What is direct-to-consumer (DTC) marketing?
Direct-to-consumer (DTC) marketing is a business model defined by direct transaction channels and customer engagement that lead directly to the consumer or customer. Called DTC marketing or D2C for short, it’s become more important than ever due to the way it has fundamentally changed the customer experience and marketplace for brands.
As eMarketer forecasted, DTC sales are expected to reach $17.75 billion by the end of 2020.
Direct-to-consumer companies mainly distribute their products directly to buyers without relying on intermediaries like traditional stores or other distribution channels. This allows DTC companies to sell products and services at lower costs than traditional brands. And it also allows them to maintain end-to-end control over the making, marketing and distribution of products.
Unlike their more traditional competitors, these D2C brands can also experiment with distribution models, from shipping directly to consumers, offering subscriptions, partnerships with physical retailers and opening pop-up shops.
DTC marketing is usually associated with disruptive retail brands. But many brands in a growing number of industries, and even those with a business-to-business (B2B) model, are experimenting with DTC marketing channels to engage more directly with consumers and customers.
How does DTC marketing work?
DTC marketing encompasses many areas, including efforts to build brand awareness, content marketing, growth marketing and performance marketing. These are all enabled by direct customer channels and direct customer engagement.
Direct-to-consumer marketing heavily relies on digital platforms including social media and digital advertising, but may also use mediums outside of pure digital, including print, out-of-home, TV, radio, etc. to interact directly with the target consumer or customer. Sometimes, these messages offer relevant content. Other times, they are designed to trigger the consumer to make a purchase.
DTC marketing priorities are based on performance and growth marketing tactics, including customer acquisition, customer retention, product merchandising, content marketing, social media, and paid/owned/earned media. Tracking and capturing data across these efforts are done digitally. Companies measure it by analyzing customer acquisition cost (CAC) and lifetime value (LTV / CLTV).
In the pharmaceutical industry, D2C marketing plays a very different role. There is no direct route between consumers and prescription medications, so doctors are intermediaries. Though controversial, ads that encourage consumers to “ask your doctor” have been proven to boost prescription drug sales. Pharma companies spend about $6 billion on such ads a year.
How does DTC marketing result in growth and digital transformation?
The DTC model has disrupted business by opening up direct-to-consumer channels for intrinsic customer engagement with brands. The best ones are powered not just by sales, but by growing commerce with meaningful content and a community of other users. These three come together to create a powerful flywheel effect.
This personalized relationship with people has shifted expectations about brands. They expect more in terms of products, customer service and brand purpose. The approach has also transformed businesses with growth opportunities by arming them with direct and immediate consumer data, communication and channels.
How brand plays a role in DTC
A company’s brand plays a unique role in direct-to-consumer companies and should guide marketing efforts. Depending on the relationship with the consumer or customer, multiple campaigns are sometimes necessary. For example, the types of marketing that will resonate with an intermediary, such as a retailer, may differ from what will resonate with the end-user or consumer. To drive growth, companies must align the brand positioning, DTC marketing and target consumer/customer, even among these individual efforts.
Benefits of a DTC marketing strategy
Companies with strong direct-to-consumer channels have some significant advantages over those that don’t. They typically have much more customer data and can mine it for insights. Because they are often digital by nature, DTC companies have testing agility that traditional companies don’t. They can apply growth marketing tactics of constant experimenting and testing to deliver refined results. Often, they experiment with many offers simultaneously. All this information, combined with constant conversations with customers, makes them more flexible. They can make decisions immediately, shifting direction and budgets quickly.
Common DTC marketing challenges
These companies also face unique challenges. Often, they struggle to acquire consumers/customers in a financially sustainable way, requiring outside funding to power growth efforts. And since many start with only a few products, such as mattresses, razors or shoes, they have difficulty positioning themselves against new entrants in the space. They often fail to optimize multi-channel marketing approaches or take advantage of the breadth of digital customer engagement approaches. And when there are significant shifts in customer expectations, it can be especially hard for D2C companies to remain relevant.
Redefining how B2B / B2B2C companies directly engage with customers
By optimizing direct channels, business-to-business companies can achieve many of the benefits of the DTC model while driving insights and exceptional growth.
There are two different approaches to DTC Innovation:
B2B/B2C Innovating in Full DTC Model:
Some companies have used this approach to increase revenues, grow market share and build a stronger relationship with business partners. To begin, start by asking:
- How can we play to win with a DTC model?
- How do we position ourselves for executive and board-level investment and buy-in?
- What is our go-to-market strategy and plan?
- How do we build an operational and organizational model to support the new business?
B2B/B2C Innovating with DTC Principles and Tactics
Other businesses do better by adopting a few approaches from DTC playbooks, adjusting them to suit specific market needs. Start by asking:
- How do we experiment with DTC principles without transforming our business model?
- How do we build a customer relationship and engage with customers on direct channels, without disrupting our existing sales channels?
- How can we build a DTC offering in parallel with the legacy business?
Examples of successful DTC marketing strategies
Wondering whose lead to follow in the DTC space? Take a look at these brands that have excelled at DTC marketing:
Apparel: Adidas, Allbirds, Everlane, MeUndies, Nike, Stitch Fix
How Prophet’s DTC consulting services can support your strategy
Prophet’s strong DTC background can provide:
- Experience, mindset and DTC tactics customized for our transforming clients
- Innovation framework for DTC launches
- Customer-centric brand growth strategies
- Evolving DTC marketplace intelligence
Prophet has done this type of DTC work with MeUndies, Canoo, MB Bank, Ava, Express Scripts, and many others. Learn more about Prophet’s DTC offering and contact DTC Practice lead Eunice Shin directly for more information.