Trends affecting the DTC industry are increasing customer experience demands, social media acquisition, and increasing levels of competitive advantage and market share. DTC market growth drivers include consumer culture/preferences, consumer adoption, and the evolution of technology. The DTC industry is expected to grow favorably over the next five years, with a vast majority of consumers planning to make purchases from DTC brands and leading research firms projecting an annual growth rate of 18% through at least 2022. DTC brands are being challenged by weak profit margins and rising marketing costs. Leading marketing agencies that work with DTC brands include Ogilvy, BlueFocus, BBDO, DDB, and Havas Media. Lastly, media strategies currently being used by DTC brands include scoping out emerging marketing channels, balancing performance marketing with brand marketing, and relying on the use of data capturing. A deep dive into these findings has been presented below.
#1: Increasing Customer Experience Demands
- Increasingly, consumers expect more personalized shopping experiences and product recommendations. In order to provide this, DTC brand strategies require a solid understanding of their customer's needs.
- An increasing number of DTC brands are "allowing shoppers to design custom packaging, mix and match custom assortments, or participate in contests while becoming brand evangelists."
- Because DTC brands have a direct line with their customer base, they are able to capture a lot of data that can advise the creation of a more engaging customer experience.
- 61% of customers surveyed in America have said they are "willing to share more personal information with brands to support a customized shopping experience."
- According to CB Insights, Casper and Warby Parker are examples of DTC brands that are heralded for their customer experience endeavors. For example, Casper offers their customers free returns to address the common industry pain point for customers that mattress returns have long been problematic. Many of Casper's competitors have customers who complain about their return policies, many competitors refuse to accept returns on mattresses entirely, while others have return policies that cost customers hundreds of dollars.
- For Warby Parker, the most prolific pain-point among online glasses consumers was the fact that customers didn't like purchasing glasses that they couldn't try on first. To address this, the company started sending customers up to five pairs of glasses to try on at home. The company also used technology to help customers more easily acquire a new prescription, which was another common pain-point among consumers that the company identified.
#2: Social Media Customer Acquisition
- According to a study conducted by Yotpo, social media is the number one leading source of customer acquisition among DTC brands (61%).
- This method of customer acquisition is especially helpful to DTC brands during their early growth stages, as it provides a "level of exposure and credibility" that the brand may not as easily attain via other channels, such as in online marketplaces.
- DTC mattress brand, Simba, uses Facebook, Instagram and YouTube as their key marketing channels. Meanwhile, DTC contact lens brand, Waldo, relies on brand personality and storytelling to engage customers via social media.
#3: Increasing Competitive Advantage and Market Share
- DTC is gaining an increasing share of the retail market. A 2018 survey reported found that DTC competitors were the number one biggest challenge among e-commerce retailers (27%).
- One reason why this trend may be growing is due to the fact that the DTC model can be applied to "nearly any organization and market," according to DEG's Direct-to-Consumer Trend report.
- Forbes reports that DTC advertising is playing a key role in this increasing competitive advantage. A 2019 study found that the top DTC advertisers are SmileDirectClub and DoorDash.
DTC Market Growth Drivers
#1: Consumer Culture/Preferences
- According to a report by Forrester, today's customers are after convenience and seek "relatable, culturally relevant brands that specialize their products for their individual tastes and ship it directly to them," which is something that the DTC model allows for.
- According to insights published by Forrester, these current shifts in today's consumer culture will have long-term implications for brands.
#2: Consumer Adoption
- Consumers are aware of and looking to adopt DTC purchasing. In the next 5 years, 81% of consumers are planning to make a purchase from a DTC brand. Another survey found that 90% of consumers would opt to buy from a brand directly if the option were available, and 90% also said they would rather make a purchase directly on the brand's website rather than from an online retailer.
- According to Forrester, "the strongest predictor of consumer interest in DTC experiences is agreement with the statement 'I'm always willing to try out new brands.'" The number of adults in the U.S. who agree with this statement has been increasing over time (56% in 2019 up from 39% around 2009). Therefore, it can be logically implied that consumer adoption of DTC brands will continue growing in the future as long as the number of consumers who agree with this statement also continues to grow.
#3: Evolution of Technology
- In general, technology is helping to drive the DTC market by making it easier for consumers and brands to connect directly. For example, growth in DTC channel subscriptions is growing, "driven by the influx of new services, faster in-home broadband speeds, and TV-connected device adoption."
- Because DTC is a digitally-driven business model, "developing technologies stand to play a large role in the future landscape." Some industry experts predict that DTC companies in the near future will be working to enhance the consumer experience via the use of voice recognition, virtual reality, programmatic commerce, and artificial intelligence.
Projected Growth of DTC Brands
- According to insights from Forrester, "online spend by DTC enthusiasts will grow at a compound annual rate of 18% from 2018 to 2022."
- According to insights published by Walter Loeb, senior retail analyst at Morgan Stanley, the DTC segment is growing very quickly.
