The Key Differences Between DTC and Retail
The world of commerce has totally transformed over the past few decades, and there have never been more channels to reach customers with your products. With the rise of digital consumers, direct-to-consumer sales (DTC) are fast becoming a powerhouse e-commerce channel. However, the traditional retail channel continues to present significant advantages for producers and manufacturers too, offering unparalleled consumer reach and greater efficiency.
Read on to learn how these sales channels differ so that you can leverage them in a way that’s better for your business.
Consumer Reach and Relationships
The retail route facilitates exposure to a vast range of consumers, since buyers are happy to put their trust in products that have been selected by a reputable retailer. The familiarity of major retailers means that consumers return to these stores to make future purchases, increasing the chance that they’ll interact with your brand.
However, retailers also present products from competing brands, and the transactional relationship remains between the retailer and the customer. In this setting, individual brands can often get ‘drowned out’; the customer may feel a stronger connection with the retailer than with a specific brand. As such, elements like branding and packaging play an important role in catching customers’ eyes and differentiating each product.
The DTC approach often involves more legwork in terms of building customer reach, drawing customers away from the retail market to purchase from manufacturers directly. This limits customers’ choices to the offer of a single brand only—although the paradox of choice tells us that this isn’t necessarily a bad thing.
The clear benefit of direct sales is that manufacturers can tailor their products to their audiences and engage in more personalized interactions. When it comes to resolving any customer dissatisfaction, this is also a useful relationship to have fostered. Brand accountability could salvage a relationship between the company and customer.
Loyalty & Values
Because the retail channel obscures the relationship between manufacturers and customers, it’s difficult to obtain customer information this way. In turn, it’s much harder to identify brand loyalty and reward it with promotions and personalized offerings.
Retailers also host a variety of brands and product types, which means that the values they stand for, need to be broad enough to represent all the brands they carry. As a result, retailers often have more vague value statements because they can’t vet all the manufacturing processes for every product they carry.
For loyalty and value-based engagement, DTC has several distinct advantages. Firstly, a direct transactional process means DTC manufacturers can track customer loyalty and offer rewards to repeat customers.
What’s more, having a clear set of values behind your business has become a major point of interest for today’s consumer. Brands operating through DTC processes have total control over all elements of supply, production, and sales, enabling them to enforce ethical production standards and integrate their values across their business. Presenting a strong value alignment to your customer is an exceptional way to connect with them on an emotional level, proving that your brand has integrity and authenticity. As a result, they’ll be far more likely to shift their loyalties in your direction.
Margin & Pricing Models
As the middleman, the retail channel eats up a portion of the sales margin, which allows them to benefit from economies of scale throughout the supply chain—as well as in the manufacturing process. Lower costs here open up bigger budgets for marketing and distribution.
Retailers are also in control of the pricing models applied. While retailers can team up with brands to provide discounts or cashback opportunities, these are likely to require more paperwork for consumers, since the process is mediated by the retailer.
In the DTC approach, manufacturers have more flexibility around pricing: they can reward customers for loyalty, create subscription models, and define their own returns procedures. Because the middleman is eliminated from the transaction process, brands also retain more of the profits generated from sales—which means DTC can actually rival retail channels in terms of revenue. These additional profits can then be reinvested into the brand’s future, with loyalty programs or investment in product innovation.
The innovation advantage inherent in the DTC model doesn’t stop there. Again, DTC brands have an advantage over retailers because the direct relationship provides more avenues for information exchange, feeding into innovation efforts.
Retailers tend to buy large batches of products. While permitting them to save through economies of scale, it also means that they don’t have immediate access to customer feedback about how products can be improved. DTC manufacturers, on the other hand, can leverage a smaller, more loyal customer base to obtain instant feedback on products and make tweaks accordingly.
Insights & Data
The retailer channel and DTC model generate two different types of data: market and consumer behavior. Because of their role as a distributor, retailers have the lead in market data, giving them comparative insights on different products. This makes it possible for retailers to forecast demand, and adjust their supplies accordingly.
Both retailers and DTC brands have access to consumer behavior data, but they may be used to different ends. Retailers tend to use these insights to define pricing strategy and increase consumer lifetime value. Through their carefully nurtured relationships with their customers, DTC brands leverage consumer behavior insights to personalize the consumer experience—a proven effective marketing strategy. The DTC model also has a competitive edge in using these insights to innovate, capitalizing on trends emerging among their select audience.
DTC sales reached $111.54 billion in 2020 in the US market alone—and they are forecasted to climb all the way to $174.98 billion in 2023. Today, DTC sales represent a promising avenue of opportunity. If you’re considering taking the leap into DTC,
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Request a demo now to find out how we could help your brand take control of data and level-up in customer engagement.
This article was first published by Mapp. Permission to use has been granted by the publisher.