Direct-to-customer channel – what does it mean in 2024 for your business? While DTC offers numerous advantages for brands, it raises the question: Is this approach a source of a channel conflict or a genuine business innovation? Let’s explore the dynamics of DTC and its impact on the retail industry.
The Rise of DTC: Redefining Retail
Direct-to-consumer means brands sell directly to their end customers without intermediaries like retailers or wholesalers. This model has gained traction thanks to digital platforms that make it easier for brands to reach consumers directly. The success stories of companies like Warby Parker and Dollar Shave Club are testaments to the potential of DTC.
Benefits of DTC
- Enhanced Customer Relationships: By interacting directly with customers, brands gain valuable insights into consumer behavior and preferences, leading to better product development and customer service.
- Increased Profit Margins: Cutting out the middleman means higher brand margins. This financial benefit can be invested back into product innovation and marketing.
- Brand Control: DTC allows brands to control their messaging, branding, and customer experience, ensuring consistency across all touchpoints.
The Flip Side: Channel Conflict
While DTC offers clear advantages, it’s not without its challenges, particularly in terms of channel conflict. When brands bypass traditional retailers, it can lead to tensions with these partners, potentially impacting long-standing relationships.
- Competing with Retail Partners: For brands that operate both DTC and through traditional retail channels, there’s a risk of cannibalizing sales from their retail partners, leading to strained relationships.
- Pricing Wars: Maintaining consistent pricing across channels can be tricky. If a brand offers lower prices on its DTC platform, it may undercut its retail partners, leading to conflict.
Navigating the Dilemma
To harness the benefits of DTC while minimizing channel conflict, brands can:
- Differentiate Product Offerings: Offering exclusive products or variations through the DTC channel can reduce direct competition with retail partners.
- Collaborate with Retail Partners: Brands can work closely with retailers to create win-win scenarios, like using physical stores for product returns or pickups.
- Transparent Communication: Maintaining open lines of communication with retail partners is crucial to managing potential conflicts.
In my position as Sales Manager, I am partly responsible for the realization of the business cases of our clients. More and more we are approached by manufacturers with the question of whether we can help them realize a Direct-to-Consumer (DTC) strategy because these brands want to sell directly to the consumer. We notice, however, that many companies are (still) unconsciously incompetent in this area. You do not just sell your own (online) sales. Embracing a DTC strategy is an organizational innovation for a brand.
Why you want to sell directly to the consumer as a brand?
- Where retailers often offer only a subset of their entire range, consumers can choose from the complete range of brands that use a Direct-to-Consumer strategy.
- A-brand manufacturers invest a lot of money in their brands. When they sell directly to the consumer, they, therefore, keep control over the image and the promise.
- With DTC, brands create an extra touch point. Brands are very good at enticing and inspiring consumers. Transactions are affected by this.
- Why would a brand not immediately do this, where people come into contact with the brand? It removes any barriers or barriers.
- In a DTC strategy, manufacturers become the owner of the customer (data), which is very valuable for optimizing online marketing, for a higher conversion and order value.
- With the right help, brands can set up online sales channels.
- And last but not least: research shows that a DTC strategy is a clear wish of the consumer.
Challenge: channel conflict
In conversations with A-brand manufacturers, however, we often hear the same reason why they do not opt for a Direct-to-Consumer strategy: the channel conflict. Manufacturers often have long-standing relationships with chain partners such as dealers, importers, wholesalers and retailers that would come under pressure from a DTC strategy. This combination can indeed be tricky, but there is a good argument to take on the challenge anyway: the consumer simply wants to buy and does not take this chain conflict into account. The current consumer wants to be able to choose from a wide range and our advice is to keep thinking from the customer. This is easier said than done, but still, too many companies remain within their comfort zone. Comments such as “We’ve been doing it this way for years”, “Our customers are different and do not buy online,” and “It’ll be a hype again” typify this phenomenon.
Out of your comfort zone
There are more and more new alternatives (disrupters) for the traditional sales process. As a result, more and more retailers are disappearing and that is also a threat to brands. That is why as a brand you have to start thinking more about opportunities instead of fears. And yes, perhaps a potential channel conflict arises, but if you develop the right strategy and involve your chain partners, then you will be out of your comfort zone where the magic happens.
And how do I arrive at the right strategy?
