Why DTC stands for more than just direct-to-consumer
When it comes to naming the direct-to-consumer business model, two acronyms are commonly seen, DTC or D2C. Both are used interchangeably since there’s no practical difference in their meanings.
VTEX chose to go with the DTC spelling for a number of reasons, but that’s not what we want to dwell on now. Here at VTEX, we’re looking forward to shaping the commerce industry and accelerating the digital transformation of enterprise brands and retailers – and we don’t settle for the common. This is why we believe there’s more to the DTC meaning than the one above. Below, our defense as to why DTC is akin to being digital-first.
As the name properly suggests, this model consists of companies and brands that operate by selling its products and services to the end-customer, without an intermediary, be it a retailer, distributor or wholesaler. Recently, it’s been a trend in several industries that have always had this third party in between them and customers.
One such industry is the CPG one, which sells to distributors to then get to the final clients. Coca-Cola is an example of how those companies can take advantage of this one-way path to the final consumer: in Chile, the company’s DTC (or D2C, if you wish) ecommerce had a YoY growth of 500%.
Additionally, we also see the automotive industry undergoing similar DTC projects with pioneers like Nissan Brazil. In parallel, consumer electronics companies such as Whirlpool, SONY and Motorola are becoming true DTC brands, not to mention the fashion industry which is already well versed in selling directly to consumers, as C&A can testify.
Far from taking this trend at face value, we need to ask ourselves: why go direct-to-consumer?
Why go DTC?
There are several reasons that lead to businesses starting a DTC operation. The first and main one is to gather data from end-customers – numbers and behavior analytics that answer questions like what are they looking for?, how is the demand for a certain product or service?, is a price working? and many, many other business questions that are fundamental to helping companies grow.
Besides that, demographic data, to which a business doesn’t always have direct access, is also gathered from a DTC operation. You get to know your real customers in a way that you, as a brand or retailer, couldn’t before.
The second reason is to offer those customers a better experience, one they’ve never had access to before. Having more control of what and how it can be offered is a way to align it with consumers’ expectations and to actually reach them in a personalized, tailor-made way. With an intermediate along the way, it becomes much harder.
As digitization grows and people get used to doing everything digitally, especially after a pandemic, it becomes even more important to reach their expectations. An example is that many companies started to invest in DTC programs when the pandemic began, such as PepsiCo and Kraft Heinz, both CPG companies. Nike, which for long has been operating direct-to-consumer, saw its digital sales grow by 36% in the first quarter of 2020, aiming to grow the share of this channel’s sales to 50%.
Direct-to-consumer as a strategy, but not only
Going DTC is a business model that companies can follow to achieve better results and get insights they wouldn’t in a different way, as mentioned above. But from our perspective, it can also refer to digital-first companies that were born in this environment filled with data and new consumer habits.
And that’s because the mindset owned by digital-first companies is also what drives brands that decide to go direct-to-consumer. They take advantage of their proprietary channels to communicate to customers, bond with them in ways intermediaries wouldn’t or couldn’t, and to also become more human by transmitting their missions and values and engaging with causes they stand for.
Simply put, we can say that brands with a digital mindset are born with a DTC DNA – they just don’t use it as a strategy to grow, which has currently been the trend among industries, especially CPG.
Success cases usually mention the Americans Casper, Warby Parker and Glossier. The latter revolutionized the skincare and make-up industry in the US and in other countries where it operates and became a brand desired across the globe.
It was born, of course, digitally, co-creating its products with the digital community it sparked off. It says it follows a “fueled by community” strategy and it does, indeed: Emily Weiss, its founder, owned the blog Into the Gloss prior to founding the company. It reached over 1.5 million readers per month and, seeing the need for new beauty brands, Emily simply took all the demand and opinions shared by those people and combined them into products. And that still remains a pillar of Glossier: attention to what the community is saying and requesting.
In 2017, Glossier’s sales grew up to 600% and, in 2019, it was valued at $1.2 billion USD. In July 2021 it announced Series E funding (the latest, as of 2021), which raised $80 million USD. The brand’s ascension probably won’t stop there.
It’s all about having a digital mindset
The point of it all is to suggest that though DTC or D2C nowadays refers to a business strategy that companies should follow, we defend that it should also refer to how companies should approach their businesses, namely through a digital perspective. In the end, DTC companies are those that were born in an environment with the satisfaction of their customers as the end goal.