Here's what the best DTC brands have in common
Here's what the best DTC brands have in common
Words Mike Stevens
July 1st 2022 / 8 min read
Mike Stevens is the co-founder of Peppersmith, and now works as a consultant for challenger brands. He has recently written The Direct To Consumer Playbook. Here Mike shares what he’s learned from speaking to founders of the world’s top DTC brands
Selling directly to the end customers is not a new thing. For as long as buying and selling has been happening, people have been making stuff and selling it to the end-user. Then about 100 years ago, retailers started to make things more efficient, cheaper, and offer more variety. So for a long time, it made sense to buy what you needed from a shop.
Then came the internet, allowing brands to bypass the retailers and offer something better. The main appeal of a Direct to Consumer business is that they can offer:
Better prices (no middle man)
More varieties (no limit on shelf space)
Personalisation (we can make to order)
More convenience (deliveries direct to your door)
Tools like Shopify and Klaviyo mean that the barriers of entry have dramatically reduced. Anyone who comes up with a product they think is a better way to serve their community can quickly get to market using a DTC strategy.
While DTC presents an opportunity for all physical products, it also brings risks and complexity. Over the last decade, brands have piled into the space due to the opportunities and the relative ease of entry. As a result, the competition for attention is fierce, digital marketing costs are skyrocketing, margins are under pressure, and top draw customer service is expected in every transaction.
So while DTC is a no brainer when it comes to introducing a new product, building a profitable business around this channel is getting harder and harder. However, if you focus on the right things, the good news is that you can still succeed.
I wrote The Direct To Consumer Playbook to identify the fundamental strategies and behaviours of the best in class DTC brands. The brands I interviewed sold a variety of products across many categories to cater for different needs. However, they all had the following in common.
1. Innovation, products and a desire to help
Each of the founders in the book had developed something new for their markets. Graze was the food company first to do large scale personalised snacks through the post. Tails.com then did something similar for dog food. Bloom & Wild invented the letterbox bouquet. Who Gives A Crap didn’t create a new product but developed a radical approach to doing business, leading to £millions of donations to water projects in the developing world. Snag championed tights that actually fitted. Cornerstone, allplants, Heights, and Casper introduced demonstratively better products in a more personal, fun, and convenient way.
These innovations were more than a way to exploit a market opportunity. They were a way to make their customers have a better experience. All the founders in the book were committed to the idea of making their customers' lives better. This desire drives all product development, marketing messaging and approach to customer service. My observation is that the brands that care the most are the ones most likely to succeed.
Interested in receiving more insights like this direct to your inbox? Subscribe to our newsletter, the Startup Bulletin, and join our 15,000+ community of founders, innovators, and investors.Subscribe now
2. A brand and a mission that builds emotional connections
The best DTC brands are experts in using the occasion of serving customers directly to forge a personal relationship with them. These relationships are built on shared values, desires, dreams and fears. The beauty of a DTC brand is that it is not diluted by the reliance on other businesses to serve their customers. In the traditional retail model between, the brand and the end customer are wholesalers and retailers. Wholesalers and retailers serve an essential purpose; however, they are separate businesses with their own cultures and agendas. When a consumer picks a product off a shelf in a superstore, they only get a limited view into who the brand is and what they stand for. When they buy direct, they see so much more of the business they are buying from. Beyond the physical products, they can now see what the brands care about and what they stand for.
Like it or not, customers are seeking a connection, and this means that you must stand for something to succeed. Having a strong purpose and personality is the difference between a customer who will bounce off your website in seconds, and ones that will not just buy everything you make but tell all their friends and family why they should too.
3. They build communities around their products
Once you have established what you stand for, you can establish a community who are all connected by shared values and beliefs. That community are the people you serve. They are the ones who most believe in you. They tell you what to do more of. They tell you what to fix. They help each other. They share. They care.
TRIBE makes sports clothing and snack bars, which serve a community of fitness fans built around the regular athletic events it hosts. Sugru's community of DIY fanatics, makers, repairers and tinkerers do all the marketing the brand ever needs by sharing their inventions and innovations from using the products on the Sugru website and social media pages.
Heights knew they would need to build a community before launching their brain health supplements. So they spent a year writing newsletters, assembling experts, and hosting events and podcasts before they launched their products to sell to their pre-built community. Not only did that community become die-hard customers they also became investors via a record-breaking crowdfunding campaign, run just a few months after launch.
4. They make sure the economics add up
When you sell your products via a retailer, they provide a convenient way for customers to select what they need quickly and easily. They also make your logistics, invoicing, and customer management more straightforward. You only have to transact with one retailer or one chain and not every individual consumer of your product. There are reasons why you will still want to sell direct, but don't forget that having to serve each consumer comes at a cost. In addition to dealing with customer service questions and problems, and processing individual payments and orders, the highest cost is picking, packing, and delivering each order to the customer's door.
If your postage costs are too high, you won't be able to charge a sensible price. Beware, if you have big, heavy products that have a relatively low value, the delivery cost may be more than the cost of the product. These economic constraints are why buying DTC bottled water does not make sense for most people.
The need to make a workable margin after delivery costs can be seen in Huel's insistence that they would not launch until they had developed a product they could sell for £45. Snag made sure they set a price to have enough margin to allocate at least 25% of their revenue into their marketing costs for each sale. Dan and Joel from Heights had learnt from bitter experience that they need to make a decent margin on each product. They achieve their margin by charging a higher price for their products than you might find in a health shop however justify their value by focusing on the efficacy and provenance of their ingredients.
