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Direct-to-Consumer - DTC*

* It seems we have now grown up enough to use something like correct grammar in our acronyms ... in this latest abbreviation 'to' has replaced the juvenile '2'. Hurrah. Bring on BTB and BTC.

In the mid 1990s predictions were that the Interweb would see all shops closed by the turn of the new century. With UK online stuck at around 25% of all retail sales and at only 8.5% in the USA [half of that with Amazon] this has proved not to be the case.

The cause of this 'failure' can be found in the concept of the chain, or channel, of distribution, where products are rarely sold directly from the manufacturer to the end user. Instead, groups of manufacturers and food processors supply retailers ... who, in turn, offer buyers a whole range of products under one roof. This means the manufacturers, who have no expertise in selling to the end user, can get on with what they are good at - manufacturing - and the retailers can get on with what they are good at - retailing to the end consumer [more on this later].

So ... whilst some folk might order groceries from, say, Tesco.com - they would never spend several hours ordering a tin of soup from Heinz.com, bread from Warburtons.co.uk, carrots from somefarmsomewhere.co.uk and so on and so on [that's a potted history of retailing by the way]. However, for some manufacturers, it can make sense and we are now seeing some manufacturers selling direct to consumers. This being the case - and here lays the lure of DTC - as there is no middleman to take their slice of any income, there is more profit to be made.

Take Adidas, for example, who are reportedly closing some shops to concentrate on DTC e-commerce. However, Adidas have a massive range of products that constantly updates and changes and so it would be impossible to get all of their products into one store - even their capital-city-centre 'flagship' shops. Indeed, go in any sports shop [there aren't that many] and you will find a representation of the Adidas range - mainly the best selling/lower value stuff [think: SportsDirect, FootLocker and, yes, Adidas Outlet]. But if you want those latest EQT BBALL shoes forget it, they're not there. Or if they are on the high street, it's not in your size or that unusual colour you want. They are not produced in sufficient numbers [part of their 'premium' appeal] to supply every shop in the world with every colour in every size]. So ... the brand keeps the SportsDirects of this world supplied with 'common' - in several senses of the word - product lines [as well as discontinued products for fashion laggards] and sell the niche [i.e. low volume/high profit] stuff online. That makes sense. Note however, that moving a major brand towards BTC doesn't come cheap. To develop its offline elements of its online sales - logistics and infrastructure - Adidas is reported to have budgeted 900m Euro in 2018 alone. Which kind-of suggests that over time the sports apparel brand is looking to move more of the 'common' sales online. Whether this will meet the buyer behaviour of that market segment remains to be seen.

When teaching the chain of distribution, the traditional example of selling direct to the consumer is the farmer who sells fruit and vegetables to the passing public from their farmyard. The modern day equivalent in successful DTC would be wine - which has far easier logistics to fresh vegetables. More commonly, however, the DTC concept is applied to manufacturers whose sales are online only. The most successful of these invariably manufacture and sell few, or even single, products - making sales and marketing less complex. The apparent success of several mattress manufacturers supports this notion [e.g. Eve, Simba and Casper - though note that the latter has announced plans to open 200 physical stores in the US], as does the number of websites from which men can order shaving supplies direct from the manufacturer [e.g. Harry's, Shavekit and Dollar Shave Club - the latter being purchased by Unilever for 1bn dollars in 2016] and beauty products [e.g. Glossier]. Interestingly, these examples for DTC come from opposite ends of the 'frequency of purchase' chart. The shaving provisions being delivered on a monthly or even weekly basis, beauty products as and when required and mattresses being a rarely sought product [10+ years is, apparently, the norm for mattress replacement].

A further opportunity is for manufacturers to sell some - or even just one - of their products direct-to-consumers. This is particularly the case if the product is fixed [i.e. one size/colour/etc] and small enough to be delivered through a letterbox. An example of this is pharmaceutical giant Pfizer, which - on the back of a decision that it can be sold in pharmacies without a prescription - started selling Viagra direct-to-consumers. Naturally, this was supported by TV adverts for the erectile dysfunction medicine. Compare this with the complexity of pharmaceutical marketing faced by Pfizer for the rest of its product range.

