Going D2C: The Challenges and Benefits

Why Direct-to-Consumer (D2C) is Gaining Traction

After the burst of the dotcom bubble, the internet has been dominated by multipurpose platforms with a commercial edge, like Amazon, Facebook, Google, Instagram, and Kickstarter. These infrastructures have been enabling entrepreneurs to grow quickly and connect directly to their target markets via a non-traditional business model: Direct-to-Consumer or D2C.

As the name suggests, Direct-to-Consumer enables enterprises to manufacture and ship their products directly to buyers, without having to rely on traditional wholesalers, retail stores, marketplaces, or other intermediaries. This approach enables organisations to sell their products at lower prices than traditional consumer brands, and to maintain end-to-end control over the fabrication, marketing, and distribution of their products.

By eliminating the barrier between producer and consumer, businesses enjoy greater control over their brand, reputation, marketing, and sales tactics. Not having to rely on traditional retail stores or the formal rules of a marketplace for exposure, brands are at liberty to experiment with distribution models. These can range from direct shipment to consumers, through partnerships with physical retailers, to the opening of pop-up shops.

Besides end-to-end control over products and distribution, Direct-to-Consumer brands also benefit from having greater and more fine-grained control over their own customer data, and full ownership of the customer relationship. This allows enterprises to provide an enhanced customer experience (CX), and provides the insight needed for creating curated personal experiences that delight and inspire consumers to remain loyal to the brand.

D2C companies are also free to create and pursue their own custom-tailored blends of marketing. Brands have been achieving high-profile presences online by optimising for Google search results, turning their Instagram followers into micro-influencers and brand ambassadors, and using highly targeted ads on social media to grow their audiences.

And these audiences are growing. Recent studies by Initials suggest that 55% of consumers prefer to buy from brands directly, while a further 40% of shoppers say that they will purchase from a Direct-to-Consumer brand in the next five years. Going further, the research reveals that 82% of consumers currently have between zero and four D2C relationships -- a finding which indicates that the market is still in its relative infancy.

With the internet providing access to a world of options for everything, modern shoppers are giving their support to brands that they feel understand their specific needs and preferences and are capable of delivering an experience unique from what other brands are offering. The individual tastes, ethics, and habits of the customer are now paramount, giving organisations that market directly to their buyers an opportunity to take full ownership of the customer relationship, enhance the customer experience to suit consumers on an individual level, and develop curated personal experiences that delight and inspire loyalty. This puts the onus on brands to gain more than a partial view of the customer and achieve differentiation within a crowded market.

Cutting out intermediaries also gives brands the freedom to exercise end to end control over the manufacture, promotion, sale, and distribution of their products. Streamlining and optimising fulfilment logistics become critical activities, as does resolving channel conflict, and tracking the correct metrics. Taking all of these aspects into account, it becomes clear that Direct-to-Consumer is a holistic way of doing things, rather than a specific mechanism -- a mindset, not a channel.

The D2C Landscape in Asia

As with so many commercial trends in the region, brands across APAC are learning and applying lessons from China's strength in the D2C arena. The foundation for this strength was laid with China’s pioneering of partnerships with eCommerce retailers, which was the forerunner for today’s D2C landscape. The accessibility of WeChat Mini Programs for example, coupled with the fact that they are cross-regional with limited restrictions, means that they can be used outside of China.

In 2014, Nike became one of the world’s first household names to create a “brand zone” with Alibaba’s TMall. At a time when sales of “knock off” or counterfeit versions of popular brands were running rampant, this partnership enabled Nike to take greater control of its brand image in a crowded digital marketplace, and demonstrated the burgeoning power of China’s D2C in shaping the future of global branding. Today, Nike’s presence on TMall has a continuously growing portfolio supported by more than 5000 mini-videos a year.