The Founders Factory take
Dedicate focus to existing customers
From Olivia Martyn, Head of Brand Marketing @ Founders Factory
Many new brands are so focused on acquiring new customers, they forget about the value existing customers can bring - whether you have 10 customers or 10,000+. In many cases (although evidently not all), DTC success requires customers to come back again and again.
Data suggests that once a customer buys for a second time, they are more likely to buy for a third, fourth and so on. They are also more likely to refer, review etc.
So how can you encourage a customer to go from 1 to 2 purchases? Mike has already touched on some of the contributors to retention, such as good customer service, building communities and an emotional connection, but there are plenty more considerations that the best DTC brands consider as fundamental:
They know quality matters. It seems obvious, but if a customer has a poor product experience, not only won’t they purchase from you again, they'll become detractors and are unlikely to recommend you. Good DTC brands invest heavily in their product, think carefully about the trade-off between speed and quality, and regularly listen to feedback from customers. Ning Li (MADE.com & Typology founder), told us about the importance of a product-first approach in this interview.
They nail communication. The best DTC brands consider all the touch points they have with their customer and where they can add value throughout the customer lifecycle. The experience of a new customer will differ from a customer who has been with the brand for over a year. Equally, a customer who has purchased once might have a different experience to one that has purchased 3 or more times. The best brands are creative, focus on the right message at the right time, and while email plays a vital part, they consider other channels such as direct mail, SMS, private communities and events. Loyalty programmes might also be a consideration.
They get to know their most important customer. While this is critical for all areas of the business, it is especially helpful when building a retention strategy. What has led that customer to come back again and again? How can you make their lives even better? Whether it’s new product lines, convenience, pricing, content etc. Equally, spend time with your 'worst' customers to understand what is stopping them from returning.
They don’t launch subscription for the sake of it. There was a time when so many DTC brands launched subscription in an effort to improve retention - monthly commitments with perks such as discounts or added services. Now we are starting to see consumers having to justify their spend and asking: "Is this thing that I pay for monthly really of value to me?" Consider if subscription truly makes sense to the product experience
5. They understand that the days of cheap Facebook ads are no more
Not so long ago, it was cheap and effective to plough all your marketing budget into buying ads on social media. Oliver Bridge from Cornerstone told me that there was a time when it seemed sensible to remortgage his house and use the proceeds to buy more Facebook ads. Unfortunately, this is no longer true. The competition for attention on social media has meant that costs have now reached a level where it can be tough to justify even a modest spend on these platforms.
If social media ads are no longer effective, what do you do to get customers to come to you? Aside from having great products, an effective website (don't forget SEO), and a strong brand, it is about building expertise and trust. Tails learnt their best form of marketing was chatting with and finding ways to help their customers via support and advice about looking after their pets. Lick spends lots of time helping their customers with interior decorating advice and providing inspiration to build awareness and credibility. Hiut denim focuses on newsletters, events, and yearbooks; however, they talk more about other people's brands, innovations, and creations than their own. Why so? They know that they need to keep the conversation going to create an ongoing connection with their customers. If they can do this successfully, they will be the first thought when their customers need their next pair of jeans.
Today's best DTC brands invest more in content creation and being helpful than any paid for social media campaign.
6. The use of data to drive innovation and improvement
As well as establishing an emotional connection with customers, the one to one touchpoints allows DTC brands to innovate at a previously unfeasible pace compared to bricks and mortar products. DTC brands have a huge informational advantage provided by the data they can collect. Examples include reviews, website visits, repeat purchases, and demographic and psychographic data. Hugh Thomas from Ugly Drinks told me that he could learn more from the data provided by DTC interactions in a week than in a year on a supermarket shelf. Such is the power of this data that it makes sense for a DTC brand to interact with its customers as much as possible. For this reason, all the best DTC brands never outsource their customer service. Even when a customer has a complaint, these interactions are a chance to build trust and find out more about how to serve their customers better.
7. DTC may only be the beginning
DTC will be ideal for some, maybe even most, of your customers, but not all. There still will be plenty of people who may want to buy your products but do not have the time, opportunity or desire to jump on your website. There are also many who want to see, touch and feel a product before they buy it. Catering for different customer needs is why many brands start with a DTC strategy, but eventually, they begin to expand into multiple channels, including 3rd party marketplaces, e.g. Amazon and eventually physical retailers. Brands tend to do this for two reasons: they can grow and serve more customers by branching out beyond DTC, and for others, channel extension is the only way to achieve the scale they need to become profitable.
Whatever the reason for looking beyond DTC, going multichannel is often a wise move. As Anthony Fletcher, the then CEO of Graze, told me,
"I think the future of commerce has got to be multichannel. For one, by not considering different channels, you limit your market opportunity, but also by utilising different channels, it gives you new ways to compete and different ways to reach your customers."
You now have your DTC road map. So what are you waiting for?
About Mike Stevens
Mike Stevens (left) is the co-founder of good-for-you confectionery company Peppersmith. He was part of the early team at Innocent Drinks, as their Head of Operations. Having sold Peppersmith, Mike is now a consultant and advisor for challenger brands. He has just written The Direct-To-Consumer Playbook, where he interviews founders of top DTC brands and asks them how they achieved their success
News from the Factory Floor
The Alternative Funding Guide
From crowdfunding, to angel investing, to revenue-based financing, we explore the alternatives for startups not raising venture capital
Launching Prism—a decentralised talent network
Read more about Prism and founder Eniola's plans for driving the future of work
Building for the Oceans, and the people that depend on them
Jamie Rowles shares his thoughts on why ocean & coast health presents an important battle against climate change