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Studying the competition: Learning from the success of DTC brands

Remember when a direct-to-consumer (DTC) brand could launch a Shopify store and build a million-dollar business via social media overnight?

Things have changed a bit, and those overnight success stories are fewer and farther between, but digitally native brands are disrupting more traditional brand strategies with their single-minded focus on the customer experience.

And in new research from Epsilon and The CMO Club, we’re seeing that legacy brands are taking notice: Nearly 80% of marketers say DTC brands are directly impacting how they market, and 82% are worried about DTCs’ success with digitally dependent millennials and Generation Z.

The DTC business model isn’t just impacting retail and CPG (as many are quick to note), it’s impacting the entire consumer buying journey—across industries.

The legacy approach to a linear sales model has broken down because of their interactions with DTC brands. Consumers today expect a personalized experience—even personalized products—and a seamless, hassle-free path to purchase.


Download the report: Direct to growth: What all brands can gain from the new DTC world


 

Disrupting consumers, not channels

The DTC model is nothing new. Catalog brands like Lands’ End have been doing it for decades. What is new is how digitally native vertical brands are changing what consumers expect from the brands they do business with.

DTC brands have learned to really understand their core customers, enabling them to anticipate their needs and provide personalized experiences. In turn, this has radically changed consumer expectations. These brands leverage customer data to pinpoint their target demographics and advertising channels, deploy consistent and highly personalized messaging and make meaningful connections with their customers.

These established, one-to-one relationships power DTC success through deeper engagement with consumers. They use their brand-loyal customers to build a portfolio of information they can use to target people with similar characteristics.

Swanson Health, a natural health company and a DTC brand, perfected lookalike models for targeting and creating a continuous customer experience. By combining first- and third-party data to better understand current and potential customers, they personalize communications with each person and build a consistent message and theme across all channels.

While personalized creative isn’t a new concept, Swanson’s approach to tailoring messages to each person’s unique preferences, brand interactions and life events is a novel one. Swanson identifies heavy, infrequent and potential customers, including those who are heavy spenders with other online and multi-channel retailers.

By focusing on identity management, Swanson is able to match tailored products and messages to the appropriate channels and times when the customer is most receptive. Instead of waiting for the customer to recognize the need for a product, Swanson can put the product in front of the consumer in anticipation of his need.

It’s all about loyalty

Before the internet, brands were limited by physical shelf space—popular items were continually restocked, and underperformers were cut. With the evolution of the digital shelf, brands no longer had to only focus on top sellers—they could wring value out of the “long tail” products that didn’t warrant shelf space in a physical store. Amazon, for example, generates a shocking proportion of its revenue from its least popular products.

DTC brands completely broke with both sales models. Many, if not most, became successful with just a handful of products. Bonobos built its brand on a single pair of pants that earned a cult following due to its fit and quality. The company’s loyal base of early adopters gave it the confidence and customers to expand its product line—taking the requisite time to perfect each product before taking it to market.

This is something DTC brands do extraordinarily well: They discover space for a new product and create demand. Andy Dunn, the cofounder of Bonobos, discovered a need for his signature pants based on the fact that men do not like physically shopping for pants, primarily because they have a very hard time finding pants that fit well. Stress-free online shopping for high-quality, well-fitting pants delivered to your door offered a novel solution to a problem men didn’t fully realize they had—until Bonobos pointed it out.

This focus on high-quality products (and the extreme loyalty it inspires) hasn’t escaped the notice of non-DTC brands; 81% of B2C marketers agreed that DTCs have changed expectations for their brand.

It’s not surprising that DTCs are knocking it out of the park with millennials, who are willing to pay more for not just a quality brand, but a quality brand experience. What is surprising is how DTCs are succeeding with older, non-digitally native generations for whom price is often the deciding factor in purchase decisions. It seems that today’s disrupted consumers are loyal to brands who get the customer experience right, regardless of age.

Greg Shugar, CEO and creative director at Beau Ties of Vermont, a DTC that makes ties and men’s accessories, says in the DTC research that their biggest challenge is overcoming potential customers’ natural inclination to buy the least-expensive option. Communicating the value of their products and the advantages of trying a brand they’ve never heard of is at the heart of their marketing strategy.

Beau Ties’ target customer is 40-plus, not millennial, and requires a different thought process. It’s less about being trendy or “overdone,” but more about being relevant, anticipating their customers’ needs and exceeding their expectations. Their customers may not use technology in the same way as their millennial counterparts—they have their own channel and device preferences—but they share the same desire to be engaged and delighted by their relationship with a brand.

Brands shouldn’t be intimidated by DTC successes with customer loyalty; similar results are achievable through truly understanding the customer and delivering experiences that show you know them (because you do). Data-driven marketing drives customer loyalty, so brands in any industry can connect with customers to create meaningful engagements.

The shifting marketing paradigm

One of the biggest marketing shifts B2Cs should learn from digitally native brands is reorienting efforts on customer lifetime value. A more legacy approach to measurement is judging marketing success by top-line revenue and return on ad spend (ROAS). DTCs, on the other hand, look to grow long-term profits through aggressive acquisition and retention, and increasing customer lifetime value, which, in turn, leads to top-line revenue and ROAS through a loyal following.

There are many reasons for this, improved customer data quality not least among them. Better customer data and leading-edge marketing technology make it easy to track customers throughout their brand lifetime. Additionally, as media costs increase, a longer timeframe to justify higher acquisition costs is required.

As a result, DTCs have embraced performance marketing, optimizing spend across a variety of channels to scale acquisition and retention. These efforts must be grounded in identity management—if you don’t know who you’re interacting with, it’s impossible to deliver a personalized experience. Brands that know their customers can create personalized content at each touchpoint.

A single, unified view of the customer allows brands to pull together data from multiple channels and interactions. This allows them to recognize and relate to their customers wherever and whenever they appear, empowering the personalized experience.

Data suggests that 80% of consumers are more likely to do business with brands who personalize their experience, and consumers who favor a personalized experience are 10 times more likely to be the brand’s most valuable customers—making 15 or more purchases per year and shopping three times more frequently than other customers.

The shift to focusing on the lifetime value of the customer could impact immediate campaign ROAS and other marketing metrics, but if you’re focusing on nurturing existing customers and bringing the best, most qualified new prospects, brands build lifetime value with each person, which translates into long-term profitability.

Looking ahead

Consumers have more choices than ever before, not just about what they buy, but how they buy. DTC brands moved quickly to capitalize on this new reality by putting the customer at the center of their marketing efforts.

The customer-centric DTC trend isn’t going anywhere; the “clicks to bricks” movement means DTCs are inching ever more deeply into the realm of traditional retail. To compete, B2C brands need to learn from DTC successes and reorient their marketing strategies.

By focusing on long-term profitability and retention over short-term revenue, promoting value over differentiation, and adapting to changing consumer behavior by providing a richer, more personalized experience, retailers can retain and win market share from their digitally native competitors.

Download the DTC research to learn more: Direct to growth: What all brands can gain from the new DTC world