(source: Export Now)

Shopping via videos is also gaining huge traction in the region. Short video apps like Douyin (China’s TikTok) can match brand owners with content creators for promotion. Consumers can use the live videos to check out products and pose questions directly to their brand owners.

Social media influencers peddling their own brands have also been creating competition with agencies and eCommerce retailers. Influencers in China have evolved from developing their own brands to creating complete creative studios that provide a one-stop shop for insights, digital production, and content creation. Some influencers are even launching their own marketplaces in Southeast Asia. For example Melissa Koh, a lifestyle blogger and fashion brand model, has launched two online stores -- the Run After line of clothing, and Some Days At Home, an eCommerce platform for small-sized regional brands.

Within the region, TMall Global and JD.com are currently engaged in a pitched battle, to see which platform has the greater attraction for Direct-to-Consumer brands. Both offer enterprises the opportunity to create exclusive marketing spaces, maximise on their collection and analysis of behavioural data, and formulate independent pricing strategies. JD.com offers customised pages that brands can redirect to, WeChat mini-programs, and official sites to complete transactions, which have attracted the likes of Louis Vuitton, Huggies, and Head & Shoulders. At the Tmall Luxury Pavillion, a select group of specially invited brands including Maserati, Burberry, and Bang & Olufsen, enjoy a marketplace environment that shares behavioural and lifestyle data of its consumers.

This approach is spreading to other platforms trying to become major players in the D2C space. According to data from KPMG, India currently has over 800 D2C brands, with the sector being worth approximately $44.6 billion in 2021 and projected to reach $100 billion by 2025.

The Issue of Marketplaces

Asian marketplaces such as Alibaba and Lazada continue to dominate eCommerce in the region, acting as digital intermediaries that have a growing hold on brands. In addition to registration fees, they take commissions on sales made via their platforms.

However, for canny retailers, the prevalence of marketplaces can be turned to an advantage, as consumers encounter brands for the first time and build consideration through eCommerce content and experiences, but eventually buy on other channels -- – perhaps offline or at an online supermarket run directly by the brand.

Furthermore, on Asian marketplaces consumers are encouraged to engage with all kinds of content, games, and social media functionality. Data collected from these interactions can provide insights that enable organisations to create engaging experiences on their own Direct-to-Consumer sites and apps, to drive sales and establish brand credibility. Information gathering and analysis can also enable brands to continue communications in direct channels or within the marketplaces, that allow retargeting on other ad ecosystems.

How Casper Has Reinvented the Mattress Buying Experience

Under traditional retail practices, buying a mattress is a complex and expensive affair that involves browsing several furniture stores for price comparison, testing likely candidates for firmness, choosing an appropriate bed size, then entering into negotiations with a sales rep.

As Lindsay Kaplan, VP of communications and brand engagement for Casper observes: “Our strategy from the start has been to change perceptions about mattress shopping and create a community around sleep in a playful and creative way, with a genuine voice.”

Casper achieves this by reinventing the buying experience through the “mattress in a box” concept. Casper mattresses ship in specially designed compact plastic boxes. Once the package arrives, you remove the mattress from the box and set it on your bed foundation while it’s still encased in plastic. You then remove the mattress from its plastic wrapping, give it 45 minutes to an hour to regain its shape, and it’s ready to use.

With Casper, the product takes centre stage. A core tenet of the brand’s marketing is that they only produce one type of bed: a combination of foam and latex, that sells for an affordable price. This offering is sweetened by an unbeatable guarantee: For each mattress, Casper offers a risk-free 100-night free trial. If you decide that a Casper mattress isn’t for you, they’ll send a courier over to remove it from your home, and either donate it to a local charity or have it recycled.

Having created a signature packaging method, the D2C brand has also turned the delivery and “unboxing” of Casper mattresses into a social marketing experience. Customers are encouraged to make videos documenting the arrival of their new mattresses, and share them on social media. Casper’s unboxing videos have millions of views on YouTube, which accounts for almost 54% of the brand’s entire social traffic. These videos provide Casper with a powerful source of free publicity.

