One of the largest retailers in the world is doubling down on direct sales. According to Market Realist, Nike, the undisputed leader in the sports apparel business, is focusing on its direct-to-consumer (DTC) channel and plans to grow this part of its business by 250 percent in the next five years. In the company’s forecast, its DTC sales will reach $16 billion by 2020—a massive increase from the $6.6 billion this channel generated in 2015.
Nike is not the only company focusing on the DTC business. More retailers are investing in direct sales by beefing up their e-commerce sites and opening brick-and-mortar stores everywhere. Even in the automobile industry, where the traditional dealership model is long-established, forward-thinking companies like Tesla Motors are going the DTC route.
So why is the direct sales strategy becoming critical in the business world? There are three main reasons why, for many companies, the DTC model needs to be part of the revenue mix.
1. Consumers are demanding a better experience.
With the rise of mobile, social and cloud technologies, customer expectations continue to increase. More than ever, customers demand a more seamless experience. For many businesses, customer experience is the new battlefield—a competitive advantage that attracts and keeps customers.
When wholesale manufacturers sell through retail distributors, they have very little say on how the product is sold. They’re at the mercy of the distributor to ensure that the customer leaves the store (or the website) happy and satisfied. By selling directly to consumers, companies can envision how the customer journey should take place and execute the tactics required to make that vision a reality.
Selling directly to customers, however, doesn’t necessarily translate to better customer experience. If companies don’t have the necessary insight, processes and culture in place, they won’t be able to provide a seamless customer experience. An understanding of the end consumer is required to ensure that any direct sales effort improves the customer experience.
2. The direct-to-consumer model gives companies an opportunity to build their brand relationship with customers.
DTC allows companies to control their brand’s story and relay their messaging directly to consumers.
“If a consumer chooses your product over a competitor’s on a retailer’s website, you might have won a sale—but you’ve lost the opportunity to build a relationship,” says Alex Becker, global VP of branded manufacturers at commerce-as-as-service solution provider Digital River, about the role of DTC selling in building a brand. “A distinctive, compelling and focused public-facing brand experience, complete with direct-to-consumer online sales, lets manufacturers control and cultivate relationships with customers that transcend retail channels.”
Of course, building a brand through the DTC strategy also presents some complications. In particular, a robust DTC presence could endanger another important marketing channel: selling through retail partners. Nike’s aggressive push for direct sales, for instance, puts its relationship with retailers in an awkward position.
“[Companies like Nike] tell us with a straight face that online sales really doesn’t do that much volume and it is to increase awareness of the brand, that we shouldn’t be afraid,” Ray Pugsley, co-owner of the Potomac River Running chain in the Washington, D.C., area tells the Wall Street Journal about retailers’ efforts to pursue DTC. “Time will tell whether that is a good story to put us at ease, or whether it could be the truth.”
Since retailers have aggressively pursued DTC, some sportswear chains have folded, including Boston’s City Sports.
To avoid upsetting their retail partners as they expand their DTC channel, companies need a more holistic understanding of their consumers and to use that insight to find the right balance. For instance, companies need to figure out which consumer segments prefer to buy directly from retailers—and why.
Companies could also use their DTC channels to bring insight to their partners. For instance, this channel could be a way to test new products and campaigns in a smaller, safe environment before they are scaled out to retail partners. Customer intelligence can help companies make better decisions about their DTC efforts and provide the necessary insight to help their retail partners sell more.
3. Direct sales allows them to collect customer data.
For many brands, the most compelling reason to sell directly to consumers is the potential to collect massive amounts of customer data.
“DTC channels are an opportunity to build up the lifetime value of consumers because brands can garner information about their customers and tailor personalized shopping experiences to them,” says Reuben S. Hendell, CEO of e-commerce technology provider BrandShop. “It’s important for brands to be able to deliver personalized experiences, not only to drive more sales but also because 75 percent of consumers prefer it.”
While selling directly to consumers makes it easier to acquire customer behavior data, companies need to make sense of all that data. Unfortunately, data alone doesn’t provide a complete picture of the customer behavior. To be able to improve the end-to-end customer journey, companies need to integrate the transactional data they get from all their channels.
More importantly, direct and authentic engagement with customers is required so companies can understand the why behind customer behavior. Whether companies invest in DTC or not, they still need to engage with consumers on an ongoing basis to gain the necessary customer intelligence for their business.
Companies like Timberland, REI and Under Armour are finding success expanding their DTC channels. It’s no wonder more brands plan to open their own retail shops and invest in their mobile and e-commerce sites. As more retailers aggressively pursue this strategy, the brands that can deliver the best experience—both to their customers and to their partners— are in a position to win.