The Death of Retail – Why and How You Can Move Toward Direct-to-Consumer Sales
by Ron Dod
Home | Blog | The Death of Retail – Why and How You Can Move Toward Direct-to-Consumer Sales
When online retail started to emerge in the early days of the internet, it quickly caught on as customers realized how easy and convenient it made shopping. Since then, its popularity has steadily increased as companies like Amazon have made more items available online. People would rather take a few minutes to find something on their phone or computer than physically buy it at a store.
In fact, Amazon is now the king of eCommerce, a phenomenon which has transformed the marketing and sales landscape. Marketers and brands are losing distribution, and businesses are having to adapt by learning entirely new ways to market their products and services. This year alone, the number of manufacturers selling directly to consumers is expected to grow by over 70%.
The Direct-to-Consumer Model
Selling directly to consumers allows you to bypass department stores, boutiques, retailers, and other middlemen. In the past, these were necessary to reach out to customers and get exposure for your brand, but, with the rise of mobile, social, and other technologies, it’s become easier than ever for digital brands to disrupt the market. You no longer need middlemen—you can give your customers what they want, when they want it.
In essence, direct-to-consumer brands are companies that do all the financing, design, production, marketing, distribution, and sales for their own products or services. This clearly presents a challenge for businesses that want to move to the model, as it involves taking on responsibilities that were previously delegated to outside companies. However, it also brings a unique opportunity to engage directly with customers.
Why Is DTC Relevant?
As eCommerce takes over more and more markets, traditional brick and mortars are having trouble keeping up. Stores like J.C. Penney, Macy’s, and Sears have been forced to close hundreds of stores and adapt their strategies to evolving practices. By mid-May of 2017, the number of national chain closings was 2,770—the highest numbers since the Great Recession. Customers are shopping and spending money in new, different ways, and eCommerce is reaping the benefits.
The traditional model, in which manufacturers sell to wholesalers and retailers who, in turn, sell to consumers, has been in place for hundreds of years, making it difficult for these businesses to adjust quickly enough. eCommerce has taken existing business models by storm and forced distribution channels to evolve in order to survive. Adaptable companies have been able to use these changing market conditions to their advantage.
Warby Parker is a paradigmatic example of a business that has thrived by selling directly to consumers. Customers can purchase glasses from both its physical locations and its website, cutting out the middleman on which traditional manufacturers of glasses have been dependent up until the last few years. This gives the company greater control over its brand, along with a larger share of profits and more ability to reach out and engage directly with its customers.Everlane is another business that has used trends in digital marketing and sales to its advantage. Like Warby Parker, Everlane sells its products directly on its own website, as well as in its brick and mortar locations. In fact, Everlane started as an online-only business and only later transitioned into the more traditional format.
On their websites, both companies cite their structures as factors in their success and their ability to create a unique culture and product.However, traditional companies can also update their approaches and learn from the successes of other businesses. Nike, for example, is beginning to focus on its direct-to-consumer channel and recognize it as a key part of its plan moving forward. In the next five years, Nike intends to grow its direct-to-consumer sales by 250%, reaching $16 billion by 2020, compared to $6.6 billion in 2015. Whether your business started out online or is just starting to adjust, direct-to-consumer sales can be a major part of your outlook.
Even companies in industries that seem less conducive to the transition have found innovative ways to incorporate elements of direct-to-consumer marketing into their business models. Tesla offers its cars online, making it easier than ever for customers to view and purchase the available options. Each field has been affected in a distinct way, but no industry can afford to ignore the push toward eCommerce.But this initiative towards direct-to-consumer marketing isn’t just for huge brands with millions to spend on their marketing efforts.
Selling direct to consumers can work for smaller brands as well. Take Ciner for example. The company was founded in 1892 and had been working primarily through retailers to sell their jewelry. Through the implementation of a D2C eCommerce website, Ciner was able to start selling to consumers directly and expand their 125-year-old company to more clients than they ever thought possible. Another example of smaller brands succeeding in the D2C space is Glamorise, a retailer that has been designing bras for full-figured women since 1921. Along with the help of Nano Web Group and Visiture, Glamorise was able to open up their product offerings to new audiences and sell directly to the consumer.
