Put Customers at the Heart of your DTC Strategy
The motivation for writing the book The Direct to Consumer Playbook came from my personal struggles to figure out all the elements required to ensure that a brand could sell its products over the internet profitability. To achieve profit, you need scale and to achieve the scale, you needed both an efficient system and high consumer demand. Needless to say, this is easier said than done. I managed to achieve success with a mixture of luck and sound judgement; however, I was very aware that I was far from doing all the right things at the right time. So, when I sold my business, I decided that I wanted to help other entrepreneurs who wanted to sell direct, avoid the period of floundering and experimenting, and instead guide them to where they should be spending their time and energy.
The result was a two-year mission, interviewing the founders and CEOs of the best-in-class DTC brands to hear how they achieved success building their DTC empires.
Who cares, wins
The first thing which struck me was how passionate the founders were about solving real problems. There are two types of successful entrepreneurs, i) those who spot opportunities to make money and ruthlessly exploit and profit from inefficiencies in the market, and ii) ones who want to help their customers. These rarer entrepreneurs see the pain and are dedicated and excited about improving access, reducing inconvenience, lowering costs, and radically improving flawed products and services. Their primary motivation is the impact they can have, not profit. For them, any financial reward is a side effect of doing a good job.
I discovered every entrepreneur I met fitted into the second group. They were the ones who realized that DTC was not a tool for quick profits but the platform which enabled them to make a difference in our world and our culture. For example, JP, founder of allplants, learnt about building businesses via social banking and healthcare enterprises in Africa. He is now on a 30-year mission to avoid environmental catastrophe by helping people adopt flexitarian diets via delicious frozen vegan ready meals. Tom, the cofounder of TRIBE, makes products to help both elite athletes and everyday fitness fans achieve their goals. At TRIBE, they also host sporting events and races but ultimately do what they do to fund their foundation set up to fight modern-day slavery.
By combining an appetite for making best-in-class products with a mission to make an impact bigger than can ever be expressed by their own balance sheet, these entrepreneurs attract more customers by creating internal flywheels. The products solve a problem, their mission helps attract and retain customers, and those customers go on to create a buzz and community around the brand, allowing the brand to achieve its internal and external goals.
Beware, having a grand purpose can never solely be a marketing ploy. DTC brands have to show their customers what they stand for and show their work to succeed. If they have disingenuous claims or act in a non-authentic way, the very fact that they have a one-on-one relationship with their customers means that they will quickly be found out if they don't live up to their promises.
Focusing on creating value
As compelling as any brand purpose, DTC brands do not thrive without a better product giving better value. The value they create is generated from utility and price. One of the limitations of a DTC operation is that every product must be picked, packed, and delivered to the end consumer. There are few economies of scale to be enjoyed via supply chain consolidation. This means things can quickly get expensive. If the cost of delivering the product outweighs the utility, customers will revert to alternative channels. For example, unit economics and convenience mean that most food and drink brands will still see the vast majority of their sales via traditional retail outlets. For other products, especially where they are high value or a subscription service solves a problem, DTC will continue to thrive.
Julian Hearn, the founder of Huel, told me it was imperative that their hero-powered food products were sold at £45 each. The price point was to ensure the delivery fees did not make the total cost of each meal prohibitive. What’s more, the healthy margins enable him to also incorporate t-shirts and shakers into the pack for first-time customers. This move helped build community and cache around the brand as his customers loved to show that they were part of the ‘hueligan’ community.
Using data to drive innovation
As well as establishing an emotional connection with customers, the one-to-one touchpoints allow DTC brands to innovate at a pace that was previously unfeasible for bricks-and-mortar products. These brands have huge informational advantage from the data provided by their customers (reviews, website visits, repeat purchases, demographic, and psychographic data). Hugh Thomas from Ugly Drinks told me that he can 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.
Tails.com is now one of the biggest online pet food companies in Europe. However, six months after launching, they nearly closed their business. The reason was that they were not properly connecting with their customers. They had no phone number on their website, and it was difficult for customers to talk to anyone within the business. The result was higher acquisition costs and a low retention rate. Only when tails.com made it easy for customers to speak to them and were proactive about finding out more about their customers the service was improved, and their customers fully appreciated what the brand could do for them.
Personnel connection with customers is made possible by the DTC model and is a Win-Win for both brand and customer.
There are no shortcuts to success
Running a DTC business is hard. The products have to serve a purpose. The brands need to be able to make a personal and emotional connection with their end-users. The operations must overcome the expense of direct deliveries and increasing marketing costs. Furthermore, competition continues to grow due to low barriers to entry enabled by low-cost software like Shopify, Stripe, Mailchimp, Klaviyo, and google analytics.
As the DTC market continues to develop, growing competition means that we will see that only the best products, best brands, and most well-run businesses will thrive. The brands that want to do well with DTC have to learn and adapt faster. Consumers will also continue to demand that these businesses put the needs of their customers and communities before themselves. It is not a coincidence that every brand in The Direct to Consumer Playbook scores highly on each of these measures.