Effective “Total” Direct-to-Consumer Approach Can Keep Brands and Companies Relevant, According to L.E.K. Report
BOSTON, MA (July 16, 2019) ― As consumers’ preferences have shifted to expect more personalized interactions with brands, successful companies have embraced direct-to-consumer (DTC) distribution alongside traditional retail to maintain relevance. In fact, 65% of brands now sell directly on their own sites, according to a new report from L.E.K. Consulting based on a study of 176 leading brands across consumer goods categories.
Those brands have learned that a broad, comprehensive direct-to-consumer strategy, where brands reach consumers directly without using a middleman such as an online or physical retailer, can have a myriad of benefits. They include: increased control over the customer experience, higher-margin sales, deeper customer loyalty and a larger quantity ― and better quality ― of consumer data. And a mature direct-to-consumer strategy can help hedge against shocks and disruption in the retail landscape, for instance, the debacles at Toys ‘R’ Us and Sears.
As digital native brands (such as Casper and Dollar Shave Club) successfully forge a range of business models – and demonstrate what works and what doesn’t – traditional brands need to pay attention or risk losing ownership of consumers, according to L.E.K. In fact, many brands are catching on: Direct-to-consumer distribution from both leading and emerging brands is increasing as the rise of technology and scalable platforms make reaching customers directly easier and cheaper than ever before.
“Too often companies take a narrow approach to direct-to-consumer and don’t look past selling direct on their website. Brands really need to think more broadly to coordinate every touch point with the consumer for a ‘Total DTC’ approach,” says Rob Haslehurst, Managing Director at L.E.K. and coauthor of Total DTC: Building a Better Approach to Reach Your Consumers. “In essence, this means building a strategy that covers every stage of the customer life cycle. Otherwise, brands may cede customer relationships to retail and digital native disruptors.”
According to L.E.K., the strongest direct-to-consumer strategies touch customers directly at the three key stages of the customer life cycle:
- Acquiring new customers. Personalized marketing is crucial to direct-to-consumer business. Brands need to develop a view of customer segments that factors in channel preferences and interest in direct engagement. When combined with an investment in customer identity, brands can direct consumers with different characteristics to the most effective messaging and experience.
- Selling to customers directly. It’s rare for brands to have a website that can push meaningful dot-com sales right out of the gate, so developing and improving a digital platform for users with a seamless experience, safe and hassle-free checkout, free (or cheap) shipping and reliable customer service is critical to continued success. Some larger consumer companies have acquired DTC native brands to rapidly build these capabilities ― Serta Simmons, for example, did so by acquiring Tuft and Needle.
- Engaging with customers. Brands need to focus on communicating with their customers in a relevant and authentic manner. Loyalty or advocacy programs are great ways to reward and encourage customers to maintain ongoing engagement.
“Success at direct-to-consumer selling means success at building out a retail function, which for many brands entails using a new muscle group,” says Jon Weber, report coauthor and Managing Director at L.E.K. “This often means that brands need to set up a new business unit with outside talent and well-leveraged partnerships.” For instance, Nike recently created the “Nike Direct organization,” which brings together Nike.com, owned retail and Nike+ digital products.
“Despite the numerous benefits that a focused DTC strategy can yield, there are, of course, several challenges,” says Noor Abdel-Samed, Managing Director at L.E.K. and report coauthor. “Brands will need to both develop capabilities to reach and understand their customers and balance the needs of any current channel partners. That could mean investing in new infrastructure and talent across the organization.”
About L.E.K. Consulting
L.E.K. Consulting is a global management consulting firm that uses deep industry expertise and rigorous analysis to help business leaders achieve practical results with real impact. We are uncompromising in our approach to helping clients consistently make better decisions, deliver improved business performance and create greater shareholder returns. The firm advises and supports global companies that are leaders in their industries — including the largest private and public-sector organizations, private equity firms, and emerging entrepreneurial businesses. Founded in 1983, L.E.K. employs more than 1,400 professionals across the Americas, Asia-Pacific and Europe. For more information, go to www.lek.com.