THE DTC PLAYBOOK: CHANGING TACTICS FOR OPTIMAL GROWTH

The direct-to-consumer (DTC) business model has changed the digital commerce world. By cutting out the middlemen in the traditional supply chain and tapping into new markets, brands and retailers have created a system where they can offer goods directly, easily and under their own control.

But recent events mean brands are being forced into taking a hard look at how they can optimise their DTC channels.

Over the past two years, investments have decreased, as has retail revenue. Causes for this include the war in Ukraine, the “end of pandemic” pandemic, and trade policy uproar.

In the Eurozone quarter for 2021, it was calculated that monthly sales were down by EUR 1.7bn. Sales also declined in countries with normally high activity, such as Italy, Spain and Germany especially during the lockdown phases of 2020-2021, but also more consistently since December of 2021.

Despite this, there has been a growth spurt in online purchasing during the last two years, even as consumers have begun to return to in-store engagement. According to McKinsey, consumer activity will be nearly 80 per cent via the metaverse by 2030.

Now in late 2022, we have seen a rise in inflation, ongoing EU, UK and global supply chain issues, trading policy conflicts, and a looming recession, all of which are making players re-evaluate the DTC playbook.

At the ECD Global London, Andres D’Alessandro, Senior Manager of Partner Commerce at Adidas, and Matthias Schulte, CEO of Tradebyte, have offered some insights into the limits, responsibilities and future direction of DTC.

Here are some key insights to ponder for next-level merchandising:

D2C is encouraging brands to define the model for themselves.

By definition and at its core, DTC marketing incorporates all the ways that a brand markets to their consumers directly, instead of using an intermediary retail business. But these methods cannot remain static, especially in the face of massive global upheaval.

Matthias Schulte recalls the naive origins of DTC wherein “brands dropped off a certain assortment with one unique pricing, with consistent stock allocation and distribution across all channels, then waited for the orders. They weren’t even aware of individual carrier costs on a channel level.”

But the changing retail climate is raising new questions while creating new opportunities. Matthias highlights, “nowadays DTC steps into getting a share out of the wholesale business and that’s completely changing the game.”

Is the need for scale and growth perhaps forcing D2C intervention?

More forthright, has D2C lost its effectiveness for growth? We cannot be sure, Andres D’Alessandro insists, “the fastest growth will come from DTC versus the biggest growth, which will come from marketplaces or the dotcom.”

The omnichannel approach continues to be a leading driver, as well as the vehicle for any wider reach amidst new restrictions. Whichever transformation model, and more importantly, whatever the goal is, brands and retailers are still unsure what to focus on for optimal success.

Key questions might be: Do we need to keep up with data speed? Who is responsible for rewriting the playbook of steps to success? Do we need to create our own paths to our own version of DTC? The latter would be a power move in the game.

Your content can improve your data and vice versa

Figures, metrics and insights are clearly important, but they are meaningless in the absence of data awareness. That means collecting data that is useful specifically to your business. As Andres firmly notes, “you have to be able to read it, you have to be able to understand it, you have to be able to ask questions.”

This sounds easy, but making data-driven decisions is not simple. Data insights and visibility are important factors. Should you be investing in BI tools and Authorization? Possibly. Whether you are newly integrating or want to enable steering, trading and stock play into it as well. But since processes do not dictate nor influence pricing nor stock allocations, the inevitable core value is in performance marketing and the generated analytics.

The technical side of content management is seminal

Ideally, a DTC brand has a marketing strategy in place with a solid SEO plan for better sustainability in several markets as well as good ROI. SEO enables you to incorporate better keywords in your content for better reach, making it easier for customers to locate your brand. There are various SEO tools to invest in to be ahead in the marketing game.

Other elements that are used to gauge the efficacy of your marketing plan include:

SEO Rating
Social Media Comments
Product Reviews
Engagement on webpage
Probability of Clicking through

But how do you improve your listings and product- or channel engagement? Matthias believes, “that by improving content and everything around paid campaigns and sponsored products, you can improve listings. It’s how you can gauge response as well as see the challenges coming up.”

In addition, if the goal is to build a unique brand based on data and gain optimal reachability, having full authority on content decisions, like one’s own channel, is worth the investment. Andres agrees, “brands with their own DTC channel have a much stronger presence.”

Is a brand as good as how fast it gains its audience?

Speed may be the wrong focus for many brands. Rather than speed, the key is making the best decisions with the acquired data. Forever 21 is a great example of a brand using data to calibrate an effective strategy. By using Facebook and Instagram, they have been able to reach their major consumer audience, the flourishing digital native.

Being first could prove relevant if your development or new technology not only works, but is successful. However the process of how a brand gets there is actually paramount for healthy growth and maturity. Andres insists, “being first doesn’t necessarily mean that you went through the process quicker, it means you went through the process cleaner and you got to the result that you needed.”

Playing by the rules could offer new opportunities

With aggressive changes to markets come new restrictions but also opportunities. Matthias says, “there are guidelines in order to play, and freedom within that to find means to uplift a brand.”

The tactics and modules of D2C methods, while tried and tested, could be growing stale. The necessity for brands to challenge old methods could be the tipping point of creating something new from the classic three.

Playbook 1: Brand’s purpose anchored around one product category.
Playbook 2: Brand’s purpose anchored around multiple product categories.
Playbook 3: Brand’s purpose anchored around aggregation of other brands.

From time to time, there will be a hot new influencer who posts a video shot on a low budget and suddenly a brand goes viral. They have hacked the tried and true system of a “playbook” for proper strategy and form.

While this type of skyrocketed success is not rare, it is an exception not a rule. For most players, tech and invested programs or software are necessary. Andres points out, “having all those tools increases the likelihood that you’re going to be successful, and when you’re a major brand, you need that. That’s beyond a shadow of a doubt.”

In this case, size makes a difference. A brand like Adidas needs multiple people and departments to make a decision about content, compared with a smaller brand that can post something ground-breaking at just the right moment.

Timing and social awareness can also play a role. Social media, paid adverts, and even in-store displays should reflect the current social climate needs of consumers.

Even if you are successful in doing so, you should still be exploring the next step, trend or “it” factor that is currently hitting the metaverse.. A couple of years ago, shoes made from ocean plastic waste were a huge hit. What will make an impression in next-level merchandising is unknown until it hits the retail world, so it’s important to stay up-to-date.

What could potentially define next-level merchandising in the next three years?

The double-edge sword of DTC, in its malleability and robustness, comes from its puzzles. It’s difficult to say which component will need tweaking and when. Matthias explains that, “it’s ultimately about how to deal with this complexity, within a fragmented space, be it on the channel side, on the tool side, on the capability side, and which one of those to put into play.”

While much may be changing in DTC tactics, Andres remains convinced that consumer focus will always be the most important rule. “Start with the consumer first. Identify very clearly which consumer you want to be talking to and focus on them. You can execute it from any different angle, but you’re going to be, at the very least, communicating to your target audience.”

Despite facing lockdowns and the shift from offline to online, DTC remains currently unstoppable. Andres believes that, “we may be in a year where everything is being reset. Brands that were very skewed towards growth are definitely making the shift over to profitability.”
2022 is almost over, but change is already here. How to unlock full growth potential and navigate the new demands on D2C may require us to embrace its inevitable reckoning and learn how to break new ground.