What’s a DTC brand?
DTC stands for Direct-To-Consumer. As the name suggests, these brands sell their products directly to consumers, online-only mode. And the business model looks very promising in theory.
- Since they’re online only, they have one single marketing channel, namely Social Media Marketing, so it’s easier and more efficient to manage and finetune.
- They can sell at a lower price than retail, as there are no retail and sales commissions as they cut out the middlemen like retailers and salespersons.
- They don’t have to sell at wholesale prices and in bulk quantities to retailers
- They don’t have to fight for shelf space, which is a very crucial factor in retail stores where legacy brands already have a foothold and can afford to pay more to retailers with their deep pockets.
- They don’t need to lease/invest in real estate and have logistics and sales personnel as they don’t operate any physical stores.
All seems well. So why do they need to get into retail then?
Ever Increasing Costs of Social Media Marketing
DTC brands started taking off in the last decade with the growing social media user base. Back then social media marketing was cheaper, as it was in a nascent stage and e-commerce hasn’t taken off. Fast-forward to 2019 and later, these costs have grown exponentially, as brands are fighting for ad spots on YouTube, Facebook, Instagram, and so on. The ad campaign costs have more than doubled. So this drives Customer-Acquisition-Costs(CAC) higher.
Increasing online presence of established brands
Established legacy brands didn’t take online selling and e-commerce seriously as the majority still shop in-store. But that all changed with the COVID pandemic. Now brands are increasing their online presence alongside their retail mode of selling. And with their deep pockets, they are able to pay higher for better ad spots and for lengthy periods.
No brand loyalty
The online market is highly oversaturated and high penetration already happened. It gets harder to forge brand loyalty where a myriad of brands are vying for consumer attention every second. So even if you acquire a customer, it’s hard to increase and sustain the Lifetime Value(CLTV).
So your CAC is ever increasing and CLTV is either stagnant or lowering, which meant the value ( CLTV/CAC) you get out of a customer is falling, which is bad for any business, in that marketing channel.
In the online world, you would reach maximum penetration very quickly. So you would be hitting the same customers again and again with your ads, despite someone already being your consumer. And retention and repeat purchases get harder, as online sales are driven by deep discounting and offers. It’s a matter of time before another brand pops up to lure consumers in.
Most importantly, 50-60% of the world still shops exclusively offline in retail stores. So you’re missing out on a lot of potential customers.
Examples in the West
Casper, a mattress company is one of the earliest DTC brands that became successful and boasted about being online only offering. But they ran into all the above problems. And mattresses being a long-life product, there are very less consumers to sell to. Their marketing costs got so high, that they were actually spending more than their gross margin just on marketing alone. Now they’ve opened 200+ physical stores across the US.
Other popular DTC brands like Warby Parker, Everlane, and Bonobos have opened retail stores after starting out as online only.
Many of these DTC products are also making their way into large-scale retailers like Walmart, and Target.
DTC in India
DTC brands in India have mostly been derivative of western DTC offerings.
Wakefit is basically what Casper did in the West. Bombay Shaving Company is just the same as Dollar Shave Club. Lenskart is basically Warby Parker for India.
Then there are countless skincare brands that are operating in the DTC model in India. There’s mamaearth, wow, plum, The Moms Co, and so on. They flood the market with numerous product offerings, hoping something will stick. The same goes for Electronics accessories and wearable brands like Boat, Noise, and Fire-Boltt.
All have the same business model and aggressive online marketing and products are of lower quality at higher prices. Most of them just act as marketing agencies, with the product manufacturing outsourced to others, and they use their branding and heavy marketing and discounts to sell more.
Smartphone OEMs success
Smartphone brands in India have successfully pivoted to retail from the DTC model. In India 70% of smartphone sales are offline. Brands like Xiaomi, and OnePlus who have made their name selling exclusively online, have recognized the importance of retail sales. So they slowly started opening exclusive brand-operated stores, tied up with major smartphone retail chains across the country. This helped them also get a piece of the offline sales pie, by competing with well-established brands like Samsung in the offline market.