I bought my mattress online. I buy my razors online. I buy my glasses online. I even bought my wife’s engagement ring online.
It’s not hard to see the effect DTC brands are having on the retail landscape. But should retailers start flocking to this new model?
During the first week of April, Forrester hosted their annual Customer Marketing conference and tackled this question. Over the course of the event, this topic was covered from a lot of different angles, but a few themes emerged.
Before we get into the themes, and what you can take away from them, we have to get into the state of DTC brands.
Are DTC Brands Really Disrupting Retail?
We’ve seen a wave of DTC brands popping up in almost every retail category.
This is affecting every part of retail from clothing to diapers (adult & kids). The one thing all these brands have in common is a relentless focus on acquiring customers.
But while they are great at acquiring customers, they have not been as strong at keeping customers. Therein lies a big opportunity for retailers.
If customers aren’t engaging after the first purchase, why are they flocking to DTC brands?
Forrester found the number one predictor of someone trying a new DTC brand was asking them how likely they are to try out new brands. The number of people who identify in this way has grown from 39% to 56% in the last decade.
This by itself does not explain the whole story.
What Customers Look for When Trying a New Brand
Customers look for three things when evaluating a new brand: Convenience, quality, and trust. None of this is new, but the way consumers are seeing these three things is.
DTC also isn’t new. Catalogers have been doing DTC forever. The real secret of DTC is that they are not really disrupting channels, they are disrupting consumers.
With that in mind, let’s think about this regarding L.L. Bean. As an avid hiker and camper, L.L. Bean in one of my favorite brands. They exemplified these three traits.
- Convenience – L.L. Bean made it easy to order from catalogs, over the phone, in store, and online. They made it convenient to buy however you wanted.
- Quality – We all have at least one relative who has L.L. Bean clothes that are over 10 years old that they still wear regularly.
- Trust – Up until recently L.L. Bean was known for their lifetime guarantee. It doesn’t get much more trustworthy than this.
In many ways, the model that L.L. Bean follows is what most retailers are looking to do.
How are Customers Redefining Convenience, Quality, and Trust?
While convenience used to mean being everywhere, this is now becoming customized experiences and anticipating your customers needs.
Dollar Shave Club sends you your razors each month without you needing to think about it. Trunk Club chooses clothes that best fit you.
Convenience is now subscription. It’s now personalization. And it’s now curation.
A quality product is non-negotiable at this point. The product needs to be good, but it also needs to have quality outside the product. Experience, connection, and customer.
Your product needs to be bigger than just your products, it’s about a branded experience.
The last one is trust. This change is the easiest to see. This is no longer about having an established history. Trust is now about your companies’ story and corporate values.
Therefore, you see so many DTC brands with philanthropic tie-ins. An example here is Warby Parker’s Buy a Pair, Give a Pair program.
These consumer expectations are changing, and traditional retailers need to understand how to respond to them.
There are three themes that emerged from the conference that show how we should think about these changing consumer sentiments.
Co-Create With Your Customers
Your customers are your best source of understanding. The more you can understand your customers, the easier it is to create products and services that your customers will find value from.
Your customers will tell you what is valuable, and you need to learn from that. Take what you learn and figure out how to create value from it. And once you’ve done that, continue the cycle.
Evan Jones, the CMO of Fender spoke on the first day of the conference and discussed how and why they started Fender Play.
Fender Play is a subscription that helps new musicians learn to play guitar and other instruments.
Before Fender decided to create Fender Play, they conducted multiple data studies and learned some important things about their audience:
- 50% of first-time buyers are women and they prefer buying online.
- 45% of guitars are bought by first time players.
- 90% of first-time players quit in the first year, however, the 10% who don’t become players for life.
You can see how this data can help Fender have a lot more upside in retention as opposed to acquisition. This is why they invested in creating a digital learning tool to help solve this pain point for their customers.
Move Fast and Break Things
We’ve all heard Facebooks famous motto, but DTC companies exemplify this as well.
We don’t suggest traditional retailers try to break things, but the ability to move fast and test new things is one of the advantages DTC brands have created for themselves.
We talk all the time about creating a culture of testing and how that applies to loyalty programs. In fact, Emily Collins from Forrester gave a presentation that touched on this called, “Points Can’t Buy Their Love: How To Earn Loyalty In The DTC Age”.
One of Emily’s points was to create a sandbox to test and learn. An example she gave was Domino’s Points for Pies promotion. This app let Domino’s customers download the app and scan any pizza, even their competitors or a pizza shaped dog toy, and earn points towards a free pizza from Domino’s.
This is a great example of a traditional retailer testing something new that provides value to their customers. These kinds of tests take a lot of internal trust.
I have to imagine there was a lot of discussion on why they would give out free pizzas for scanning competitors’ pizza, but that’s what makes the promotion so unique.
The point isn’t whether this promotion worked or failed, but it’s that they were able to overcome internal pressures to test something new.
Transparency, Honesty, and Empathy
This is probably the most visible of these themes. Many DTC brands feature founder stories in their ads. Most use inclusive models. Many give back to people in need.
Many DTC brands have built their reputations on being more inclusive, honest, and transparent. Or at least that’s how they are seen.
Third Love was one of the speakers at the show and discussed how they use inclusive lingerie models. Not only are they showing women of all sizes and races, but also using women of all ages. They mentioned they even have models in their 70s.
There are a lot of examples in DTC here, but in traditional retail, the best example here is Nike. When Nike released their now famous ad featuring Colin Kaepernick, they made a stand on an issue where most companies have been silent.
This example also ties back to our last point about moving quick and taking risks.
DTC Brands are not Replacing Traditional Retailers
Customers have more choices than ever before, and this gives them more power. The thing about DTC brands is that they haven’t changed retail, they’ve just responded quicker to how customers buying habits have changed.
Traditional retailers should look at these trends and try to understand how they can implement them for their own brands.
P.S. Oh, and I have to mention all these trends apply directly to your loyalty program too. Start with your customer, understand their needs, create a unique program that gives them the best of your brand, and then continue testing aspects of the program.