these—more than 700—are located outside the United States. DTC companies such as Warby Parker with its “Home Try-On” are offering up convenience as well as unique and differentiated value. For customers who also seek an in-person eye exam or an in-store experience, several dozen Warby Parker retail locations are offered in 29 states, plus two locations in Canada.

REI, which has 40 U.S. retail locations, has also invested in a more robust DTC business model by offering events, classes, and other social features along with its products. Traditional automotive dealership models are being challenged by the likes of Carvana with its car-sized vending machines and delivery-to-your-door service and by Tesla’s more than 300 Service Plus facilities (a combination retail and service center) worldwide as of 2017.

The DTC model’s advantages for brand manufacturers and service providers include voice-of-the-customer feedback mechanisms that enable companies to establish a direct connection with their consumers; direct handling of customer service and support issues, which reduces friction for shoppers, resulting in higher customer satisfaction levels; direct connections that provide critical market intelligence about the customer base, empowering companies to rapidly roll out enhancements to products and services; the ability to leverage customer information to personalize all interactions; and the ability for companies to better control their value propositions and messaging to provide a differentiated customer experience—in short, own the relationship from pre-acquisition through point of sale to customer lifetime value.

KEY CONSIDERATIONS

While investing in the DTC channel is a low fixed cost compared to physical store channels, companies often leverage the e-commerce capabilities of their retail chain and third-party partners, including Amazon, Walmart, eBay, and others. Depending on the type and price of the products sold, this may be an optimal channel strategy, as costs associated with warehousing, shipping, and managing returns of lower-priced goods might not be profitable if managed directly. But in many cases, DTC’s advantages might warrant a company integrating additional software platforms, applications, and tools with existing and/or upgraded back-end systems.

Ideally, all digital customer interfaces would be accessible across all major types of mobile consumer devices and encompass omnichannel marketing communications and interactions; e-commerce, merchandising, and/or trade promotion tools; website content/product catalog; customer service and support; artificial intelligence; customer journey analytics; voice of the customer/customer feedback; and point-of-sale/transaction security.

Enterprise structures and systems would leverage both customer and operational information and provide robust analytics and reporting for business leaders to use for strategic planning and/or continuous improvements to operational practices. These may encompass demand and supply chain optimization; customer service and support; digital security/cybersecurity; product innovation; and manufacturing, warehousing, and shipping, among other processes.

Will the DTC model completely replace other sales channels? Absolutely not. Shoppers seek variety, experiences, and choices as a part of our cultural DNA. But companies should contemplate what it would take to make the DTC channel part of their revenue mix. As exemplified by Nike’s split with Amazon, this might mean having difficult or awkward conversations over established retail relationships. Putting customers’ desires at the center of a company’s strategic mind-set, operational structure, culture, and execution, however, will most likely position the company to expand into new markets and to create new revenue streams—a win-win scenario for all parties. 

©2020 Leslie Ament. Ament previously served as the chief research officer at Hypatia Research Group, serves on the editorial board of the Journal of Applied Marketing Analytics, and is currently on leave from her role as a research leader at Deloitte.