It has been just a few years since the pandemic-driven rise of eCommerce disrupted shopping trends and consumer behavior. From air fryers to area rugs, online shopping exploded. If CPGs wanted to add a DTC channel before the pandemic, the last two years have moved the idea from the back burner to the front.
What Is Direct-to-Consumer eCommerce?
DTC bypasses retailers and wholesalers, cutting out unnecessary costs associated with having intermediaries between companies and consumers. Businesses sell under their own brand name, using their website and social media channels to reach consumers directly.
The goal of DTC is to lower costs and maximize profits by eliminating retailers’ sales commissions and display space charges. In addition, brands that add a DTC channel collect and own customer data which is an invaluable marketing ingredient. DTC marketing involves targeting campaigns specifically to consumers who are most likely to want a brand’s products or services.
The DTC trend has paved the way for online and CPG brands to build up their online sales channels. The model has proven lucrative — 2021 saw nearly $20 billion in DTC sales, a 15% increase year-over-year. According to eMarketer forecasts, U.S. DTC eCommerce sales will reach $151 billion in 2022.
Digital-native pioneers like Allbirds, Casper, Bonobos, Warby Parker and Away pioneered the art of selling directly to consumers. But many of these DTC brands have transcended their online-only environments to sell out of traditional brick-and-mortar stores. Ironically, many of these brands have become so popular retailers like Walmart and Target now carry their products.
Consumers Prefer Buying Directly from Brands
Shifting consumer trends and customer loyalty are partially responsible for the rapid rise of DTC. A recent survey found that nearly 60% of online shoppers go out of their way to buy directly from brands. Two-thirds of those surveyed said that brands offer better quality and prices than third-party retailers. Consumers also felt that brands provide better customer service and personalized experiences. And in keeping with current trends, 54% would pay more to buy from brands that follow environmental-friendly or sustainable practices.
Benefits to Brands Wanting to Add a DTC Channel
From increased profits to improved customer experiences, the DTC model offers digital native and CPG retailers several advantages, including:
Additional Revenue Stream
There are several reasons why a DTC model can be good for business.
- Bypassing the go-betweens: By selling products directly to consumers, DTC brands bypass retailers and wholesalers who take a share of the profits. Since DTC brands do not need to cut their profit margins, they can sell their products at lower costs. 48% of consumers cite lower prices as the key reason for choosing a DTC brand over a traditional retailer.
- Customer loyalty: DTC is a powerful way brands can build relationships and deliver better customer experiences. Since loyal customers are likely to spend more, DTC can significantly increase a brand’s sales revenue and profit margin. Brands can offer exclusive website-only specials and sales, providing consumers with incentives to shop directly with them and not a retailer. DTC brands can also create personalized products for their most loyal customers.
- Lower Distribution Costs: Bypassing the intermediaries means lower distribution costs for DTC brands. Without third parties to inflate business expenses, DTC brands can sell products at lower prices if they so choose. This model allows brands to earn more and incentivizes customers to spend more. When customers know they can buy products at lower prices, they will likely buy more from that brand.
Improved Customer Experience
Since DTC brands communicate directly with customers, they can control the customer experience as they see fit. By bypassing retailers, brands can curate more personalized customer experiences with an aesthetic that specifically suits the brand. Projecting this aesthetic throughout the purchasing journey gives customers a closer connection with a brand, increasing brand loyalty. Being in more immediate contact with their customers also means DTC brands can respond more attentively to feedback.
Immediate Omnipresent Reach
With retailers out of the picture, DTC brands do not need to establish a presence in regional retail markets. DTC brands can immediately reach anyone with an internet connection by selling through a digital platform. In this way, DTC offers easy cross-border expansion, as anyone in the world can easily shop with them. Brands that add a DTC channel can be anywhere at any time.
Complete Brand Control
A DTC model offers brands complete control over everything, from messaging to graphics to supply chain and the all-important customer data. Since brands own their channels, they do not need to compromise with the demands of third-party retailers and wholesalers. Brands that add a DTC channel also have more control over pricing and discounts, leading to better profit margins and product value perception.
How to Quickly Add a DTC Channel
The success of the DTC model has sparked intense competition, and the field is more crowded than it used to be. For example, Casper was the first to sell mattresses online in 2014. It now has more than 200 rivals. Brands looking to expand their sales potential or entrepreneurs launching a new online business need to act quickly. Here are a few tips to help streamline the process and add a DTC channel.
Utilize a 3PL
3PL stands for “third-party logistics,” and that is exactly what they do. A 3PL allows DTC businesses to outsource eCommerce operations like warehousing, inventory management, order fulfillment, subscription services and more. 3PLs also cover all post-sales processes, including shipping, packaging, tracking and dealing with returns. This type of coverage allows DTC businesses to focus more on front-end operations and not time-consuming back-end processes.
Set Up a Headless eCommerce Architecture
Simply put, headless eCommerce is a website architecture that separates an online business’s front and back ends. This solution allows brands to deploy front-end content and user experiences without making significant back-end changes. Headless architecture is perfect for DTC brands that need to quickly and nimbly respond to shifting customer behavior. Headless eCommerce solutions also help brands improve the customer experience and build better omnichannel marketing and sales strategies.
Partner With a Merchant of Record
A merchant of record (MoR) is an entity authorized to process consumer debit and credit card purchases on behalf of a business. The MoR assumes all liability concerning the payment processing, including maintaining compliance with tax laws and taking steps to prevent fraud. By partnering with an MoR, brands do not need to worry about tax and compliance issues involved with accepting international payments. An MoR also ensures compliance with PCI-DSS regulations, stays current on transaction laws and handles refunds and chargebacks.
Work With An eCommerce Solution Expert
While brands can choose to handle building and launching a DTC channel themselves, that solution can be costly and time-consuming. To get to market faster, brands should consider partnering with an experienced eCommerce solution provider who can shoulder the load. DTC eCommerce experts like Scalefast offer end-to-end enterprise-grade solutions that can launch in weeks, not months.
The eCommerce experts at Scalefast can help seamlessly integrate your DTC channel under a single software solution that seamlessly integrates retail infrastructure, eCommerce platform and international eCommerce operations. Give us a call today to schedule a free demo.