The direct-to-consumer (DTC) trend, also known as disintermediation, essentially means bypassing traditional intermediaries in the supply chain – including retailers, wholesalers, distributors, and advertisers – to connect directly with the end consumer. With 81 percent of consumers in the US saying they planned to buy from a DTC brand by 2023, it’s clear that DTC represents a significant business opportunity for organizations – and poses a very real threat for traditional intermediary businesses.
Why is this trend so potent, and why now?
In a word, online. If you think about it, DTC channels are nothing new. For years, farmers have sold their wares directly to customers at farmers' markets while also partnering with supermarkets. But as customers increasingly head online for everyday interactions and transactions (for everything from groceries to flights), it's become easier than ever to connect directly with them – and thereby cut out the middlemen retailers and other organizations who have traditionally facilitated the customer journey.
Now, we're seeing a wave of new businesses that are eliminating the middlemen altogether, such as the Dollar Shave Club, which provides shaving products directly to consumers on a monthly subscription model. But we’re also seeing established brands such as Nike work hard to cultivate direct relationships with consumers.
What are the pros and cons of going direct to the consumer?
There are a number of reasons to jump on board with the DTC trend, including:
- There’s no need to negotiate with powerful third-party intermediaries, such as chain supermarkets and department stores. For startups, trying to get a foot in the door with big retailers can be a significant barrier to entry.
- You have total control over your brand image and the customer experience (as opposed to selling through retailers, where you may have little control over how your product is presented and sold).
- Costs, in some areas, are reduced, potentially allowing you to price more aggressively.
- You get more of the profit since there are no middlemen taking a cut.
- And you build a better understanding of customers because, when you sell direct, you can gather valuable customer data.
There are advantages for the customer, as well. For instance, they get to enjoy a more personal, meaningful connection with the brands they love while also bypassing the baffling array of choices that big middlemen retailers often present.
So far, so good. But exploring a DTC strategy does pose some challenges for organizations:
- It can add to some business costs, such as marketing and distribution.
- It requires a strong, authentic brand.
- It requires a digital-first mindset and a strong online presence.
- Plus, it runs the risk of sometimes alienating long-standing relationships with middlemen channels.
All things considered, the right way forward for many organizations may be to strike a balance and invest in DTC routes while still keeping existing partnerships with middlemen alive.
New and old brands are going DTC
Let's look at mattresses as an example. Buying a mattress used to involve going to a mattress store or a home retailer like IKEA and trying out multiple different mattresses. The kids would be bored stiff, while you and your significant other would be struggling to remember which mattress was which. Was it the second one you liked the best, or the 20th? Having finally decided, you then discover it’s out of stock for the next eight weeks…
But soon, mattress shops could be consigned to the history books as new mattress brands spring up (pardon the pun) that sell direct to consumers. In 2019, 45 percent of mattresses sold were purchased online, with 12 percent of those coming from DTC brands – and this will only increase. Eve Sleep is one such DTC mattress brand. Formed in 2015 with the goal of making buying a mattress as easy as ordering a taxi, Eve Sleep offers multiple different mattresses delivered to your door with a 100-night at-home trial. The company is doing so well; it has since branched out into selling a whole range of sleep-related products, such as sheets, duvets, and bed frames.
Eve Sleep may have been built from the ground up with DTC in mind, but what about established brands that have traditionally sold through intermediaries? Many of these brands are also pivoting to a DTC model. Nike, for example, has drastically upped its e-commerce game, and, in 2020, DTC sales at Nike accounted for 33 percent of revenues. That compared to 13 percent a decade ago. In other words, DTC hasn’t been an overnight success at Nike, rather a steady and ongoing push – but one that’s clearly paying off. So if you only take one lesson away from this article, it should be this: start exploring a DTC strategy now. Building those DTC connections can take time, even for big brands like Nike.
What if you’re an intermediary business?
If I were a leader in an intermediary organization, such as a retailer or even a bank, I’d be paying very close attention to this trend. Such intermediaries – who have been quite powerful in the past – will increasingly be pushed out of the equation. Therefore, middlemen companies of all shapes and sizes must start to ask themselves, "What value are we offering for customers? Is this enough for them to stick with us? Will customers skip us altogether in the future?"