DTCs are Growing Up and Changing the Rules

The retailers, CPGs and consumers have been captivated by these companies.  The products are innovative and solve problems for customers.  Their backstories are inspiring and usually include a social mission that appeals to shoppers, particularly younger ones.  And the brand promise of offering a higher quality product at lower prices, thanks to a more efficient sales model that cuts out layers of costs, promises a compelling value proposition.

At the recent Forrester marketing conference (held in New York April 1-3), Beyond the Direct-to-Consumer Revolution, organizers posed the question:  Are we at peak DTC yet?  The answer was overwhelmingly "no."  DTC is more important to the CPG landscape than ever, but the definition is evolving as the trend grows.

Strictly speaking, a DTC brand is one that sells directly to consumers online.  Early on, they were termed disruptors and the moniker has stuck.  Casper Mattresses, Glossier and Warby Parker are among the best known, but it's quite likely that there's a DTC challenger, or 20, in every consumer product category.

And now, CPGs are changing how they view not only these challengers but even the term itself.

Legacy Brands Go DTC

An entirely new kind of retail model is emerging around the DTC phenomenon.  The term DTC is now being applied far more liberally than to just digital natives.  Well-established legacy brands are talking about going direct-to-consumers in ways that require new marketing, messaging, platforms and product development.  They are breaking away from traditional methods.

Coty's Covergirl has a stand-alone store in New York's Times Square and launched a website for DTC sales.  Fender Stratocaster, a 55-year-old brand, is solving its customer retention problems by going DTC with personalized products that have proven popular with women, the fastest-growing customer base that also dislikes the in-store experience.

McDonald's is talking about DTC in terms of how they speak to or identify customers.  It recently purchased personalization technology company  Dynamic Yield for $300 million to do just that.  The technology will help them identify what customers are interacting with beyond the McDonald's brand.  The quick-serve chain launched a mobile app just four years ago and this was the brand's first attempt to connect directly to the customer, which is how McDonald's is interpreting DTC.

Established brands are also investing in DTCs financially or creating brand incubators and innovation centers.

Data Is the DTC Currency

Data is what builds and drives DTC.  Digitally native brands are data-first.  They develop algorithms, mine customer information and leverage AI and machine learning to fine-tune marketing and develop new products.  It's also the bargaining chip, something DTCs bring to the negotiation table in partnership and acquisition talks.

Foot Locker, in February, invested $12.5 million in Rockets of Awesome, a DTC brand dealing in kids' apparel (founded by Rachel Blumenthal, spouse of Warby Parker co-founder Neil Blumenthal).  Foot Locker has been investing in startups of late, and one of the attractions is the data and technology these DTCs offer.  "A nimble environment, machine learning, data … these are all things we can share," Blumenthal said.

"DTC brands are built on the bedrock of data to create highly tailored, highly functional solutions," according to Forrester's Dipanjan Chatterjee, Vice President and Principal Analyst.  

Are DTC's reaching critical mass?  Not even close, according to industry insiders.  Investors are lining up to fund these ventures, legacy brands and large companies are investing in or acquiring them and new business models are being developed to serve and amplify the growing army of DTC brands.

"DTC will end up being a very significant part of the future," said Tim Armstrong, former AOL and Verizon Oath CEO and current founder and CEO of The DTX Company.  "There are so many companies you've never heard of.  There isn't a DTC ceiling."

There are challenges and opportunities ahead for DTCs and those that try to think like them.

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