Direct to consumer: Everything to know as a luxury marketerBy Yahong Zhang |
Table of contents
What is direct to consumer?
Direct to consumer, also known as DTC or D2C, is an eCommerce strategy which enables manufacturers and brands to sell directly to consumers, without passing through the reseller or retailer.
In traditional commerce, manufacturers have a B2B approach, where the flow goes wholesalers-distributors-retailers-consumers. In the DTC model, the manufacturer uses its own channels - website, social media -, as well as advertising and marketing techniques to communicate directly to the consumers and sell their products without intermediaries.
Of course, the existence of direct-to-consumer marketing tactics doesn’t mean that traditional retail is completely excluded from the equation. The two may very well coexist, serving business needs for the manufacturer and selling its products to a wider audience segment.
Direct to consumer has outperformed other channels during the pandemic
In the past years, as more and more companies decided to sell their products through slef owned and operated digital channels, D2C appears to be an excellent tool, worth taking into account.
Still, it was in 2020, during the COVID-19 crisis, that the model proved how beneficial it could be.
The pandemic closed factories in Asia and Europe and made brands cancel orders because of uncertainty, thus disrupting supply chains. Retail Excellence, the Irish industry group with over 2,000 members, advised in December 2020 that independent stores might have difficulty sourcing stock, as brands needed to rationize their production and direct it to their own channels and retail networks.
In this context, direct-to-consumer became the easiest, most-effective solution to access a certain brand’s products and has outperformed other channels during the pandemic.
The US direct to consumer market is leading the way
According to eMarketer, direct-to-consumer eCommerce sales are growing steadily in the US. YoY increase in 2020 was positioned at 45.5%, generating $111.54 billion, which represented 14% of total retail sales. By 2023, the US DTC market is expected to reach almost $175 billion. In the meanwhile, sales of digitally-native D2C brands would reach $17.75 billion in 2020.
As Deloitte reports, the product categories that are most popular in the American DTC landscape are women’s clothing (54%), footwear (17%) and accessories (7%).
Moreover, according to the 2020 Direct-to-Consumer Purchase Intent index issued by Diffusion, 25% of US consumers make about 20% of their purchases from direct-to-consumer brands, while almost 3% mentioned that they will be buying exclusively from DTC brands in the next few years.
Profitwell mentions that 77% of apparel and accessory companies function based on a direct-to-consumer model, with names like Nike leading by example. Actually, the shoes and apparel company makes almost a third of its sales through DTC channels, registering $12.38 billion in 2020, says Statista.
The US DTC market is so attractive to companies that Chinese brands have started targeting it and directing their efforts towards selling in America as well. Deloitte showcases that Chinese brands are interested in approaching this mature market with business models that cut intermediaries costs.
But the road isn’t a one-way street, international companies are also targeting Chinese consumers and developing direct-to-consumer sales channels. Brands like Michael Kors, Louis Vuitton and Nike are selling through platforms like WeChat and Weibo. They are also developing company-operated websites to create direct relationships with audiences, focusing both on marketing and communications and on sales and distribution.
Native direct to consumer marketing vs. traditional business models
When it comes to direct-to-consumer brands, there are two significant categories that behave differently across the retail ecosystems and operate according to different values and tactics.
Firstly, there are the digitally native direct-to-consumer companies, which are born online and act as retail disruptors, since they are changing the way retail companies approach and engage with consumers.
These brands focus on building strong, direct relationships and sizable social communities, even before releasing their products for sale. They rely very much on social media, employing channels that enable them to connect with young, affluent Millennials and Generation Z members.
While some direct-to-consumer brands might not be perceived as luxury brands, given their experience, production models and pricing, they still manage to create hype around themselves and take a relevant portion of the luxury market.
Examples of companies that have mastered the DTC business model include names like Brooklinen, a Brooklyn-based company that sells luxury bed linens. It first appeared as a Kickstarter idea in April 2014, raising $237,000 in pre-orders and attracting 1,733 supporters.
Following the success of digitally-native D2C brands, heritage houses also started showing an interest in selling directly to consumers. Especially since the COVID-19 crisis started, foot traffic has declined in stores and the need to approach audiences in a more personal, direct manner appeared.
Still, this type of business model gets heritage brands out of their comfort zones, as it appeals to different values than the ones on which they base their strategies.
Having a traditional luxury maison adjust its vision, digitalize and connect to audiences from behind a screen, without offering the white-glove attentive service that made this industry so strong and respected is a shift in perception that few know how to make.
Luxury desirability is very emotional. It requires shoppers to fall in love with not only the product, but also its story, the store experience, the attention to details and brand’s attitude.
This is why shifting from a traditional business model to a digital one is bound to be a transformational process which redefines the core of a company. The process goes beyond changing perception and has a practical side to it, as it requires reconsidering how supply chains function.
In order to benefit from know-how and expertise in this area, VF, the parent company of Vans, North Face and Timberlands, announced the acquisition of Supreme late 2020, a brand which has made a name for itself with its D2C strategy. The company wants to use the Supreme supply chain model as a best practice to configure the sales channels for the rest of the group.
Benefits of direct to consumer retail
When considering direct to consumer retail, the main benefit that springs to mind is the financial one, as cutting intermediaries is associated with higher margins. Given the extra profitability layer, companies afford to offer consumers better prices.
Research actually shows that cost is a leading reason why consumers choose DTC over traditional retail, with 48% of respondents mentioning it.