However, the company does not rely on free publicity alone. Casper pays large sums of money to “influencers” with large follower counts, to promote its mattresses on Instagram and Twitter. The brand also devotes a considerable marketing budget to link building, publishes original research on its website, and showcases all their reviews on one page on their site. For international marketing, Casper is growing market share in other countries by translating its ads into the target country’s first language. Using this combination of techniques, the company went from zero to $750 Million in the space of four years.

How Allbirds Reimagined Sports Footwear

During an eight-year career that featured a trip to the 2010 FIFA World Cup, professional soccer player and New Zealand native Tim Brown suffered a pet peeve that ultimately opened the door to a new market -- namely, that sponsored sneakers were often too flashy, logo-laden, and garishly coloured.

Brown yearned for something simple, but of superior quality. As Tim Brown observed at the time: :“The insight that kicked this whole journey off was, ‘Could you make a very, very simple sneaker that wasn’t adorned with branding?’ It felt like it was very, very hard to find.”

Knowing something of the properties of merino wool, he did further research on the subject, and teamed up with Joey Zwilinge, a biotech engineer, and renewables expert. The result was the Wool Runner Shoe, flagship product of a Direct-to-Consumer brand they dubbed as Allbirds.

In 2016 when the company was formed, sustainability was yet to become such a hot topic as it is today, making the renewable and biodegradable Wool Runners a unique proposition. The brand later went on to create another range of sports shoes from tree fabric – the Tree Dashers. Today, Allbirds have extended their offerings to slip-on, waterproof shoes, and apparel.

The brand remains committed to producing unique, sustainable, products with minimalist design and no logos. Some limited edition colour sets are occasionally released. The centre piece of the footwear product is the shape, look, and feel of the shoe.

However, the D2C brand also realised the value of paid and strategic marketing. Allbirds spent between $400,000 and $500,000 a month on marketing in 2016. The company’s strategy included creating a buzz about the brand on social media channels, especially Instagram and Facebook, at least a month before its launch. Allbirds also created a robust video marketing campaign to create awareness about the brand. In these videos, they explained how the shoes were made out of sustainable ingredients.

The consumer aspect of D2C is also critical to marketing success. Knowing this, Allbirds created a referral marketing strategy, called the Allbirds Affiliate Programme. Here, devotees of the brand are urged to serve as ambassadors and advocates, promoting Allbirds via social media channels such as TikTok, and YouTube. Incentives are available in the form of commissions on all net sales and some free products, for fans who act as content creators and promote the brand through their own online outlets (blogs, podcasts, etc.).

Customer feedback is also taken into account when developing new products. For example, Allbirds introduced the Kotare Sky Runner for women after a female follower made a heartfelt plea for a blue sports shoe.

The net result of all this is that, within five years of its launch, Allbirds has achieved unicorn status. One of the fastest-growing sustainable lifestyle brands, Allbirds today has a valuation of $3 Billion.

A Final Thought to Consider...

While it may be true that 82% of consumers currently have between zero and four D2C relationships, the concept of a “cognitive maximum” implies there may be a limit to the number of D2C relationships that consumers would be willing to have, given that a high number of D2C subscriptions could become a logistical burden for them.

Brands are therefore under pressure to maintain a strong and unique position in the Direct-to-Consumer ecosystem -- one that puts them at or near the top of the options list, when it comes to attracting customers . As a D2C player this requires your organisation to effectively map your brand’s position in the D2C matrix, establish a model that works for your particular business, and assess the strategies that will make for long term sustainability. In this light, organisations must consider how best to leverage this model to gain more control over the way their products are displayed and presented, enabling them to create personalised experiences for all customers. Brands may need to rethink segmentation, targeting, and marketing as they scale, and develop ways to offset the unpredictably high costs of customer acquisition, if Direct-to-Consumer is to be truly sustainable.