Direct-to-consumer (DTC) brands have come a long way since the first generation – Bonobos, Warby Parker, Everlane and Casper – launched around 10 years ago. The idea of ‘cutting out the middleman’ and selling on the web with an aesthetically pleasing look and feel is no longer noteworthy, it’s the norm. Today, there are many DTC brands operating across industries, from Glossier in beauty, to Away in travel, to Brooklinen in homewares. And it’s not just a US phenomenon. Koala, Brosa and July are just a few local examples of the growing DTC community in Australia.
But with competition for customers, ad space and investors higher than ever, DTC brands no longer have the luxury of time when it comes to turning a profit. Many are now focused on sustainable growth from the start, and they need more than a slick website and good PR to stand out. Today, DTC brands need to live up to their name and be truly customer-centric in every aspect of the business.
Here are four areas beyond marketing where brands can gain a competitive edge by being customer-first.
The right tech stack
Since many DTC brands’ primary sales channel is online, the technology that underpins their business is crucial. But are brands choosing eCommerce platforms and shipping solutions that prioritise the wants and needs of their customers? A recent report from McKinsey suggests that cost, flexibility, security, support, and compatibility with existing systems are the key factors businesses consider when choosing which technology to implement. But customer experience should really be top of mind.
For instance, while the checkout process needs to be secure, it should also be as frictionless as possible. Brands should be constantly testing and tweaking the most critical pages on their frontend site to ensure they’re in line with customer preferences. In the backend, having a real-time view of inventory is one of the important capabilities for customer-first brands to prevent frustrating stock shortages and shipping delays, so making sure the warehouse management system and order management system sync up is crucial.
Get smart with data
One of the most significant differences between DTC brands and those that sell on a more traditional wholesale basis through retailers or online marketplaces is access to customer data. The DTC model enables brands to gather detailed information about their customers’ buying behaviour. This often translates directly to the success of a business, since brands can use that data when ordering or designing their next collection of products. Increasingly, the direct relationship with customers – DTC brands also have total control over customer communications – enables brands to co-create new products and services with their followers. This is the ultimate example of customer-centricity.
The challenge around data and analytics – especially for startups – is capturing the information from a range of sources and storing it in a way that is usable. It’s easy to get overwhelmed by the volume of data and not be able to see the forest for the trees. According to McKinsey, best-practice companies focus their analytics on specific use cases that drive value, such as interaction preferences, purchase drivers, customer satisfaction and potential signs or triggers of churn. It’s also important to put in place strong protocols to protect customers’ personal data and ensure compliance with regulations in this space.
Smooth fulfilment & delivery
Unlike brands that sell through retailers or an online marketplace like Amazon, DTC brands are responsible for delivering products to the customer, and don’t forget about returns! Since many DTC brands’ primary sales channel is online, this involves warehousing and logistics. It’s important to get right, since it can seriously impact the customer experience. According to McKinsey, two out of three shoppers say they would not shop with a retailer again after a negative returns experience.
So what does a customer-centric logistics operation look like? Many people believe it should involve free shipping. But while free shipping is undoubtedly attractive for customers, it’s not always sustainable for online brands, especially in categories where the return rate is high due to potential fit issues, such as apparel. Brands should think carefully about whether they can afford to continue offering free shipping as they grow, and if not, focus on speed.
Brands can work with an experienced 3PL partner, or optimise their own warehouse operations, to ensure order fulfilment and shipping are as fast as possible. While many DTC brands are online-only, a growing number have started to open stores, which opens up the possibility of additional fulfilment options, such as Click & Collect. When it comes to delivery, customers generally want choice and transparency, so brands should prioritise order and shipping confirmation emails, parcel tracking and excellent customer service to create a truly customer-first experience.
As DTC brands grow, it can make sense to venture into brick-and-mortar. Often, this involves pop-up shops with no long-term lease commitments. In the US, there’s a new trend of retail stores – Showfields, Bulletin, Story, and Neighborhood Goods – that specialise in bringing DTC brands offline.
According to McKinsey, when deciding whether to venture offline through a retailer or on their own, or to sell on Amazon, brands should consider three things: the strength of their community, the level of control they require in storytelling and the scale they aim to reach.
DTC & the agile operating model
In addition to being customer first, many DTC brands describe themselves as being digital-first. This doesn’t refer to their digital sales channels, but rather the way they operate behind the scenes. Borrowing from the tech and manufacturing industries, many DTC brands have adopted an ‘agile’ operating model, where they work in small cross-functional teams in short ‘sprints’ to rapidly iterate products and services based on customer preferences. This structure means brands can respond to a changing environment – such as a bottleneck in the business, hot new trend, or major global event, ahem, COVID – incredibly quickly and in a more holistic way than many legacy retailers.