Above all, one thing has become clear: Customers want to buy products through direct-to-consumer channels. Today’s shoppers are accustomed to enhanced access to a brand and set of products, and this need can only be met using the tools unique to eCommerce. It allows them to receive the most informed answers possible to any questions they have, along with letting them interact directly with the brand. This leads to a more personal connection with the brand and, in turn, a higher likelihood of coming back.
The Advantages of DTC for Brands
The first benefit offered by the direct-to-consumer model is an increased level of control over products. When a wholesale manufacturer sells through a retail distributor, it has very little input on how the product is sold. The distributor has both control and responsibility, and the manufacturer is dependent on them to sell its product.On the other hand, businesses that sell directly to consumers are able to closely manage their sales and marketing. They can control markdowns and discounts, making decisions about prices that are usually out of their hands. Additionally, products are marked up by the distributor, allowing companies that cut them out to lower their prices and keep a larger percentage of the profits.Aside from the financial incentives of DTC, it also puts your business under someone else’s control. Third parties have no investment in your company or brand, so how will they be able to effectively communicate your message? So much of what makes eCommerce brands successful is their ability to market and engage directly with their customers.
Selling your products online allows you to carry more inventory and sell a wider variety of products. Retailers will only stock your best sellers while ignoring other options your audience might be interested in. By opening your own eCommerce store, you can offer a wider product assortment and give your customers more choices. This also gives you a platform for more experimental products.
Connecting with Customers
The direct-to-consumer channel is conducive to building a brand and a relationship with customers. A website provides a personal experience for each shopper and acts as an ecosystem where your brand’s story can be communicated. Compare that to the alternative: on a shelf, stuck between two other brands, without any personality or differentiation. With eCommerce, you have control over your personality and a way to communicate it to your audience.
As your DTC channel expands, retailers need to determine which consumer segments prefer to buy from retailers, and why that’s the case. It can take time to find the right balance between your retail and eCommerce channels. Sometimes they can work together; a website is a great place to test new products and marketing campaigns before attempting to scale them out to retail partners.Brands that sell through eCommerce are able to gather feedback directly from their customers and determine what adjustments they need to make. The business-customer relationship takes center stage and is more dynamic than the one created through traditional practices. Once they feel a level of trust and familiarity with your products, they become much more likely to purchase from you than from your competitors.
Gathering and Using Data
Another unique advantage of eCommerce is the ability to hold onto customer data and information for marketing purposes. You can measure everything in the customer’s journey and change aspects of the user experience that are turning people away. In every industry, the most successful companies are those that use data and analytics to make their decisions, rather than simply assuming or predicting what will work. By collecting this data, you enable yourself to offer your customers personalized shopping—and 75% of consumers report that they prefer personalized experiences to generic ones. Over time, you’ll learn how to integrate data from all your channels and use it to your advantage in various ways. Remember, eCommerce is one part of a holistic business plan that can maximize your outreach.
One clear benefit of eCommerce is the lack of a middleman to leech off your profits. In fact, the net margin dollar per unit doubles with direct-to-consumer sales compared to traditional sales. That means you can sell your product at a lower price than your competitors while also making more money on each unit sold.While putting your items in stores can help them gain exposure, you’ll get much better margins on your online sales—and those sales often come just as easily. In fact, 52% of consumers are already visiting manufacturers’ websites intending to make a purchase. A full third of those people would prefer to buy directly from the manufacturer, and that number is growing.Your direct-to-consumer channel will also allow you to broaden your audience and mitigate risk from other sources of income, such as retail sales. By making your own sales, you give your brand a wider audience and give more people access to your products. Additionally, since you’re no longer dependent on any other brands, you have a higher level of control over your sales.The sales cycle is also much shorter with direct-to-consumer marketing than it is with traditional sales. By selling your products on your own website, you allow yourself to prototype, test, and move an item to market extremely quickly. This gives you a leg up on the market, which can be key in competitive industries that move quickly.
