When Casper had the audacity to launch with just one mattress option, the way we shopped for bedding — and almost everything else — was forever changed. The bed-in-a-box brand is one of a few early direct-to-consumer (DTC) brands that shook its respective industry with simplified offerings, lower prices, and stellar relationship-building.
Once, Casper was everywhere, popping up in ads in top podcasts and through direct mail. But since its domination, the company has struggled to profit. Just shy of two years after its IPO, the company went private again at a fraction of its valuation.
While the explosion of unicorn DTC brands of the 2010s has somewhat cooled, tempered by stories like these, the distribution model continues to grow in popularity—especially among young brands hoping to attract millennial and Gen Z customers. Even mega-brands like Pepsi are getting in on the action.
One January 2022 study found that 65% of respondents intended to purchase from a DTC brand at least once this year, while another found that 70% of consumers switched from a traditional brand to a DTC brand during the pandemic.
Demand is high for brands who can answer the call while avoiding the pitfalls that have snared Casper and others. With annual DTC ecommerce sales projected to reach $161 billion in the U.S. alone by 2024, the time is now to build your own DTC brand.
Here, we’ll take a look at the direct-to-consumer model, including its benefits and challenges, future trends, and how to build a profitable and sustainable strategy for your DTC business.
What is DTC?
DTC, or direct-to-consumer, is a distribution model that involves a brand selling directly to its customers rather than through a third party like a retailer or wholesaler. This method often allows brands to offer lower retail prices due to cutting out middlemen.
DTC businesses, also referred to as D2C, often manufacture, market, and sell their own products directly. They have end-to-end oversight of their processes, giving them more control of their brand and direct access to their customers. Larger DTC companies are even bringing logistics in-house.
The origins of DTC: How retail business models have evolved over time
Before we discuss the pros and cons of DTC, let’s take a look at how we got here. While DTC does seem like a newer concept, it actually more closely resembles the earliest forms of commerce than it does most of the 20th century’s advancements.
The first evidence of currency nearly 5000 years ago followed later by the Greek agora laid the foundation for commerce as we know it today. A surge in European markets came next, as did mom & pop shops by the 1700s. These would become some of the first versions of the DTC model.
Department stores and mail order catalogues followed by the late 1800s. A post-war economic boom in the 20th century saw the introduction of credit cards, shopping malls, and by the 1960s, big box stores like Walmart. In the U.S., among suburban sprawl and consumer demand for convenience and choice, mom & pop shops struggled to keep up. Commerce would look this way into the 1990s.
Then, the internet ushered in new ways to connect, buy, and sell. The first recorded ecommerce transaction happened in 1994, followed by the launch of Amazon as an online bookseller. Then, eBay launched its marketplace product, kicking off C2C (consumer to consumer) online commerce, and PayPal joined in 1998, simplifying online payments.
Ecommerce platforms like Shopify and Magento and handmade marketplace Etsy emerged in the 2000s, democratising commerce with low-code tools that enabled a DTC comeback.
Social selling followed with the introduction of products like Facebook Shops in 2010, Buyable Pins in 2015, and Instagram Shops in 2020. This coincided with a 2010s surge of successful DTC brands like Warby Parker who could now reach customers directly across a number of platforms. The popularity of these DTC brands inspired others to follow suit.
Today, more major brands like Nike, Unilever, and Heinz are adopting or investing further in DTC strategies—including Amazon with its own private label brands.
DTC, B2C, and B2B: What’s the difference?
B2B stands for business-to-business, referring to businesses whose customers are also businesses. Examples of B2B include companies that produce machinery that enable other businesses to produce products, SAAS companies, white label manufacturers, and custom packaging brands.
B2C stands for business-to-consumer, and includes brands that sell products or services to consumers, either directly or through distributors, wholesalers, or retail partners. Examples include consumer packaged goods (CPG) like toothbrushes purchased at a physical store, handmade goods sold on Etsy, and online fashion stores.
DTC is a type of B2C business with the exception that it generally only sells direct to its customers either through online or brick and mortar stores. Eventually many DTC businesses will explore other channels like wholesale in order to expand into other markets or scale more quickly.
Other models you may have seen are:
- C2C (consumer to consumer) which refers to direct sales between consumers, powered by sites like Poshmark and eBay.
