Why direct-to-consumer depends on digital transformation: Key brand examples

Stay-at-home rules, imposed during the global Covid-19 pandemic, have put digitalisation into turbo drive. According to McKinsey and Company, the growth in the USA’s e-commerce in the first six months of 2020 equalled that of the previous decade.

The accelerated adoption of eCommerce has introduced existential threats for many traditional retailers, while creating fresh opportunities for brands that are comfortable with using digital channels to develop a personalised relationship with their customers.

What’s driving DTC?

As the name suggests, direct-to-consumer (DTC) describes the sales model whereby creators sell directly to consumers, bypassing third-party retailers, wholesalers, or any other ‘middlemen’.

DTC offers a win-win situation to both brands and consumers. Brands thrive by directly engaging with their customers, reducing costs, and experimenting with operating models. Consumers stand to gain more value and satisfaction, through brand loyalty programmes which offer discounts, and frictionless sales processes, such as the ability to purchase directly from social media posts. Tailored promotions, based on previous purchases, encourage additional sales, while delivering more data back to brands, which increases the opportunity to personalise future offers.

Why consumers want to buy direct

Many DTC brands are founded with a mission, such as supporting environmental sustainability, which particularly appeals to Generation Z and Millennial consumers. An example of this is the DTC toilet paper brand, ‘Who Gives a Crap’, which uses recycled paper and pledges 50% of its profits to Water Aid to help to improve sanitation and reduce disease in the developing world.

Like many DTC brands, this brand operates on a subscription-based model, which provides convenience to the customer, and repeat revenue to the brand. Dollar Shave Club was founded on this principle: offering customers the value add that they would never run out of razors, without having to remember to purchase them. Meanwhile, Gillette, offers DTC subscribers their first razor kit free, to foster loyalty.

In some instances, even though they could get a similar product cheaper from traditional retailers, consumers are willing to pay more for the convenience, personalisation, ethical values, and premium experience offered by buying directly from the brand.

Even prior to the pandemic, traditional brick and mortar outlets were suffering an onslaught from eCommerce giants such as Amazon. During 2020, several household names were forced into administration, including Debenhams, Arcadia, Laura Ashley, Jaegar, Warehouse Oasis, DW Sports and Edinburgh Woollen Mill.

Omnichannel customer experience

The pandemic has established an urgent need for established brands to start selling directly to consumers. A well-designed DTC Model is pivotal in transforming how we sell and market brands today. This is now the ‘new normal’ for the leading brand organisations across the world.

For brands to continue to grow their revenue and sustain their consumers beyond the pandemic, they must deliver relevant, impactful, and cohesive experiences across all digital touchpoints and not just their eCommerce websites.

Managing customer lifetime value (CLV) is critical for DTC profitability. McKinsey advises that CLV should be roughly twice the customer acquisition cost. Staying engaged with consumers is crucial. Therefore, a true omnichannel DTC strategy is fundamental for enabling consumers to engage with the brand and have a consistent experience across multiple channels simultaneously:

Enhancing CX through community: Community-building is the bedrock of successful brands today. It costs approximately five times more to acquire a new customer than to retain an existing customer, therefore nurturing relationships and encouraging community engagement is more likely to increase the customer lifetime value (CLV).

Personalised CX: Valuable first-party data can be captured when brands engage directly with consumers. Insights gained from this data can drive engagement across all channels, including retail outlets, to create more shelf space and visibility. New audiences can be identified through community engagement and sales converted because of personalised messaging. End to end consumer journeys can be framed within a personalised context.

Which brands are getting it right? In its ‘Digital Go to Market Review’, Forrester highlights All-Clad, Breville, De’Longhi, Dyson, Instant Pot, KitchenAid, Nespresso, Simplehuman, Weber, and YETI as ten brands that are ‘best in class’ for DTC. The list is not exhaustive, and many others are successfully and profitably implementing the DTC model.

Which technologies are driving DTC? As brands evolve from simply making their websites transactional to providing consumers with a unified commerce experience, technology solutions are having to be adapted from monolithic commerce application platforms to modular platforms built from several discrete capabilities. Digitally mature organisations such as Lego Group, DFDS, and The Spectator are already adopting a ‘Composable Commerce’ approach to building their next generation digital commerce platforms.

Evolving at MACH speed

The MACH Alliance is an emerging ecosystem of modular, best-of-class application vendors. The term MACH was inspired by the high speed at which software ecosystems must serve today’s enterprise customers.  The MACH acronym describes composable commerce built upon four modern technology principles: Microservices, API connectivity, Cloud-nativity, and a Headless infrastructure, which separates the backend and front end of an ecommerce application to allow brands to rapidly make changes that enhance the customer experience.

By placing MACH architecture at the core of their operations, brands can gain the agility of modern commerce platforms, without the need for significant investment in Amazon grade in-house technical infrastructure. Historically, most brands have gone through an expensive process of re-platforming. They would gladly adopt an approach that would help avoid those impediments.

MACH technology vendors provide offerings serving key areas such as core commerce, content, presentation layer, and search. A few of these, such as commercetools, Amplience, Contentstack and Algolia, are well ahead on the context of enterprise maturity, while others are catching up.

Key components for composable commerce

Depending on specific use cases, a composable commerce ecosystem for a brand could consist of several pluggable solution blocks.  Regardless, it is important to ensure that the architecture is built with the underlying principles of sustainable agility, scalability, and speed.

At the very least, a DTC solution needs headless commerce and content management systems that are brought together in the loosely connected head or the presentation layer.

Core commerce: Like the traditional monolithic commerce platforms, modern headless commerce platforms provide packaged commerce capabilities such as product catalogue, pricing and inventory, discounts and promotions, customer record management, and order management. Unlike the traditional platforms, these modern SaaS platforms are built from the ground up for elastic scalability, speed, version-less upgrades, API pluggability and multi-tenancy. Such systems can support numerous brands and channels at a global level with exceptional ease and consistency.

Ensuring excellent experience: The experience-driven approach to attracting consumers requires engaging content that is functional as well as fun and exciting.  Smooth checkout journeys supported by informational content must be routinely available. However, this does not deliver the ‘wow’ factor and hence is not enough to prevent consumers heading elsewhere. To differentiate from competitors, brands must provide a consistent CX at every digital touchpoint, in a way that provides an emotional connection with the brand and encourages loyalty.

Digital touchpoints: An omnichannel experience supports existing touchpoints such as web, mobile, social, and in-store, and emerging interfaces such as IoT, chatbots, voice, smart TVs, and AR/VR. Interfaces with these are developed via a mixture of front-end/device-type-specific code and are loosely connected with the underlying capabilities via APIs. Gartner defines these many heads as ‘multi-experiences’.

Conclusion

Leading industry analysts Forrester, Gartner, and IDC have predicted that the future of retail  requires investment in holistic DTC strategies which embrace composable commerce with headless modular technologies. Leading brands are set to follow these recommendations. However, such innovation comes with increased responsibility for enterprise architects. Developing a clear understanding of ‘true’ vs ‘me too’ headless is critical for making informed technology decisions. Additionally, short-term, and long-term risks associated with emergent technologies and complex solutions cannot be ignored.

Nonetheless, the time to commence DTC initiatives is here and now and requires organisations to take a holistic approach to becoming agile.  As we begin this new decade, organisations that act swiftly and commit to build sustainable and scalable DTC operations will be more likely to survive to serve the next generation of consumers.

Want to listen to senior executives and thought leaders around enabling digital transformation for your business? Register for Digital Transformation Week, April 20-22.