How To Tap Into The Direct-To-Consumer Gold Mine
Written by: Richard Howells
In case the stories of closing malls and empty storefronts haven’t caught your attention, shopping has changed.
With an ever-growing focus on customer experience, old models upend the established process, bringing consumers and companies together like never before. Think Warby Parker, Casper Mattresses, the list goes on. These are hugely profitable businesses that have cut out the retailer completely. The direct to consumer model is not new, but it is very lucrative.
Clearly there is money to be made. In fact, Tim Armstrong, the former Google executive, recently launched a new company to bring products and experiences directly to consumers. His new venture, the dtx company will invest in direct-to-consumer product companies with a goal to “empower consumers and companies to build direct relationships.”
What is direct to consumer?
Direct-to-consumer (or D2C) companies manufacture and deliver their products directly to buyers and totally cut out the middlemen and retailers. This can reduce the total supply chain costs which can then be passed on to the consumer. D2C companies can still have an omni-channel strategy, from selling on-line and shipping directly to consumers, to opening pop-up shops in areas that are showing the most demand or interest via social media or actual sales.
D2C from A to Z
The direct to consumer model is not new, but it is very lucrative.
According to new research from Diffusion’s “2018 Direct-to-Consumer Purchase Intent Index.”, one in three U.S. consumers plan to do at least 40% of their shopping from D2C companies in the next five years. And there are many great success stories for the D2C model:
Allbirds built a brand around its “nonbranding” and focusing on the design of the shoe itself with shape, look and feel being the key elements. In October 2018 the company had an estimated valuation of $1.4B.
Barkbox realized “man’s best friend is his dog”, so why not cater for them with a monthly subscription for a box of goodies and samples.
Bonobos showed who wears the trousers with an initial design of a single style of superior pants that focused on a few key elements. Men do not like to shop, and usually the pants don’t fit. They got acquired by Walmart for $310M in 2017.
Casper made their own bed by delivering affordable mattresses by limiting choice and generated $100M
Chubbies literally shorted the target market of “bros” (men from 18-34) who wear shorts and generates $23B annually.
Dollar Shave Club shaved money from its competitors by basically offering shaving as a subscription promoted by memorable viral video campaigns. The company was purchased by Unilever for $1B in 2017.·
Harry’s also took a cut into the razor industry and built up a customer base of over 1 million in 2 years through the design of “one great razor, and cheap refill blades”.
Hubble set their sights on the $12B global contact lenses market with a subscription-based offering to an increasingly growing and captive market. In 2018, Colgate Palmolive invested in the company.·
Warby Parker had a clear vision to attach the prescription glasses and sunglasses market with a try before you buy either at home, or now via augmented reality on your iphone.
Zappos realized that you don’t need to use your feet to buy shoes, but you could also do it from the comfort of your own home. In 2009 Amazon bought Zappos for a reported $900M.
Don’t be stuck in the middle: Evolve or die
At the end of the day, the D2C is here to stay and to paraphrase Charles Darwin, “It’s not the strongest of companies that survive, but the ones that are most responsive to change.”
D2C is not only good for the consumers who are demanding a better experience on their own terms.It is good for the manufacturer who is looking for an opportunity to build are brand relationship with customers. Having this relationship enables them to collect more customer data and as a result, have a much better understanding of how to design, manufacture and deliver exactly what they want.
Drilling down into customer experience
However, selling directly to customers doesn’t necessarily translate to better customer experience. There is no point delighting the customer with the initial sales and marketing experience, if you don’t have the necessary insights, processes and culture in place to deliver on that promise.
For example, if you are thinking of moving from selling, let’s say a drill, to delivering a service based on hours of usage, you must rethink your business processes from the design of the product or asset, all the way through to how it is used and operated by the customer. You also want to know that it is performing well, as if it breaks down, everybody loses. The customer is unhappy (bad customer experience), and you don’t get paid.
So, the drill must be designed with IOT sensors that not only track usage, but also can sense when the drill is going out of calibration so that you can send a replacement, or a service technician to fix it before it breaks down (great customer experience).
When you look at all the example of successful D2C companies, from A(llbirds) to Z(appos) they all have one thing in common. To keep customers coming back for more, a great customer experience is directly linked to a great product experience. And a smart supply chain helps make that dream come true.