DTC ( Direct to Consumer )
There are valuable lessons to be learned from the progress of DTC companies. Start-up brands getting closer to, and transacting with, their end users are often seen as an existential threat by both retailers and established brands. But being ever the contrarian. . . you guessed right, I see this as an opportunity.
The highs can also be low
Some savvy start-ups with a carefully framed proposition and precision engineered marketing can generate sustainable big brand benefits early on and for relatively little cost. But they are the lucky few.
The harsh reality of DTC life is that most will face the tyranny of skyrocketing marginal consumer acquisition costs, leading them to prematurely hit a growth plateau and the start-up valley of death at the same time. Before long many a DTC founder will find themselves becoming familiar with the basic concept of Inverted Unit Economics, and their financial backers suddenly decide that hard core due diligence is indeed more preferable to relying a cosy consensus based investment approach.
As a result, surprise surprise, we’re now seeing DTC brands pursue strategies to develop a physical presence, be this pop-up stores, selling equity to shopping centre landlords or by hitching a ride on bricks and mortar retailers’ shelf space.
Out disrupting the DTC’ers
As long-time gatekeepers of the consumer interface, physical retailers have quite understandably guarded their direct relationship with the consumer. They regulate how much (the pass-through rate) of any supplier funded promotions that get passed onto the consumer, Get too cosy with the consumer and a supplier can find themselves de-listed.
In the grocery sector, these trade promotions and other supplier gate fees have evolved to become a significant profit centre in their own right, They have also become a contentious issue between suppliers and grocers, leading to tighter regulation.
But brands getting closer to consumers is a natural evolution of retailing, be this FMCG, fashion or big ticket goods. There is room for brands to share some direct exposure to the consumer interface, whilst maintaining equitable relations with retailers.
It goes without saying that I’m intrigued by the DTC model, particularly the potential that the novel and creative application of a hybrid DTC model has with offline retail and legacy brands. There is much to be gained by suppliers and retailers sharing the consumer interface . .