Derek O’Carroll, CEO, Brightpearl
Retail is undergoing the most significant reinvention that we’ve ever seen. The changes unleashed by introduction of e-commerce have transformed what it means to be a brand. More recently, mobile technology and social networks have permanently altered how people shop and shaped rising consumer expectations.
These forces, coupled with the perpetual market influences of intensified competition, cost pressures, and concerns about the economy, are forcing brands to focus simultaneously on innovation and improving operational efficiencies.
With the rise of consumer platforms, brands no longer need to rely solely on their distributors to stay in business. Indeed, many are not, causing a tectonic shift in the retail and services industry: the direct-to-consumer (DTC) movement. Since it began a few years back, brands such as Dollar Shave Club, Under Armour, and Glossier have exploded onto the market, and disrupted everything from razor blades to mattresses.
This shift to DTC is being driven by savvy brands responding to shifts in buying behavior: shoppers are eager to form a close bond with the brands they like. According to a recent survey, 59 percent of respondents preferred to research what to buy directly on brand sites, and 55 percent want to buy from brands directly. This changing climate represents a massive market opportunity for brands.
DTC offers full control over the customer experience
Brands have a variety of reasons for investing in DTC e-commerce, beyond the simple desire to boost revenue. Warby Parker, Casper, Bonobos and those brands mentioned above have a competitive edge over traditional manufacturers because they remain in control of four things: customer data, customer relationship, profit margins, and the overall customer experience – from discovery to delivery.
Owning a rich brand experience from discovery to delivery is one of the most influential benefits of this wholesale shift. Selling directly to consumers allows you to become customer-centric, ultimately improving customer loyalty and customer lifetime value (CLV) for your brand.
Other benefits include the opportunity to expand into new markets, improve profit margin, and maintain complete ownership of your supply chain. Plus, you’ll have a comprehensive view of merchandising data such as fast- and slow-moving inventory, lost opportunities, and seasonal trends — thereby ensuring your business can become more adaptable and better weather today’s rapidly changing retail environment.
Those brands that have successfully made the move to DTC share some notable business qualities and traits. They are:
- Innovative and trendsetters
- Able to prioritize investment in branding and design
- Not reliant on product discounts and offers
- Always looking for better merchandising data and business insights
- Already successful at wholesale and distribution
Learn from the best: DTC best practices
Through Brightpearl’s work with numerous brands, I’ve seen first-hand what defines a successful DTC strategy. These four steps are critical:
1. Work with your retailers, don’t alienate them
Are you concerned about alienating current retail partnerships? The first thing to note here is that retailers expect this shift. They understand better than anyone how much opportunity this market brings, and given the current climate, it’s an expected shift. Furthermore, an increase in paid ad spend and brand awareness for your business is also good for retailers that stock your products. It’s a win-win!
But there are a couple of considerations to bear in mind so that these expectations don’t turn to disappointment.
First, be careful with your product pricing — don’t undercut your retailers. Some DTC brands are getting around this by segmenting their product lines between DTC and wholesale, while others are trialling product exclusivity for their largest retailers.
And second, communicate with your retailers. The first they hear about your shift to DTC shouldn’t be when they spot your products on your new e-commerce website. Engage with them and discuss your goals and ambitions — and ensure they understand that this won’t complicate your relationship with them. Keep them updated on your progress, and leverage their knowledge and advice to sharpen your strategy.
2. Embrace the power of data-driven insights
Your DTC business model needs to be customer-centric. This means you need to define a clear picture of your customer by developing a detailed persona profile. If you’ve already launched your DTC channel, then you may already have some data you can use. Otherwise, you’ll want to create a persona profile based on your ideal customer. Consider attributes such as:
- Your customer’s demographics (age, gender, location)
- Their average order value spent with you
- Their typical buying journey
- Their social media habits
- Any other preferences that may indicate what products they want to see more of and where they want to buy them
Armed with this, you can then tailor your DTC strategies to your customers’ needs. It’s also a good idea to ensure your CRM systems can allow you to record this data via unique custom fields.
Your inventory and merchandising data are just as important. You’ll be able to gather information about which products perform well with your new audience, which items don’t, and gain visibility into seasonal demand across your product lines. One of the major benefits of a DTC model is the ability to capture more merchandising data, so make sure you’re using it to your advantage.
3. Automate your order fulfillment and shipping
When operating as a wholesale and DTC business, you’ll essentially require two-speed order fulfillment. You’ll be combining the art of perfecting fewer (but larger) orders with a greater quantity of smaller orders. Each strand of your business has different requirements and operational considerations.
So how will you deliver on your promises? The DTC movement is all about making the complete buying experience fast and frictionless for your customers with efficiency and accuracy at the very core. Automation is what will get you there.
Whether it’s automating your order fulfillment, inventory updates, accounts journal creation, warehouse updates or order shipping, every step behind the ‘Buy’ button should be optimized and automated. This will enable you to not only compete in a newer, faster-paced environment, but will also free up your time to focus on building your consumer brand awareness, brand presence, and perfecting the whole consumer experience that you intend to offer.
4. Build a future-proof technology stack
Your e-commerce website, online marketplaces, brick-and-mortar stores, and wholesale arm of the business should all integrate with one another—as well as with your inventory, warehousing, financials, purchasing, supplier data, customer data, marketing, and reports—in real time. This ensures consistency across your business, as well as an up-to-date view of your business performance and DTC success.
Furthermore, your ability to provide flexible shipping and payment options that consumers now expect, such as all major credit and debit cards, PayPal, click & collect, same/next-day delivery, and even try-before-you-buy options should easily slot into place via leading integrations and API services.
Take the plunge! The water’s warm
A DTC business model presents a whole host of benefits—not least increased profit margin and control of the complete branding and customer experience. Yes, there will be some challenges you’ll see along the way when making the move DTC, but these can be easily overcome with the right technology, systems and knowledge behind you.
Brightpearl software enables retailers to manage their financials, inventory, orders, POS systems and customer data.