2/2/2020 Make the Switch: A Beginner’s Guide to Direct-to-Consumer Retail

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2/2/2020 Make the Switch: A Beginner’s Guide to Direct-to-Consumer Retail

Make the Switch: A Beginner’s Guide to Direct-to-Consumer Retail

by Deb Marotta

From high-end makeup to sneakers to dog toys to designer watches, there’s a direct-to-consumer market for just about anything you can imagine,
much to shoppers’ delight. An incredible 81% of consumers said that they intend to make at least one purchase from a direct-to-consumer brand in the
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next five years. And the trend of direct-to-consumer retail isn’t reserved solely for consumer-packaged goods, either — countless manufacturers have
discovered the benefits of this highly sought-after retail model, too.

Sounds interesting, right? Read on to learn more about the direct-to-consumer model and how it’s reshaping the retail industry landscape.

Table of Contents
1. What is “Direct-to-Consumer”?
2. Why Should You Care About DTC?
3. How Customer Expectations Inform Customer Experience
4. Know Your Customer
5. DTC in Action
6. Gauge Your Success
7. Where Do I Get Started?

What Does “Direct-to-Consumer” Mean?

Direct-to-consumer (DTC or D2C) refers to a popular marketing and advertising strategy in which the seller makes a direct appeal to the customer,
eschewing traditional advertising methods, such as television spots, public displays, and radio ads, in the process. DTC essentially cuts out the middle
man. The same is true for DTC in retail.

Within the past 10 or so years, a handful of brands decided to apply the concept of DTC to retail, disrupting the industry in the process. Direct-to-
consumer retail refers to a retail model in which brand manufacturers sell their products straight to the customer — whether that’s an individual
consumer or another retailer — thereby eliminating the need for retail distributors. Up to 57% of brand manufacturers are embracing the DTC model,
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making it the fastest-growing ecommerce category.

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Why Should You Care About DTC?

The simple answer to that question is because your competitors do; the more nuanced answer is because it enables you to better understand who is
buying your products and for what purpose. The beauty of DTC is its immediacy. Rather than send your product to a retail distributor that will then
move it along the supply chain until it inevitably reaches the consumer, DTC gives you a direct line of communication with the customer, which you can
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audience.

It probably goes without saying that, although they aren’t completely down and out, traditional brand manufacturers are struggling to maintain their
foothold in an increasingly ecommerce-based world. Digitally native DTC brands such as MVMT, Allbirds, and Glossier have the advantage over legacy

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brands not only because a significant number of consumers shop online, but also because they’re better positioned to build customer relationships.
Think of it this way: If a customer were to purchase one of your products from a department store, which brand do you think that customer would have
a stronger connection to — the department store’s or yours?

By putting themselves directly in front of the customer, DTC brands have more control over their messaging and are able to act as the front line of
customer service, which allows for more targeted marketing and advertising and increases customer engagement levels. The irony here is that some
DTC brands have become so successful that they’ve opened up brick-and-mortar locations, making them even more of a threat to businesses that have
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yet to embrace omnichannel retail.

How Customer Expectations Inform Customer Experience

The average retail customer’s expectations are higher than ever before, and retailers are under immense pressure to deliver a truly exceptional
customer experience. Before we can get into how one can craft such an experience, we must first address how customer expectations have shifted in
recent years.

Customization: Consumers are no longer satisfied by generic, one-size-fits-all product offerings. Instead, they want products and services
tailored to their specific needs, interests, and situations. For example, Prose, a DTC custom hair care brand, prompts customers to answer a brief
series of questions about their hair texture and thickness, scalp condition, styling preferences, and so on. This information is then plugged into
Prose’s algorithm, which generates a unique formula for the customer’s specific hair type and concerns — according to the brand, no two
formulas are alike, with over 50 billion possible outcomes.
Convenience: From working long hours in the office to shuttling kids to sports practices to maintaining an active social life, today’s consumer is
always on the go. As a result, they’re more likely to patronize brands that offer convenient solutions to make their lives easier. Take, for example,
Dollar Shave Club. DSC is a subscription-based DTC brand that ships personal grooming products — razors, shaving gel, shampoo and
conditioner, deodorant, and more — straight to the customer’s door, sparing them the hassle of going to the store for these essentials. Even
better, DSC enables shoppers to tailor their monthly shipment according to their needs, thereby combining customization and convenience.

Meaningful Engagement: Companies with strong omnichannel engagement strategies retain an average of 89% of their customers. In the case
of direct-to-consumer retail brands, this goes beyond simply creating a consistent shopping experience across channels or providing prompt
customer service — it hinges on the consumer feeling as though what they think and say matters to the company. Warby Parker is one example
of a DTC retailer that has embraced meaningful engagement. After receiving feedback from customers about how inconvenient it is to get a new
prescription, the popular eyeglasses brand introduced an In-Store Prescription Check service to make it easier for customers to have their
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prescription updated and place their order all in one go.

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Know Your Customer

Having seen the runaway success of digitally native brands, legacy brands have made a push to get in on the DTC game — but that comes with its own
respective challenges.

One major denim manufacturer and retailer has an entire distribution dedicated to producing jeans and supplying to stores such as Target and JC
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Penney. This brand also has its own DTC department that sells its wares through company stores, outlets, and its ecommerce site.

