Dec 1, 2023

Why DTC is still the best way to drive innovation

Purposefully executed DTC offers very significant opportunities to meet the rapidly changing needs of consumers. DTC’s advantages are often overlooked

Why DTC is still the best way to drive innovation

Many business leaders see e-commerce as just another distribution channel. They wonder about the economic viability of DTC from a customer acquisition perspective (versus incumbent retail channels). But they’re missing the point, as DTC offers direct access to end-users and their data, while removing the demands of intermediaries like retailers or social networks.

When the powers of DTC are harnessed, it’s invaluable for anyone trying to build a beloved brand that stands the test of time. Why is this?

DTC helps brands unlock “niche” opportunities

Consumer preferences are changing. Increasingly, consumers prefer brands and products that reflect their intersectional identities. Therefore, brands that can profitably serve “niche” categories will reap the benefits.

But today’s retailers impose structural limitations on everything from category (which “aisle” will a product be put in), to the size of opportunity they are willing to take on (how many people might buy a certain product). That means brands sold in most large retailers converge towards the “median” customer in an already established category. DTC, unconstrained by these factors, can instead focus on specific customer segments and their needs, no matter what the scale or category definition.

Need an example? Look to NOBULL, which identified a niche within the functional fitness crowd and built a great brand on top of it. Omorpho is another new brand doing interesting things in the same space.

DTC delivers the data

DTC allows a brand to engage with customers on an individual basis but at scale, while also getting real-time feedback and an understanding of what is motivating and inspiring customers. Brands are able to see what people are buying, clicking on, and thinking about. This gives brands real insights into the mindset of their customers and the resonance of what you are offering them or the way you are talking to them. Used correctly, this data can help inform strategies to meet the customers where they are. These can range from the brand side to the product side, and everything in between.

For example, Grove Collaborative, in the CPG space, has shown that it can successfully launch new brands by leveraging strong proprietary first-party data that allows them to quickly understand their customers.

DTC drives product innovation cheaply and quickly

DTC is the cheapest, most nimble and most responsive way to drive product innovation. This is for three reasons.

  1. Brands are able to launch products at any time that they want, unconstrained by the seasonal merchandising calendars of retailers. Shein is an obvious example here, flipping the apparel world on its head in doing so, while Fashion Nova in the US has done similarly. This drastically reduces the time-to-market and allows brands to optimize based on customer-need, not retailer need.
  2. Feedback on a product is near-instantaneous through purchase data and, soon thereafter, digital reviews. Deeper second-order metrics, like repeat purchase data and product referrals to friends, show which products people really love - and why.
  3. You can use e-commerce to actively include customers in your process, acknowledging and responding to their input, and flagging what changes you are making and why. Glossier was the pioneer here and showed the world that a brand can not only work with customer input to improve products but doing so will help build community.

So much innovation is driven by retailer merchants working hand-in-hand with product teams at brands with timelines that can approach three years. The merchants are working to fit things into their predefined categories at a very large scale. This reality does not lend itself to rapid innovation.

By embracing the ability to sell at whatever scale befits the opportunity, leveraging data to deeply understand their customers, and using fast-cycle times to iterate on products, the most forward-thinking brands will use DTC to innovate, test, and hone their offerings quickly and efficiently.

Ultimately, the brands that fully embrace DTC will be best-positioned to meet customer needs.

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