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To DTC or not to DTC?

New Business By: Louis ConnorJan 29, 2021
Will DTC work for your business?

The allure of going direct-to-consumer is strong for many brands. With the potential for higher-profit margins resulting from a reduction in reliance on retailers to sell your products, many businesses have made developing their own DTC channels a key strategic aim. Nike’s September 2020 quarterly earnings showing that DTC sales accounted for a third of revenues worth $12.5bn, follows the trajectory of other brands who have invested in owned DTC sales channels through e-commerce. The benefits of this approach are compounded by the growth in online sales because of changes in consumer behaviour brought upon by the pandemic. Together this has contributed to a consistent upward trajectory in share-value for several brands who are incorporating direct-to-consumer business models.

DTCbrands

For DTC brands (think Hello Fresh, Gousto, Harry’s), and brands who have prioritised DTC channels to grow sales (think Nike, Adidas, Lululemon), their ability to thrive is underpinned by a distinct set of digital marketing principles that almost any type of brand or organisation can adopt to improve their digital marketing strategies


Using first-party data

A data-driven approach to modern marketing is fundamental. It makes possible near real-time insights into both campaign performance and consumer trends. For DTC brands, who have best applied the principles of relevance and personalisation in their marketing strategies, much of their success relies on this ability to interpret data to improve both their product and the ongoing customer experience.

From a digital marketing perspective, the richest form of data is first-party data. Even before the diminishing utility of third-party data (e.g. cookies and IDFA’s), first-party data provides the clearest indicator of customers' wants, needs, and preferences. Today's consumers expect brands to understand their individual needs, and DTC marketers do this by harnessing first-party data to deliver personalised and contextualised marketing messaging.

Managing first-party data effectively requires expertise in areas like engineering, analytics, and data science. Building this capability in-house is expensive and will take time. It’s one area where specialist agencies can help through a hybrid-model, providing flexible resources in areas like analytics to bridge your in-house skills gap.

Ownership of technology

Keeping control over access to customer and campaign data encourages brands to own the technology infrastructure that hosts that data. From the simple idea of cutting out intermediaries, you have an increased ability to interpret data and to react to campaign learnings.

Today's most recognisable DTC brands built from the ground-up, owning, and operating technology platforms themselves as they test, learn, and scale. This provides their marketing teams with the agility they need to iterate on marketing strategies in response to changing consumer behaviour.

Particularly for the channels used in the earlier stages of customer acquisition such as search and social, DTC marketers can execute marketing campaigns through owned-technology that is immediately accessible, platform traded, and easy to set-up.

For legacy advertisers, redefining their technology infrastructure can be incredibly challenging. Many will have a tech stack consisting of siloed technologies, outdated or redundant platforms, and agency-owned components without fair and complete access. An audit of this type of ‘frankenstack’ can help identify what you need to own, prioritise the quick wins from longer-term objectives, and ensure you are working towards a future-proofed marketing technology infrastructure.

In-house capability

A commitment to harnessing the power of first-party data within marketing, and owning the marketing technology infrastructure that underpins it, leads naturally to the third principle of a DTC marketing model; in-house capability.

Direct-to-consumer marketing teams boast arguably some of the most talented performance marketers in the industry. And larger brands will have the required ancillary teams in data science, engineering, and analytics to complete a robust in-house digital marketing operation.

For advertisers pivoting to a DTC marketing model, or broadly looking at in-housing digital media operations, here lies an industry-wide challenge in finding the right talent. This challenge straddles both finding people with the right skills to fill specific roles from trading to analytics, to channel-specific expertise, and finding people with the right experience in the technology platforms that form part of your legacy marketing technology infrastructure.

The talent gap is one reason both established brands who are pivoting to DTC, and native DTC brands, continue to turn to media agencies for support. This doesn’t mean handing over the keys and letting your agency run alone with your marketing strategy, but it means finding partners who can be flexible to meet the specific needs of your business, both in the skills they provide and in models of commercial remuneration.

Summary

Going direct-to-consumer means that you have a lot more to do as a business. From being responsible for delivery, managing returns, or customer service, cutting out retailers and third-parties immediately puts additional pressure on resources. One of the hardest to get right and the one requiring significant investment is marketing.

In our recent Facebook Strategy Guide we had a look at one platform DTC brands have utilised as a part of their performance marketing strategy for customer acquisition. We outline some of the tactics used and expand on the potential a more structured full-funnel approach can have for brands across their paid social investments.

Whether you choose to go direct-to-consumer or not, there are specific digital marketing principles marketers can put in place to succeed online. These include utilising first-party data and understanding the changing data landscape, taking ownership of the platforms which form your marketing technology infrastructure, and strengthening your in-house capability.

Get in touch to learn more about our in-housing capability.

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