While high street retail dwindles, DTC is the master stroke of ecommerce brands. But what are the key ingredients for its success? Find out with Michael Brennan
Today every brand wants to develop a direct relationship with consumers.
And with 16 high street shops reportedly closing down per day in the first half of 2019, the buzz around retail transformation is intensifying.
All too often, these shifts in consumer behaviour are exclusively attributed to the growth of ecommerce. According to the Office for National Statistics, online sales increased from 5.7% of UK retail sales in May 2009 to 18.7% in May 2019 – and it touched 20% this summer.
Smartphones, big tech and ecommerce
Since the iPhone arrived in the UK in late 2007, we can clearly see the relationship between smartphone adoption and ecommerce growth. There’s also the growth of social networks. Instagram launched in 2010, sold to Facebook in 2012, and introduced direct social commerce capabilities in 2019.
Amazon is, of course, central to the ecommerce phenomenon. As many as 90% of UK shoppers now use the platform, including 40% who sign up to its Prime service, and the online retail giant accounts for up to a third of UK consumer ecommerce spending. For many of us, Amazon provided our first ecommerce experience and it continues to set the global standard for pricing, inventory and convenience. Yet today Amazon is testing its own brick and mortar propositions – from books to groceries – while abandoning the press-to-order ‘Dash’ button.
How different is Amazon?
Thinking of retail transformation and the rise of direct-to-consumer propositions, we need to ask ourselves just how different Amazon really is. Its success has surely been built on the same principles that apply to a good grocery or department store – everything you need from multiple brands (and own-brand) across categories, in one place. So by virtue of being a first-mover, Amazon was able to leverage existing retail behaviours and expectations, and take them to new levels with incredible execution.
The result is that all businesses, not just retailers, are judged by the standards set by Amazon and developed by the likes of Netflix. Consumers have internalized this suite of expectations so quickly that researchers and commentators talk of post-digital consumers – even as so many businesses remain ante-digital.
Now that traditional, ‘one-stop-shop’ retail paradigm has effectively broken down, with supermarkets, department stores and shopping malls under threat as never before. Manufacturers and brands are looking for new routes to market that meet today’s consumer expectations.
Enter the direct subscription model
A headline example of this trend is the Unilever acquistion of Dollar Shave Club for a reported $1bn back in 2016. Today the formerly dominant Gillette brand (owned by Unilever nemesis Procter & Gamble) has seen its market share dip from around 70% to circa 50% in the face of competition from Dollar Shave Club and Harry’s, to name but two. (For an excellent analysis of the grooming market see here).
It seems there’s a big appetite for the direct subscription model exemplified by Dollar Shave Club. Research suggests 69% of UK consumers are interested in buying everyday items such as cosmetics, cleaning products and health supplements in this way. Crucially, it highlights the importance of a hook for consumers – in this case sustainability.
An authentic, differentiating narrative is central to the DTC concept, as is the quality of the customer experience for consumer engagement and business success. The intelligent capture and deployment of consumer data enables both elements to work in tandem, and includes communications engagement, advertising response, site analytics, social conversations, enquiries and orders.
Recommendation engines are powerful
Back in the summer of 2017, the Harvard Business Review reported that ‘Great digital companies build great recommendation engines’, going on to argue that ‘making recommendations an organising principle for digital design differentiates leaders from laggards’. At Profusion, we strongly agree that a good recommendation engine should be about more than driving short-term sales. It should be understood as a dynamic source of continually improving customer insight.
“So far, so Amazon,” you might say. After all, a reported 35% of its revenue from 12 million products is driven by recommendations. Post-purchase email recommendations apparently outperform on-site ones. Meanwhile on Netflix, recommendations drive 75% of viewing choices and save the business $1 billion by reducing customer churn.
The key elements of direct to consumer success
Are we starting to see the ingredients for DTC success? They certainly include:
- A clear proposition and value set
- Strong, compelling, personalised communications
- Customer data capture and analytics
- Outstanding customer experience
- Effective recommendation engines.
If we look at the performance of the award-winning omnichannel retailer Screwfix, we can see the strength of its proposition, the quality of its customer communications, its use of recommendations and focus on mobile. It also leverages its burgeoning store network to support the customer experience – specifically the one-hour ‘click and collect’ service – while integrating all channels to the best effect.
Screwfix is an outstanding example of a legacy retailer embracing the new retail paradigm and building a model and service ideally suited to its audience. The proof is in the results, with record and increasing revenues. Its new high street store formats represent a hybrid retail experience that many businesses could learn from. Take a look next time you spot one.
How suitable is DTC for all products and brands?
At one time, we accepted that certain categories of product were low interest, distress, or otherwise unwelcome purchases. But today there appears to be no such barriers to inviting consumers to engage with us online and join a community of fellow users. In practice, the first questions for any business exploring the DTC model should be this: How does it add value, solve a problem, or meet a need not addressed through existing channels?
So there’s a whistle-stop look at the DTC market. While I’ve somehow managed to avoid mentioning Kylie Jenner and the role of Instagram in this new paradigm, I would highly recommend delving into the world of Shopify. It’s the platform behind so many DTC propositions, and is arguably the Amazon of the direct retail model.
Like this? For more of Michael Brennan’s insights, go to:
- Let’s empower children of the data age
- GDPR – 12 months on
- Digital inclusion and disability – a growing market
- Unlock the door to Gen Z