The Advantages of DTC for Customers
The main benefit eCommerce offers to its users is the ability to find exactly what they’re looking for. Nobody wants to spend significant amounts of time searching for just the right product, and the chance of finding the right product is much higher when someone is looking at the source. They can simply take out their phones or computers and make a purchase. Additionally, they know exactly where their money is going and can trust your brand.
eCommerce sites are also able to sell a wider variety of items than retailers. For example, brands will typically make every size, color, and style of a given item available on their DTC website, while only their best-sellers will make it to retail shelves. By purchasing directly from the brand, customers have access to the entire collection.This advantage also translates to upselling, as you can promote other items to consumerswho are already interested in your brand and style. One example of this is on Amazon, which will display items similar to the ones in your cart prior to your checking out. This is an opportunity that only exists in this channel, as you have no control over the way your products are sold by a retailer or department store.
If customers have specific questions about your brand or are looking for support, they’re much more likely to find what they need on a website than at a store. The people answering questions on a brand’s website are more experienced and knowledgeable about that brand than those responsible for a department store’s entire inventory, for example. Information on a company’s website is likely to be complete and accurate when compared to information about the company from someone else’s website.Finally, issues such as customer service and returns typically go through DTC channels much more smoothly. A retailer is only tangentially involved with the brand and, likely, has only a generic return policy: It will take the product back and offer either an exchange or a refund.On the other hand, a brand has a strong incentive not only to settle the financial claim but to turn the issue into a positive—hopefully, resulting in a returning customer. A website selling directly to its customers is much more likely to make an authentic effort toward solving any problems that come up.
Tips for Moving to DTC
Invest in eCommerce
If you’re looking to increase your eCommerce presence, the first thing to do is invest in your digital presence. Even though there isn’t a physical location, building a successful DTC website takes just as much planning, effort, and investment as building a brick and mortar store.Any sales website must be well-developed and optimized for sales. It should be built from the ground up with traffic and revenue generation in mind. Everything should be optimized for those goals, including the layout, structure, coding, and even the images themselves. Brands that try to cut corners with a low-budget website end up hurting themselves in the end, as they fail to generate traffic and revenue.
Grow Your Visibility
Increasing your visibility is key to attracting customers to your website, just like it is for physical businesses. Creating beautiful, useful products is important, but it doesn’t mean anything if nobody ever sees your website. Getting your name out there is a process that takes time, money, and investment. It’s not intended to work overnight, but it can lead to sustainable results that will help your business thrive in the long-term.There are two main varieties of digital marketing that you can use to get your website the visibility it deserves. First, organic search methods such as SEO will take longer than the alternative, but they’re also more reliable and produce higher-quality traffic. In essence, organic search results are about getting Google and other search engines to pick up on your website and display it to people who are looking for your products. For example, if you type “sunglasses online” into Google, Warby Parker’s website is on the first page.Of course, Warby Parker didn’t get there overnight. Reaching the first page and moving up takes time, as customers become acquainted with your brand. Many businesses hire SEO firms to help them optimize their content with a view toward getting as much traffic as possible. The main advantage of organic search marketing is that, once you’ve reached the first page, this exposure will stay there for a long period of time.
On the other hand, you can also use pay-per-click ads to immediately boost your visibility. These ads are the sponsored links on search engines. Direct advertising is responsible for 89% of Google’s revenue and 96% of Facebook’s. This type of advertising is the opposite of organic marketing, in many ways: It gets you high volume and accurate targeting, but it’s also much more expensive. Additionally, once you stop paying for that exposure, it’s gone.
There’s no right or wrong answer to this question—both organic marketing and paid advertisements can be effective for the right business in the right situation. As always, marketing is a scientific and data-driven process, so you can gain a competitive advantage by looking at your data as you make plans for the future. Over time, you’ll be able to align your marketing practices with the needs and demands of your target audience.
Thank you to our guest author Yuri Iskhakov for help creating this post. For more information on the Nano Web Group visit their website or email Yuri Iskhakov directly.
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Ronald Dod is the Chief Marketing Officer and Co-founder of Visiture, an end-to-end eCommerce marketing agency focused on helping online merchants acquire more customers through the use of search engines, social media platforms, marketplaces, and their online storefronts. His passion is helping leading brands use data to make more effective decisions in order to drive new traffic and conversions.
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