Should You Rebalance Your Retail Distribution in favor of DTC?
A brewing storm looms over the world of retail distribution as all the parties involved gear up for a battle over a single goal: customer experience. Diverse markets ranging from clothing and the beauty industry to automobile and publishing have to deal with increased competition by going straight after the client’s heart, not literally (thankfully), but with intention to win it over by means of hugely improving customer’s experience and fill their coffers in the process.
This led to popularization of direct-to-consumer retail model (DTC), with its focus on the customer and learning as much as possible about their experience interacting with one’s products, services or brands. Take a few minutes to find out more about the nuts and bolts of this model and decide on its suitability for your marketing needs.
Conversing with your customers
At the time when many say their last goodbyes to the traditional retail model, others want to know why it is happening in the first place. Blame it on intense competition, ubiquity of mobile devices or simple change in the customer’s self-perception, these changes seem to be permanent and these are the first “victims” of the battles for supremacy in offering the best customer experience. Customers responded to this change by constantly demanding an even better experience for themselves, while marketers and manufacturers opted for facing buyers directly in the form of direct-to-consumer (DTC) retail model.
In essence, this approach boils down to having an ongoing conversation with your customer, notwithstanding the fact that you have a myriad of them and that all of them demand equal amounts of your undivided attention. In an attempt to regain some of the market, traditional retailers responded to this shift by offering discounts. However, this prompted those using DTC to jump over the retailers in a bid to get closer to the buyer and engage with them on their own turf.
Direct engagement for better sales
One of the first companies to recognize this was Nike who opened its own stores parallel to re-energizing its direct sales over the internet. The strategy seems to be paying off, with projected growth of sales by almost 250% in the coming five years. One of the components of this two-pronged approach is selling directly to the clients online, thus eliminating the need for them to ever set foot in an old-fashioned brick and mortar outlet. At the same time, this move hurts traditional retail chains who see this process as a direct threat to their existence as a business , such as what Nike did with third-party sportswear retail chain Foot Locker.
H&M is a prime example of DTC, both in the physical and online worlds [Image Credit: Flickr / Mike Mozart]
Shoppers seem to be largely unfazed by this, as their entire shopping experience is now carefully monitored through the collection of relevant customer data that is easily converted into valuable business intelligence. Timberland, for example, approached this by using their DTC stores to fuse customers’ online shopping preferences and their user experiences when they are at the store. This requires remembering products the buyer browsed online prior to coming into the store, enabling a deeper customer engagement.
Big Pharma invests heavily in DTC as it understands the value [Image Credit: Kantar Media]
Personalization by way of social media and analytics
And if you are not ready to go the way of merging online and offline customer journeys, social media comes to the rescue as means to create a more direct way of communicating with consumers. Some marketers swear by this approach, as evidenced by the case of Genuine People company which increased its sales by getting in touch with customers via its Instagram account. Basically, they used it as a conduit between their inbox as a customer feedback platform, and their production department, adjusting its supply based on the level of directly observed demand.
Tech companies are also increasingly turning towards DTC, saying that attracting and engaging customers effectively necessitates integrating social media into their marketing strategy. The utilization of social media channels means becoming better acquainted with the DTC model, which is supposed to ensure increased revenues. While this approach may not be a one-size-fits-all model for all industries, it surely deserves further examination, at least until the future brings a new milestone in customer analytics technology in form of artificial intelligence.
Another emerging technology are chatbots – computer programs designed to converse with customers. In an effort to approach customers in a more personalized manner, companies which already rely on social media have started implementing chatbots. Messaging apps, like Viber, are another platform where chatbots are being used for a more personalized and direct contact with customers. In retail, for example, chatbots sift through huge amounts of data and offer customers what they determine to best suit their needs. With image obsessed millennials and Generation Z-ers who already spend hours interacting with their phones, investing in this tech seems like an attractive proposition. According to latest figures, at least 80% of companies want to implement chatbots by 2020.
At the same time, others proclaim that reliance on big data and customer behavior analytics has failed miserably in the world of social media. The cited reasons for this include a discrepancy between what constitutes social media updates and the number of persons involved in it, as well as the overabundance of analytical tools.
Focus on band in place of retailer’s profit
Yet, no technology will help you in the process of engaging the customer directly if your DTC strategy isn’t based on a brand new approach to how your brand is perceived in the first place. This largely rests on your relationship with retailers, as going down the route of DTC is likely to push the leverage in your favor. Removing retail chains from the equation means that you can refocus customer’s attention to your brand, as their shopping experience is no more centered around the retailer. As the retailer’s attention is focused mostly on increasing their sales, with a sort of brand-agnostic approach to it, you are left with more space to develop your brand if you remove any middlemen from the chain linking you with the buyers.
In addition, having more leeway in putting additional effort into strengthening visibility and awareness of the brand can help you with solidifying your customer’s loyalty, and such efforts will be rewarded in kind. The satisfied customer is 140% more likely to spend on your products or services.
Nike’s DTC efforts are pushing Foot Locker out of the picture [Image Credit: Hedgeye]
So, if one is to judge the future of retail distribution based on the current trends, the verdict is easily handed over in favor of the DTC model. This is substantially corroborated by the fact that as many as 94% of high-ranking company executives consider personalization of customer experience to be the key to acquiring and, more importantly, keeping the customers. The DTC model has so far proven itself as the best way to implement this process, with its focus on special outlets, social media and the reinvention of the model of doing business with old school retailers. At the very least, it grants companies and brands necessary freedom in exploring what works best for their personalization efforts, while removing the clutter and making customer-brand relationship more transparent than ever.