An interesting development of the 'new' DTC is that most of the marketing is developed in-house with little, or no, use of outside agencies. This flies in the face of the concept of the chain of distribution which states that the manufacturers pass on the marketing and sales of their products to others [marketers/retailers] so that they can get on with the manufacturing. This state of affairs seems to have developed because the manufacturers have their own ethos or personality which works well as a marketing tool. Essentially, these manufacturers have their own in-built brand. Almost by definition, because they have broken the rules of [the chain of] distribution their owners tend towards the maverick and don't take themselves too seriously. Hence, this is reflected in the mode of marketing of the most successful of the new wave of DTC brands - which is best developed in-house where employees are part of that personality.

However, there are also examples of DTC quoted by evangelists of the concept that - in my opinion - don't really count as being DTC because the product is, by its nature, a repeat order of an offline purchase - contact lenses, for example.

Of course, some industries lend themselves to DTC - and so have been revolutionised by the Internet. Insurance, air travel and hotels for example ... though the latter is likely to be via a booking site [e.g. Booking.com] and insurance through a price comparison site [e.g. MoneySuperMarket.com] - and so is not really direct to the customer. Similarly, any manufacturer that sells to the end user via the likes of Amazon or eBay is not DTC - the third party website is a channel of distribution [though, as retailers take ownership of products before selling them - it is not always the case that eBay and Amazon act as retailers].

DTC ... or just e-commerce?

A further caveat to 'what is DTC?' is that the concept is all about manufacturers selling direct to consumers. I wonder just how many of the much-heralded-by-the-press/industry examples are actually manufacturers of what they sell. For example; the aforementioned Casper [a darling of the DTC evangelists] is - according to Wikipedia - a privately held, U.S.-based, e-commerce company that sells sleep products online. As far as I can tell, they do make the mattresses ... but what about the accessories - pillows, pillows, sheets etc? And do those shaving suppliers actually make all of the products they sell - or do they buy them in?

Or is this another instance where non-marketers in digital marketing have hi-jacked a concept which they don't really understand and created their own 'revolutionary' concept of marketing? Of course this 'new' concept of marketing is one that none of us traditional - that means marketing-educated - folk would never have dreamed of because we are too old and not able to move with the times? And it seems I'm not the only person who thinks this way ... see what the influential Tom Goodwin (Google him up if you don't recognise the name) has to say in The unlikely secret to direct-to-consumer success.

Furthermore, the Manufacturer Model - where ' ... income is generated by selling goods direct to the end user, so reducing the dependence on channels of distribution' is one of David Rappa's 1998 list of online trading business models. The list was not only insightful back then, it has stood the test of time well.

However, Rappa didn't conjure his list from thin air. He would have been aware of history's success stories of selling direct to consumers originally through magazines or brochures - Sears is the obvious example. There were also 'DTC' sellers who adopted the Internet when it came along, Dell is the best example here ... although Dell did, and still do, sell mainly [direct] to business users - which is B2B.

A final comment would be that, in line with my conviction that in marketing, digital isn't the only option, it is noticeable that the examples of DTC quoted in this article all use significant amounts of TV advertising. It would appear that to be successful in selling their product direct to consumers online, manufacturers must use offline marketing to drive consumers to those websites. There's a certain irony in that.

* UPDATE April 2019: DTC razor brand Harry's strikes retail deal with Boots.

* UPDATE October 2019: As more DTC companies are bought by brand names, and as most DTC companies have Venture Capital funding, and as most [all?] DTC companies don't seem to make a profit [for no profit, read: massive losses] many commentators are drawing the conclusion that the goods were deliberately sold at a loss on each item in order to build sales and so make the companies attractive to potential buyers - and by selling to a major brand the investors all make a nice return. Ethical? You decide?

* UPDATE January 2020: Outspoken marketer Mark Ritson speaks out against DTC, see The story of Casper shows there is no DTC 'revolution'. Also, it would appear I'm not the only person who is sceptical about this DTC malarkey. Read this excellent debunking of a book that eulogises the practice ... Barons of Crap.

* UPDATE March 2020: two and a half years after it launched, DTC trader Brandless closed down.

* UPDATE April 2020: another similar opinion on DTC ... Why All the Warby Parker Clones Are Now Imploding.

How to cite this article:
Charlesworth, A. (2018). Direct-to-Consumer - DTC. Retrieved [insert date] from AlanCharlesworth.com: https://www.alancharlesworth.com/DigitalMarketing/direct-to-consumer

This page was first published in July 2018 ... but it may have been updated or amended since then.