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Understanding the 4 C’s in a DTC Strategy

Loretta Soffe

By Loretta Soffe

2/22/2023

Overview

If you have a business reliant on traditional distribution models, you might be wondering if switching to direct-to-consumer (DTC) is right for you. The benefits of a DTC business are clear, but before making the switch, you should evaluate your customers, competitors, capabilities, and costs to ensure you can afford to make the move and have a plan for success.

Is it time to make the switch? 

If you have a business, primarily reliant on the traditional wholesale or retail distribution model, you might be wondering if DTC is the right path for you. It’s a fair question, and one that deserves a clear understanding as there are obvious benefits, but also financial implications and barriers to entry including internal capabilities, online infrastructure, access to capital, and a highly competitive marketplace including AMAZON. 
According to a recent IAB study, over two-thirds of consumers have come to expect direct access to a brand, and about 67% of customers have used a company’s social media for customer support. 
For most businesses, the most obvious hurdles are organizational and operational deficiencies combined with competing in a very crowded market.  In reality, the biggest challenge is the revenue and profit losses that occur when wholesale is decreased and DTC is being built. Brands that have relied on revenue from the wholesale partners to invest in the business are at a massive disadvantage when compared to the digitally native brands that use investor funds to develop and promote their DTC channel.  The key is BALANCE.  As you gradually turn off one channel, you continue to optimize and strengthen the other. 
But, if you agree that the majority of commerce is done on the internet, and the best decisions are made with data, then this is the only option for growth.  
The benefits of a DTC business are clear: 
  • 100% control of your brand and communication 
  • Ability to test price and promotion 
  • Access to data about your customers 
  • More profitable than selling through retailers 
  • Control of the product development calendar and delivery to market 
How to make the switch:  
Before jumping to buy some turnkey software solution, you need to
1- Start with your CUSTOMER: 
  • Where are they consuming products, services and content? 
  • What is motivating them to engage and spend? 
  • What do they love about your brand? 
  • What do they expect from you? 
  • How can you serve them 24/7? 
  • Why would they shop from you vs. alternatives? 
2- Study your direct and indirect COMPETITORS:  
  • What is their value proposition? 
  • How are they differentiating themselves? 
  • How and where are they communicating with customers? 
  • Why are they winning? 
3- Evaluate your CAPABILITIES: 
  • Do you have the online infrastructure to execute? 
  • Do you have shipping / warehousing capabilities? 
  • Do you have expertise in content creation and digital marketing?
  • Do you have a clear understanding of what data to use? 
  • Can you make data driven decisions? 
4- Understand the COST: 
  • ​How much capital do you need to invest upfront? 
  • What revenue losses can you expect and handle by decreasing wholesale?
  • What is the difference in your profitability? 
  • What capital do you need to consistently invest in online marketing? 
  • What capital do you need to invest in organizational capability? 
  • What will you save by changing your business model? 
Go where your customer is … now. 
My advice: don’t settle for what’s kind of working today. Challenge yourself to make BIG things happen tomorrow. Work within your financial and organizational constraints and do what you can afford to do NOW.  You can layer on and spend more as business improves and resources become available. In this time of constant change, it is critical to make a move so you are better prepared to ride the wave in lieu of getting wiped out.  If you want to go where your customer is, you will quickly realize DTC is not an option but an imperative. Building a direct relationship with your customers and delivering the right product, at the right time, at the right price, will foster a better customer  experience.  With a better brand experience, your customers become loyalists and then evangelists, and will do a lot of the selling for you.