Direct-to-Consumer Trends of 2020: How DTC Brands are Thriving
Nov 24 2020
The direct-to-consumer businesses model is exploding. Many brands are finding success offering products directly to the public that are more affordable, better quality, or both. In this post, we'll take a look at what trendsetting DTC brands are doing right in 2020.
Direct-to-consumer brands are companies that have chosen to skip the traditional wholesale-retail relationship and sell their products directly to buyers. This is usually done via a website, though some large DTC brands, such as Apple Computer, have launched their own physical stores from which to sell directly.
Direct-to-consumer retail vs traditional
Part of the reason we are seeing an explosion of DTC brands is that technology now makes it possible for companies to easily reach out to their customer base directly. Being easy alone, however, is not enough to draw investors. The real attraction to DTC vs traditional retail comes from the many benefits that the DTC model brings with it.
DTC prioritizes long-term relationships with consumers
Selling directly to consumers allows a company to form a closer relationship to those customers than they would be able to through the proxy of a middleman. Often in DTC sales, a subscription model will be employed to further nurture and benefit from these closer, more loyal, relationships.
DTC cuts out the middleman
Customer relationships aren't the only area that benefit from eliminating the middleman; although more direct feedback from customers certainly helps businesses improve upon their offering. A key benefit of the removal of the middleman is that companies can now charge retail prices to consumers. In many cases, this allows them to offer lower retail prices than they would otherwise be able to, creating a win-win for both business and consumer.
DTC gives brands more control over product and marketing
When there are retailers and distributors to make happy, some control of product and marketing is lost. With all of their marketing and analytics data fully in-house, DTC brands are better positioned to make use of the big data era to grow their business.
4 characteristics of successful DTC brands in 2020
We've discussed what makes the DTC model so attractive to businesses, but what is it about them that draws in the customer and drives their growth? Part of the success of DTC is how mutually beneficial the model is for both, the customer and company.
DTC brands tend to be formed as a result of something the founders feel is lacking in the market. This often translates into a set of values that customers can relate to. For example, LOLA, a feminine hygiene company, saw a lack of transparency in traditional retail hygiene products and turned that into advocacy for better access to quality hygienic products for women.
2. Highly personalized
With a closer relationship to the customer, DTC brands can communicate with their customers in a more personalized way. With no concerns over shelf space, they can also offer highly-personalized options to consumers to more precisely fit each person's unique needs.
Many DTC brands are selling consumables that customers will need over and over again. By offering subscription plans that deliver on a weekly or monthly basis, these brands give consumers one less thing to worry about running out of before their next trip to the store.
4. More affordable
Although they aren't always cheaper than store-bought alternatives, DTC brands tend to be more affordable for the quality level they offer than in-store brands do. As mentioned earlier, this is due to their ability to cut out the middleman and pass some of those savings on.
3 direct-to-consumer trends of 2020
Although still a relatively young business model, DTC has changed since the first successful wave of companies using the model came onto the scene. There are three big trends driving DTC sales in 2020.
1. Subscription-based services
This one isn't new, but remains a dominant feature of DTC sales. As we mentioned earlier, the convenience of subscriptions is something that customers respond well to, so it's something that DTC businesses continue to incorporate into their strategy.
2. Big brand retailers test-driving DTC
Apple has long been a company that gets its sales primarily in a direct-to-consumer fashion, but other large brands are beginning to test their own DTC waters. Nike has opened their own brick and mortar DTC stores, as well as selling to consumers through their website. After Unilever purchased early DTC adopter Dollar Shave Club in 2016, other big brands have been acquiring their own direct-to-consumer companies as well.
3. Discounted signups and free trials
Getting customers to take the first step is often the hardest part of marketing for a DTC company. To entice more consumers into taking that step, DTC brands are offering discounted signups, free trials, or other freebies to new members. As long as these freebies are well below the customer lifetime value, the strategy pays off.
4 important direct-to-consumer statistics
You've heard us say many times how well DTC brands are doing. Now is a good time to look at some of the statistics that lead us to that conclusion. Hopefully these will give you a good idea of just how powerful the DTC business model is.
1. 25% of US consumers are making nearly ⅕ of their purchases from DTC brands
According to Diffusion's 2020 Direct-to-Consumer Purchase Intent index, a quarter of all Americans make DTC purchases a regular part of their shopping. On the more extreme end of the scale, 3% of respondents said they expect to be making nearly all of their purchases through DTC brands in the coming years.
2. 81% of consumers will make at least one DTC purchase over the next 5 years
Though, traditional retailers still account for the majority of sales, DTC brands are quickly conquering a big part of that market through convenience, product quality, and low or free shipping that they’re able to offer. A clear majority of customers say that they'll be making at least one purchase through a DTC company in the next five years.
3. 77% of apparel and accessory companies are now DTC
Nike may be one of the largest apparel companies to make the move to DTC, but they are far from alone. Apparel and accessories are a huge segment of the DTC market.
4. 11% of DTC companies are doing over $100M in sales
The same survey from above gives us an even bigger picture of how well DTC companies are doing, with nearly four times as many making over $100M in sales than those making under $1 million.
What this means for modern-day businesses
Companies of all sizes are certainly taking note of DTC's rise. There are a few major takeaways to be had regarding the successes that we've seen and the ways those companies managed to succeed.
For a while, the trend was for big box stores to come in and put the little guy out of business. As commerce moves away from a brick-and-mortar model, the odds have evened up a little. Consumers generally do not care if there is a large corporation with massive R&D budgets, so long as the product is high-quality and affordable.
Consumers are becoming more open to DTC alternatives
The same quality and affordability DTC products offer that allows them to compete directly with much larger competitors, also makes consumers more willing to give products sold under the model a try. Growth in the sector should continue to climb as consumers become less apprehensive about purchasing directly.
Big companies are going the DTC route as well
One of the advantages that big companies had which allowed them to dominate the brick-and-mortar space was their access to resources. While the first point shows that smaller DTC companies needn't worry too much about this, it does speak to the power of DTC, that even companies with huge resources and the ability to operate in the brick-and-mortar space have chosen to adopt it.
3 DTC brands conquering 2020
The Honest Company
Products from Jessica Alba's The Honest Company are becoming higher quality and more affordable than regular name brand products. As such, it is one of the companies helping to drive consumers to make the switch from traditional retail to DTC.
We mentioned LOLA earlier. The feminine hygiene company recently signed with Walmart to bring their products into the brick-and-mortar world. This should expand their brand awareness and provide a boost to their DTC sales as a result.
The electric automaker makes it on the list because their DTC model allowed them to take a smaller hit than other auto manufacturers did during the lockdowns caused by the Covid-19 pandemic. Tesla is demonstrating that the DTC model can work for the auto industry. Something the auto industry has been hesitant to transition to.
Direct-to-consumer: the new normal during the Covid-19 pandemic?
The COVID-19 pandemic certainly accelerated the adoption of the DTC model. It’s no surprise that brands that were less reliant on physical showrooms were well positioned to ride out the pandemic with fewer losses than their competitors. This has been the case for many DTC companies in 2020.
As the world continues to reel from the effects of the pandemic, it's likely that we'll see an even bigger embrace of DTC as a business model, as customers that weren’t typically inclined to shop DTC brands are now very likely to do so. When customers forced into the model realize the same benefits that pre-lockdown DTC customers did, there's a good chance they'll stick around even after life begins to get back to normal.
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By Danette Acosta
Editorial Lead at ProfitWell, helping ProfitWell take its content to the next level. When she's not busy creating dope content, you can listen to her on the radio.