- DNVB (digitally native consumer brand) is a type of DTC brand that is native to the internet, as in they launched as an online-only brand.
Benefits of the DTC distribution model
Building a DTC brand has many benefits, with many founders opting for this model to have greater control over their brand and connection with customers. Let’s explore these and a few other upsides to DTC.
- Direct control over distribution: Relying on distribution partners may cause delays in shipping or other issues beyond your control. This can reflect negatively on your brand, regardless. When you own the supply chain and ship direct, you can address any issues that may arise directly with the customer—and make it right.
- Better margins: Working with retail or wholesale partners will either cut into your margin or force you to increase your retail pricing to make a profit. By cutting out additional steps, you can preserve your margins and/or compete on price in the market.
- Control over your brand: Once a product has left your hands, you can’t always control how it is being marketed, merchandised, or sold on other websites or in stores. Selling DTC allows you to maintain a consistent brand message and sell your products in line with your brand values.
- Relationship building opportunities: With every distribution step between you and your end customers, the less you know about them. Selling direct allows you to collect valuable customer data, build owned email lists, communicate directly with your fans, and build brand loyalty.
- Ability to be nimble: Distributors become stakeholders in your brand decisions. If you choose to develop a new product and your partners are not interested in selling it, its chances of success are limited. Selling direct means your primary stakeholder is your customer. You can react quickly to your customer’s feedback in order to improve your product or offer new ones.
- Subscriptions: Selling DTC gives you the option of building repeat sales and customer loyalty through a subscription model.
Challenges of the DTC business model
While using a DTC distribution model clearly has plenty of benefits, there are risks. Before you make the leap, be sure to understand some of these challenges so you can anticipate them as you grow.
- Legal risks: Generally working with an experienced distributor or retail partner will provide an extra checkpoint for labelling and other requirements for products. Navigating this alone can be daunting—especially in industries like food and cosmetics where mistakes can cause health issues. DTC ecommerce brands will also be handling a large amount of customer data. There are laws specific to each country regarding how that data can be used.
- Additional resources needed: outsourcing shipping, marketing, customer service, and sales ro a retail or wholesale partner means that you can stay focused on brand and product development and maintain a lean team. Bringing much of this in-house means hiring and training additional staff, thereby incurring additional costs.
- Competing directly with retail giants: if you’re not using the likes of Amazon or Walmart to sell your products, you’re competing with them. It’s challenging for smaller businesses to compete on price and shipping times against businesses that win on volume and owned distribution networks.
- Learning curve: While shutting out the middlemen means protecting your margins, owning every step of the process means learning complex supply chain systems, inventory management best practices, and more.
- Solely responsible for building an audience and driving traffic: the cost of acquiring a customer is increasing, with fewer opportunities for organic reach. Building your own social media audiences and customer lists from scratch takes time—and money.
- Increased customer service debt: retailers often take on the burden of customer support but if you ship directly to customers, you’ll be their first point of contact. DTC brands that scale fast can tarnish their reputation if they don’t forecast support needs upfront.
- Leadership reputation and brand deeply tied: many sensational stories of the past decade told of celebrity-level founders of big DTC brands like Thinx and Outdoor Voices experiencing a very public downfall. DTC brands often win by tying their founder story to the brand. This helps humanize the brand and build customer trust. But, as we’ve seen time and time again, it can also backfire.
7 best-in-class DTC brands
When you think of DTC, a few names usually come to mind. That’s because these early disruptors exploded into the market and paved the way for so many after them. The likes of Warby Parker, Dollar Shave Club, and Bonobos entered their respective industries with products that struck the balance between design and price accessibility while building meaningful customer relationships.
Since then, there have been countless examples across industries, from sporting gear to jewellery. Here are a few success stories to inspire your own.
1. York Athletics
Why it works: York Athletics is a athletic wear brand launched as a reinvention of a traditional mom & pop family business, staying true to its DTC roots. Decades of experience behind them, the founders of York were able to build trust with customers and succeed in a competitive space.
Why it works: In a saturated beauty industry, UKLash has a stronghold. The brand leverages UGC and photo reviews—threaded through its website and social strategy — turning real customers into brand ambassadors.
