Direct-to-consumer brands have taken the market by storm, changing the ideas many have about what kind of relationships brands can have with consumers. Starting mostly through digital advertising and then working their way to dominating many of the commercial breaks on major TV broadcasts, Direct-to-Consumer brands have become more prominent than ever.
That prominence is beginning to compound on itself with more rapid growth and increasingly titanic valuations. Everlane sought a valuation of $250 million, Casper’s valuation is north of $1 billion and Glossier recently took on $100 million in capital and reached a $1.2 billion valuation. Major holding companies often end up acquiring the “winners” in different direct-to-consumer verticals as well. Walmart bought Bonobos for $310 million and Dollar Shave Club was acquired by Unilever for $1 billion.
These are exceptional cases, but they indicate a bigger shift than many established brands are not yet willing to admit. Nike, on the other hand, expects $16 billion in revenue per year via its DTC business by 2020, while 81% of consumers expect to shop with DTC brands in the next year. All of this adds more fuel to the DTC fire, but what’s making it burn so hot? Among a few things, DTC brands succeed in narrowing down consumer choices, clarifying their value proposition and streamlining their customer experiences.
Situation like what’s happened with the Honest Company show us that DTC brands are far from perfect, but they still represent a significant disruption to the way brands traditionally do business. The thing is, traditional brands can use a lot of these same tactics to achieve similar growth. They don’t have to reinvent themselves entirely as DTC companies, but where they empower their consumers to feel more connected with them and improve their experience, they’ll see plenty of benefits follow.
Narrowing Down Consumer Choice
The “Paradox of Choice” is a classic theory about how an excess of choice actually paralyzes us, making us feel less free. Coincidentally, it seems to hold true for the customers of major brands. This is one of the most essential ways in which DTC brands get an edge. Modern consumers are overwhelmed with choice, and they don’t know who to ask – if they want to ask anyone – for help.
Direct-to-Consumer brands “short this circuit” by simplifying their product choices, from expansive lines of business with differentiated products or services, to out-of-the-box, single vertical offerings. Casper famously started off by offering one model of mattress. Allbirds looked at Nike and saw “13 different activity-based shoe categories, 6 brand-based categories, 10 icon-based categories and 12 sports-based categories”, and yet nothing that limited branding for the sake of functionality and value. Allbirds’ insurgent strategy centered on one shoe, reached a valuation of $1.4 billion, and earned a reputation as “the world’s most comfortable shoe”, while Nike and similar players have moved to simplify their offering for consumers as much as possible.
By simplifying their offering, Allbirds was able to provide a clear message to consumers. The more consumers responded to it and shared their preferences, the more consumers who’d be interested in the features they promoted would follow suit. Allbirds has worked up to offering six types of shoes for men and women, and one type for children – gradually building on the simplified product choice that built their brand to “land and expand” with consumers.
Clarifying a Brand Value Prop
That “world’s most comfortable shoe” moniker is high praise that never comes lightly, but many direct-to-consumer brands boast the kind of positive reviews and consumer sentiment that Allbirds gets. This is primarily because simplifying a product choice for consumers cuts through the noise of brand messages and options that consumers have to clarify the value of their offering.
Consumers have been more dollar-conscious for decades, but the cheapest options aren’t always the best. Shoes that cost $20 but last 2 months and make your feet sore aren’t as attractive as shoes that cost $200 and make all your friends think you’re rich. However, shoes that cost $60 or $100, are durable and also look stylish are attractive no matter how much money you have. That doesn’t mean mean everybody will buy them, but most people will be more likely to convert simply by feeling confident in what you’re offering.
Where multiple products exist, whether based on the values or lifestyle of the consumer, matching to their exact needs and desires is crucial to driving a similar value prop. ASOS’ Visual Search Tool, for instance, allows consumers to take photos of exactly the style they want and gives them recommendations of which products best match their preference.
Where consumers might have previously just not made purchases or allowed brands to dictate their choices, ASOS allowed the customer to take control and find the most value for them. Instead of offering a race to the bottom, direct-to-consumer brands offer their consumers the “best of all possible deals”. What’s more, ASOS’ example shows that multiple products aren’t a weakness when consumers can simply cut through to the products most relevant to them.
Streamlining Digital Customer Experience
Engagement and sharing are essential to DTC product strategy. Feedback is instant and one-to-one, and first-party data empowers DTC brands to further personalize their offers. By understanding the entire path-to-purchase in detail, they make it better, and that it turn gives them more information to make their customer experience evermore complete and connected. Great direct-to-consumer brands create virtuous cycles around their core offering, first by limiting product choice and then making the experience the best it can possibly be.
Easy online discovery, social sharing, user-generated content, overnight delivery, lengthy return policies (like Casper’s 100-night trial) and more thoughtful approaches to maximizing visibility and customer satisfaction are all critical practices that drive DTC success. Major brands that adopt a DTC model are doing things a little differently, adapting much of the approach while taking into account their unique product strengths and variety and reengineering their responsiveness with consumers.
Consider Nike, which in mid-2017 unveiled a “Triple Double Strategy” for growth. They promised to double their cadence of innovation, double its speed to market and double its direct connections with consumers. In each case, Nike sought to enhance the speed with which it responds to customer needs in developing and delivering both products and experiences, and credits its “Nike Customer Experience” (NCX) strategy with driving its growth.
Within this strategy, Nike (1) doubled down on its highest performing, niche retailers and reduced exposure to underperformers, (2) drove more business through Nike Direct ($10.5 billion in FY2018, to be exact) and (3) enhanced their entire experience through loyalty programs, member exclusives, Nike experts, personalized workouts, priority access to events, free shipping and 30-day wear tests.
This whole approach further generates more crucial first-party data that gives insight into trends and preferences at every level of significance, further refining the offering they make to customers and creating the same virtuous cycle that pure-play DTC brands see. This has achieved 15% turnover in apparel and 25% turnover in footwear every two weeks, instead of every 30 days or more. Data-driven experiences drive more value for consumers by giving them more of what they actually want, and brands that move fast enough can see the benefits of keeping up.
Direct-to-Consumer or Customer Experience?
Traditional brands don’t need to give up, they just need to play to their advantages and enable consumers to do more of what they already love – finding the right products and services for them. In Nike’s example, while insurgent DTC brands used their product variety as an opportunity to creep in, Nike also leverages that same product variety and size as an advantage by enhancing the relevance and product variety of the experience they offer consumers.
Solutions that provide guidance, recommendations and personalized experiences ultimately empower brands to overcome the barriers of a transition to DTC. Consumers are always trying to make the best choices, and whether they have a lot or a little, every solution that simplifies their choices increases their likelihood to buy. It should always be clear what consumer a product is best for, and traditional brands are placing more emphasis on customer experience – along with solutions like Conversational AI – in order to do that and continue to grow.
Automat is a Conversational AI provider that allows brands to offer guidance, recommendations and instant, personalized responses to consumers. Contact us to learn more about what Conversational AI can do for you.