Compared to digitally native DTC brands, which receive customer data with every order and make strategic decisions based on that data, this retailer’s
business is split: When it sells products to other retailers, it only receives merchandise sales data in return. Brands such as this denim purveyor want to
know more about their customers so they can better understand things such as brand performance, conversion rates, which products are moving fastest
off their shelves, which marketing campaigns are most likely to be successful, and so on — all without cannibalizing their other lines of business.

Although it can be challenging for legacy brands to compete with digitally native ones, there are some simple measures every retailer can take to meet
rising consumer expectations and improve their overall customer experience. When developing a DTC strategy for your business, ask yourself the
following:

Who is my target audience and what are their interests?

How can I make my customers feel more valued?

What can I do to better engage my customers?

How can we leverage our loyal customers to become brand ambassadors?

What can we learn from our customers that will result in new product features and/or product lines?

By answering — and then building a plan around — these questions, you can create an exceptional DTC-based customer experience that drives loyalty.
You can use advanced technology, such as a customer relationship management solution, to capture and analyze consumer data for more robust
customer profiling and data-driven decision-making.

If you do use technology to develop a DTC strategy, take care to prevent your customer data from becoming siloed. A single customer might interact
with your brand across multiple channels, leading data to be siloed in your ecommerce solution, your POS solution, web surveys, social media
accounts, and so on; it’s important not to mistake those interactions for interactions with multiple different customers. You can avoid this problem by
creating a single version of the truth by pulling data from those different channels and then applying machine learning to determine key retail metrics,
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such as customer churn, marketing campaign success by demographic, which customers are converting and which aren’t, product churn, and so on.

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DTC in Action
Every direct-to-consumer retail strategy requires a few basic components in order to excel, starting with an optimized webstore.

The success of any DTC brand is largely contingent upon whether it’s able to offer an exceptional customer experiences through all channels. Your
ecommerce site should be as easy to use as it is dynamic and engaging and should be exciting and experimental without straying too far outside the
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customer’s comfort zone. Ensure that every aspect of your site’s branding is consistent for a more cohesive online experience, invest in the right
ecommerce platform for seamless functionality, add plenty of photos and descriptive details so customers can visualize your products, leverage chat
bots and voice technology to reduce friction in the online experience, and look for ways to bridge the gap between online and in-person.

Once you’ve optimized your ecommerce site, the next step is to develop a direct-to-consumer marketing strategy. Similar to Warby Parker’s customer
feedback-based approach to new in-store initiatives, your marketing strategy should foster open communication between you and your target
audience, so the consumer feels as though they have agency over their experience.

This can be as simple as:

Soliciting customer feedback via an email marketing campaign

Capturing and analyzing social activity with machine learning

Combining purchase history, search history, and social sentiment to determine preferred products by demographic

Encouraging consumers to participate in product development and testing

Creating a forum that enables consumers to engage with one another

Giving the consumer multiple options to choose from regarding the style of engagement they prefer

Each response you receive is a valuable piece of customer data that you can use to inform future campaigns, as well as other strategic decisions within
your company.

From an operational standpoint, shifting to DTC requires a significant amount of restructuring, especially in your shipping and supply chain. Also, since
your company will be directly customer-facing, you’ll want to dedicate time and effort to developing a foolproof customer support and service plan.

Other suggestions to help get your DTC transition off the ground:

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Simplify your return system

Balance product-based information with other forms of content

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Use social media to your advantage

Encourage word-of-mouth advertising

Move to a subscription-based model

No one is saying DTC will be easy, but when done correctly, it’s a strategy that can pay off in dividends.

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Gauge Your Success

Once you’ve made the transition, you’ll need to find a way to determine whether your direct-to-consumer retail strategy is successful. Define key
performance indicators such as average order value, shopping cart abandonment rate, customer acquisition cost, customer lifetime value, and so on.
You’ll also need to define key operational metrics, including customer service metrics (turnaround time for customer inquiries, call abandonment rate,
etc.) and fulfillment metrics (initial order fill rate, orders shipped same day, return processing, etc.).

Where Do I Get Started?

If you intend to make the switch to DTC, the best place to start is by partnering with a capable retail solutions partner. At Hitachi Solutions, we work
with major retailers to help them better understand their customers, from their purchase history to their brand loyalty, to communicate more effectively
and drive sales. We also leverage cutting-edge technology to provide data analytics to help retailers determine whether DTC is right for them.

Considering making the move to direct to consumer retail? There’s no time like the present to get started — contact the experts at Hitachi Solutions
today!

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About the Author

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2/2/2020 Make the Switch: A Beginner’s Guide to Direct-to-Consumer Retail

Deb Marotta
The retail bug bit Deb early. Deb learned the importance of customer satisfaction and the importance of knowing what the customer wants in her first job as a sales
associate at a specialty gift store. From there Deb went on to manage several apparel stores gaining experience in managing store operations, promotions,
merchandising, and credit/collections. In 1985, Deb leveraged her store management experience to get into to computers where she managed a high volume
franchise of a leading computer retailer. Over the years Deb has moved from the day to day store management activities, to delivering solutions to retailers. Deb has
spent the last 25 + years working with organizations to implement technology solutions to improve their business. From managing the early dot com projects with the
early pioneers to working with one of the largest global retailers, Deb brings that background to her role as Retail Industry Vice President. Today she works to drive go
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to market strategies for leveraging technology to digitally transform the retailers business.

VIEW AL L POSTS BY DEB M AROTTA

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