Why it works: Personal care brand Boie makes a powerful case for buying its scrubbers and brushes over the competition. The company invests in community and retention through its incentivized ambassador program. Boie also takes a strong POV on sustainability, manufacturing locally and, through a customer return program, recycling its own products.
4. Pure Cycles
Why it works: Pure Cycles emerged early in the DTC ecommerce space with its price-accessible bikes that don’t skimp on performance and style. By shipping partly-assembled bicycles in compact boxes, the brand keeps costs low for consumers.
Why it works: Clear brand values and an iron-clad value prop make period brand Nixit a winner in the space. The brand’s “Why Nixit” page speaks to how it solves common issues with disposable products, and its commitment to sustainability.
6. Harper Wilde
Why it works: Buying bras online (or anywhere for that matter) can be a harrowing experience. Harper Wilde succeeds in the landscape anyway by replicating the best parts of in-store experience with top notch customer service and virtual fitting appointments. The brand also rewards loyalty with its membership program.
Why it works: Affordable fine jewellery was a big trend to emerge from the DTC surge a decade ago, with Mejuri as one of its stars. With transparent pricing, the brand’s DTC strategy eliminates high markups common to the industry, helping it enjoy sustainable success.
Is now the right time to start a DTC brand?
As discussed, the DTC market has cooled since the boom of the early 2010s—and that’s a good thing. Investors are more tentative, meaning DTC founders need to prove themselves and watch spending. A more careful approach at the outset will help these future DTC leaders build businesses with sustainable growth and less risk.
DTC today: what should you watch out for?
High competition is one of the biggest hurdles for DTC businesses today. Early disruptors enjoyed the good life — and then the copycats followed, some even taking the idea further. This competition means that rates to acquire customers are higher and Return On Advertising Spend (ROAS) is impacted.
Growing too fast is also a common pitfall. Outdoor Voices struggled to keep up with the early hype, raising more than it needed. The brand grew too fast and overspent while “neglecting the fundamentals,” as ousted founder Ty Haney told Inc.
DTC brands can also fall prey to losing focus. What makes many of the top DTC brands so popular is that they do one thing really well. Casper launched with just one mattress, appealing to the majority of sleep styles, and simplifying shipping. Glossier similarly won in the cosmetics sphere, going deep on a few products. When it made the leap to omnichannel, though, it did so too quickly, losing focus of its core business.
Lastly, supply chain woes brought on by the pandemic are still wreaking havoc for DTC brands. If brands don’t mitigate these issues and set customer expectations at the outset, they can damage reputation and pull focus from making great products.
DTC trends: how to stay relevant and succeed
Current trends in DTC include personalization, collaborations, subscriptions, the move to omnichannel, and building community.
Let’s dig into each one:
- Personalised experiences: DTC brands always win here because they generally have the capacity to nurture individual relationships and offer custom solutions. Think virtual consultations, customized/bespoke products, an investment in customer care, and product/size recommender quizzes.
- Cross-brand collaborations: leverage the existing audiences of complementary brands by joining forces on a collab product, marketing campaign, or IRL event.
- Subscription models: with the cost to acquire a new customer rising, brands should focus on retention and loyalty. Subscription products or services are a great way to do just that.
- Adopting an omnichannel strategy: once you’ve built a strong brand presence and are looking to scale into new markets, an omnichannel approach (selling across multiple types of sales channel) can help you do that more seamlessly.
- Building community: consumers are more and more referring to reviews, peer referrals, and social presence of a brand to inform their purchases. Your DTC marketing strategies should center your customers. Engaging your most loyal and rewarding them for being ambassadors of your brand will go a long way to building a strong community.
Jamie Schmidt, the founder of Schmidt's Naturals grew and honed her DTC brand for years before partnering with retailers—and eventually being acquired by Unilever.
In the end, many consumers still consider price and convenience when making a purchase. According to one survey, price was the primary factor in deciding to buy from a DTC brand for 58% of respondents while 36% cited free returns and fast delivery respectively as their top considerations.
Wrapping It Up
It’s a tall order for emerging DTC brands but those that enter the market with a new idea, a solid brand POV, a unique customer experience, and a commitment to playing the long game with growth can still win in this space.