- According to IBISWorld, the direct selling industry in the U.S. grew at a rate of 2.4% between 2014 and 2019.
- The DTC e-commerce market is projected to experience an annual growth rate of 25% through 2025.
- Between 2018 and 2022, 5% of U.S. consumers expect to make 80-100% of their purchases from DTC brands, while 13% expect to make 60-79% of their purchases via DTC brands, 22% expect to make 40-59% of their purchases from DTC brands, 36% expect to make 1-19% of their purchases from DTC brands, and 24% expect to make 20-39% of their purchases from DTC brands.
- A growing number of traditional brands are switching to DTC selling. Many manufacturers are using DTC sales to supplement "stagnant in-store sales growth."
DTC Brand Challenges
- Poor Profits: According to a recently published article in Forbes, many DTC e-commerce brands "struggled to turn a profit" in 2019, "especially with the rising cost of acquisition and Amazon knock-offs starting to pillage DTC customers." Meanwhile, DTC brands have been spending high on marketing. As a result, DTC brands in 2020 will likely be under pressure to turn a profit and will reign in spending.
- Marketing Costs: In 2019, 78% of DTC brands reported an increase in their marketing budget. Meanwhile, Facebook and Google both been raising their advertising services prices over time, making them too cost-prohibitive for some DTCs.
Marketing Agencies Working With DTC Brands
*All the agencies listed below are among the largest in the world, according to Agency Spotter.
- Location: Offices globally, headquartered in New York, NY.
- Contact Information: Nina Jasinski — email@example.com
- Marketing Services Provided: Ogilvy "provides a comprehensive range of marketing services, including brand identity, brand entertainment, crisis and issues management, creative design, customer analytics, CRM, SEO, loyalty marketing, media relations, strategic planning, sales acceleration, viral marketing, and more."
- DTC Brand Client: Samsung.
#2: BlueFocus Group
- Location: Global company, headquartered in Mountain View, CA and Beijing, China.
- Contact Information: firstname.lastname@example.org
- Marketing Services Provided: BlueFocus "provides a wide spectrum of marketing and brand management services across disciplines of strategy, digital, advertising, media, social, PR, design, branding, CRM, data, e-commerce and mobile solutions."
- DTC Brand Clients: Lenovo and Samsung.
- Location: New York, New York.
- Contact Information: BusinessDevelopment@bbdo.com
- Marketing Services Provided: This company provides marketing and advertising services in the realm of "brand management, interactive marketing, direct marketing, and campaign strategy, and design services."
- DTC Brand Client: Thinx and AirBnB.
- Location: New York, NY
- Contact Information: 1-212-415-2000 or via contact form.
- Marketing Services Provided: DDB provides marketing services related to "brand building and consulting, campaign planning and management, and effectiveness measurement services in addition to creative ad development."
- DTC Brand Client: Cia Marítima, PlayStation, and Samsung.
#5: Havas Media
- Location: New York, NY.
- Contact Information: 1-646-587-5000 or email@example.com
- Marketing Services Provided: This company provides marketing and advertising services related to "digital, data, mobile, content marketing, sports and experiential."
- DTC Brand Clients: Disney, LaCoste, Puma, and Swarovski.
DTC Marketing Strategies
#1: Scoping Out Emerging Marketing Channels
- Major digital marketing channels such as Facebook and Google have been raising their advertising service prices, making them more cost-prohibitive for may DTC brands. As a result, DTC brands have been scoping out emerging marketing channels such as Snapchat, TikTok and AirBnB, while also "starting to repurpose old marketing channels like television and direct mail," according to Forbes.
- This strategy is seen as successful because "DTC brands are always looking for other channels to acquire customers that [have] a lower cost per acquisition," according to CEO of Homestead Co. digital agency, Zach Stuck.
- DTC fitness brand, Gymshark, uses TikTok as a marketing channel. They rely on a network of TikTok influencers which collectively reach tens of millions of followers. One such campaign Gymshark ran resulted in nearly 2 million likes, was viewed 45.5 million times, and had an engagement rate of 11.1%.
#2: Finding the Right Performance/Brand Marketing Split
- In recent years, marketers began investing more in performance marketing due to the fact that it was more easy to measure than brand marketing. However, marketers eventually came to the conclusion that there needed to be the right brand-performance marketing mix, because performance marketing is less effective when brand marketing is overlooked.
- DTC brand, Adidas, originally shifted their marketing spend to be performance heavy: 23% brand : 77% performance. However, the company eventually realized that brand marketing activity was driving 65% of their sales across all channels. Therefore, the company decided to move to a 60:40 brand-to-performance mix.
#3: Data Capturing
- The need for DTC brands to acquire customer data is important as they rely on this data to drive decisions which help their brands become more 'consumer-centric.' Acquiring customer data for themselves frees DTC brands from needing to rely on third-parties, such as retailers, for insights on purchasing and customer behavior.