Another important reason for shopping on D2C platforms is related to fast, free shipping and easy returns (43%). In fact, as the supply chains get shorter in the direct to consumer models, the chances of delivering smooth, efficient customer experience increase and delays are minimized.
Moreover, direct to consumer approaches ensure that brands have complete autonomy in deciding how their products are presented. In-store placement is crucial for a product’s success.
A leading UK manufacturer found that, when placed on shelf at optimal eye levels, products had a 23% higher chance of being sold, compared to when placed on lower shelves. Direct to consumer brands have the flexibility to place products depending on their priorities, thus benefiting from more control over what gets presented to audiences.
Developing D2C business models is a tactic that has proved beneficial for retail brands, not just because of the direct financial advantages. Indirect perks include controlling the user experience from start to finish, from the website or store experience to delivering the product and post-purchase strategy. This enables companies to have a direct impact on how consumers perceive them, leaving less influence to third parties.
By communicating directly with consumers through their sales channels, as well as by selling products directly and obtaining feedback, direct to consumer brands gather more intelligence about their consumers, thus mastering data that they may use to upgrade their strategies and adjust their products and services in real-time. This is one of the most valuable sources of intelligence that companies have.
Types of DTC retail channels
When considering direct to consumers channels, the first platforms that come to our minds are e-commerce websites and apps, as well as brick-and-mortar stores. These have become particularly popular in today’s ecosystems, where companies like Gucci, Balenciaga, and Guerlain are selling their products directly to audiences.
Still, the present environment and the extremely developed social media landscape has led to the creation of new sales channels that brands may operate directly, such as Facebook and Instagram stores, WeChat mini-programs, Weibo accounts etc.
Tips to make DTC marketing work for your luxury brand
Offering 3D product configuration
Source: Guerlain Rouge G 3D lipstick configurator in cooperation with Hapticmedia.
The Deloitte report showcases that favorable product design is the top reason that determines consumers to place an order online, with 67% of survey respondents mentioning it as their primary factor. What they expect is to benefit from unique designs, quality materials and textures, as well as from customization.
Offering 3D configuration contributes to driving conversions, as well as bridging the gap between brands and consumers. Co-creation of products helps build connections and increases the emotional appeal of the purchase.
At Hapticmedia, we have created 3D product configurators for brands like Guerlain, Kenzo, Puma and Baume, enabling consumers to create their unique, signature pieces.
Detailed product descriptions
Nowadays, consumers desire transparent brands that set reasonable expectations and that feel sincere. When shopping online, netizens want information to be expressed in user-friendly formats and sizes, photos to be clear and professional, to showcase the products’ details, textures, fabrics etc. Having the necessary information to make a choice is a great pillar of customer satisfaction.
As a Salsify survey quoted by Deloitte shows, 69% of US consumers have given up a purchase because of insufficient information and product details at least once. This is why DTC brands make it their purpose to create clear, comprehensive product pages.
In this context, photos are given significant importance and, sometimes, 3D visualization becomes the most cost and time-effective solution to show how an item looks. Product photo shoots are substituted for 3D renderings that enable designers to change packaging and product shades, thus offering consumers the possibility to visualize each version of their product.
Guerlain, for example, uses 3D visualization made by Hapticmedia to present its icon Rouge lipsticks, thus enabling e-shoppers to analyze each shade available and make an inspired decision regarding their choice.
A DXC Technology survey showcases that 66% of consumers rely on reviews to make purchase decisions, thus proving that word-of-mouth and feedback are relevant even outside the close circle of friends and family.
Educated shoppers research their products before buying and want to know how similar people interacted with them, what their feedback was and if they would recommend the purchase.
Including product ratings and reviews to a direct-to-consumer platform is an excellent way of driving conversions and offering consumers the extra boost they need to complete a purchase.
Free shipping and returns
Shipping and return policies are not only a key driver for first-time purchases, but also one for repetitive acquisitions. When asked “Which of the following factors will make you purchase on the brand’s website again?”, 30% of respondents focused on services like delivery, returns and exchanges.
Free returns are mandatory in the eyes of today’s modern consumers, as over half of a Radial survey respondents confirmed they would not make a purchase on a website that didn’t offer the option.
The quality of the delivery and return experience, as well as the commercial terms are aspects that direct to consumer websites need to manage flawlessly.
Personalization and engraving
Accessories brands focus on direct-to-consumer retail models, because it enables them to position themselves and showcase their differentiators.
Especially jewelry pieces, for example, come with significant emotional value, as they are usually symbols of love and appreciation, as well as of life milestones. Successful luxury brands that sell through their own platforms offer not only customization, enabling consumers to choose the materials and stones of their pieces, but also engraving, allowing them to see how their initials and messages would look.
Adding engraving to your brand’s D2C platform increases not only conversions, but also the connection between brand and shoppers, making the company part of a consumer story that generates word-of-mouth and user-generated content.
Contact us: customization, visualization, engraving
Hapticmedia has over 15 years of expertise in immersive technologies including 3D visualization, customization and configuration, engraving, Augmented Reality, Virtual Try On, and is supported and covered by LVMH, Forbes, Les Echos, Le Point, BFMTV. Check here to see our client projects with Gerlain, Kenzo, Baume & Mercier, Baccarat, Edenly or contact us now to see the visible improvement we will bring to you.
Contact Hapticmedia now to see our successful user cases and the visible improvement we have brought to our clients. You will be amazed.