First of all, be aware that the development of a DTC strategy is partly an organizational innovation. A dedicated DTC team will have to be because you do not just do this. Therefore, free up capacity or hire new people. A DTC strategy is a long-term strategy. In order to succeed in implementing a DTC strategy, the right focus will have to be on the right subjects.
That is why we have developed a digital transformation model in our company. This model gives your organization concrete tools to transform step by step into a successful omnichannel organization, an organization in which the customer is central. The model uses 5 key building blocks to identify what your organization needs to meet to become truly customer-centric.
Building Block 1 – Strategy
Develop a strategy and share it throughout the organization. Putting a spot on the horizon as an organization is a good idea. Where do you stand as a company in two to three years? What are your plans regarding the assortment, brands, countries and target groups? It also makes sense to create a high-level business case at this stage to create an overview of possible costs and revenues. Direct-to-consumer has a different cost structure than manufacturers are accustomed to. For example, think about what a new customer may cost. Time and money must be invested in marketing campaigns and creating and maintaining inspiring content for all channels. Customers expect the same experience everywhere. In your strategy, pay attention to think big and creating a roadmap in which progress is made in small steps. Channel conflict? Involve your chain partners with this ambition. Make use of each other
Power 2 – Customer experience
Creating the ultimate customer experience at every moment of contact that the customer has with your organization results in higher loyalty and customer satisfaction. For this, you must know who your customer really is and what her needs are at what time. For example, develop personas and research what the customer journeys are. These make the customer and that customer’s behavior transparent and form a basis for choices that are made, such as functionalities, design, content, marketing campaigns and more. If you know who your customer is, these choices can be made. Here too, it works well to share the personas throughout the organization. Make sure employees know who to make the difference.
Building block 3 – Organization & processes
In traditional organizational structures, it may be difficult to adopt omni channel strategies because many are still being worked in silos and not in an agile manner. This pillar requires a change in the culture of an organization. How do you listen to the customer better, anticipate this faster, and ensure a continuous cycle of measuring and improving? We know examples of companies that set up a kind of internal incubator to give space to the change. Not hindered by an abundance of fixed processes and ideas, but in an agile manner in a small team comes to success.
Building block 4 – Data-driven marketing
Marketers and marketing managers are expected to make decisions no longer solely on the basis of opinion, feeling and intuition but substantiate it with data and real-time customer insights. By bundling available data sources, marketers are able to create an integral customer view. Consider, for example, a combination of Google Analytics, ERP, cash register and e-mail data. This combination is extremely valuable in communicating with the customer in a relevant way.
Especially when working with marketing and sales dashboards in which the data is presented. But where to start? And what does this data approach to the organization and its systems require? Thinking big and taking many small steps will show that the marketing campaigns are becoming more and more relevant and have a greater effect with an equal budget.
Building block 5 – System landscape
In an omni-channel organization, the organization of the system landscape is essential to integrate the digital and physical channels seamlessly. to connect. Important features of a modern system landscape are scalable, replaceable and open. By this, we mean that it must be able to grow with the changing wishes of the end customer, and that parts (such as a PIM or search engine) of the landscape must be replaced by a better solution. The system landscape must also be open; it must be able to communicate via APIs with external systems.
Crucial for success
To summarize, it is crucial to start with small steps, to determine what your dot is on the horizon, to realize that it is an organizational innovation, to involve your chain partners in thinking of a strategy to turn a potential channel conflict into a win-win situation and above all always to keep thinking from the customer. Only then will you achieve a successful DTC strategy as a brand. It is, therefore, clear that transforming into an omni channel organization is a very complex affair that is full of pitfalls and challenges. The described structure of our ultimate omni-channel model is just the tip of the iceberg. We would like to give you personal handles and insights to ensure that we do not fall into the trap of limiting and short-term solutions. If you want to know more about organizational innovation, please let us know, because we will gladly tell you more about it!
Conclusion: Business Innovation with Strategic Navigation
DTC is undeniably a business innovation that reflects changing consumer preferences and the digital evolution of retail. However, its success depends on how effectively a brand can manage potential channel conflicts. By strategically balancing DTC with traditional retail channels, brands can leverage the best of both worlds, leading to sustainable growth and a robust market presence.
In this ever-changing retail landscape, DTC isn’t just a trend; it’s a transformative approach that, when executed thoughtfully, can propel brands to new heights of customer engagement and business success.