D-to-Cs Proved Resilient in 2020. Here’s How They Can Sustain That Momentum.
We've recently passed the one-year mark for the pandemic economy, with all of its volatility, uncertainty and disruptions. Among the most emphatic takeaways is that direct to consumer (D-to-C) has proven incredibly resilient through these changes. In some sense, it seems obvious in retrospect, that brands built on the potent combination of direct distribution, online commerce, and people-based marketing would succeed in the stay-at-home reality. Our own results have borne that out; 90 percent of the D-to-C brands increased January 2021 sales over their 2020 pre-pandemic levels.
However, it would be wrong to portray this success as simply a matter of luck and circumstances. As with almost every business, 2020 forced D-to-C brands to make difficult strategic decisions across supply chain, assortment, marketing, HR — the kind that would keep any startup founder up at night.
2021 will require the same attention to detail. For D-to-C companies to extend their 2020 growth trajectory, they'll need to embark on bold yet proven strategies in new product verticals, new marketing channels, and even launching new brands.
Launch New Product Verticals
Product category expansion is a proven best practice for any growing brand, and it's absolutely essential for any growing D-to-C. The more products they have across categories and price points, the higher response rates across the board. Higher response rates improve new customer acquisition return on investment and expand and enrich the CRM file, which in turn serves as the source of truth for optimizing marketing effectiveness.
New product categories are the key to extending lifetime value and repeat purchases of existing customers. Acquisition is expensive; a D-to-C brand’s existing customers, rather than their new ones, offer the most sustainable path to short-term revenue growth and long-term profitability. For D-to-C brands, often built from the ground up to focus on new customer acquisition, the turn towards loyalty and retention is often a difficult shift in mindset. But it is critical.
There are countless ways to do it. Apparel brands should consider logical extensions like jewelry and handbags. Women’s fashion brands should consider expanding into men’s fashion, and vice versa. Furniture brands should consider categories like soft goods and table top. Every brand should consider seasonal offerings, new colors, new sizes, premium subscription tiers, and offline experiences.
Launch New Brands
New product extensions aren't the end of the line. At a certain point, the push for product diversification reaches a threshold where it makes sense to launch a new brand altogether. This, too, is a tried-and-true best practice. Pottery Barn, for example, now has Pottery Barn Kids, Pottery Barn Teen, Pottery Barn Bed + Bath; Crate and Barrel has CB2 and Crate Kids; The Gap has Banana Republic and Old Navy.
D-to-Cs can mimic these strategies by leveraging their operational infrastructure, website, supply chain, and vendor relationships to break into new verticals or customer categories. However, it only makes sense to do this when the CRM file, operational infrastructure, etc., are strong enough to provide the foundational launchpad.
D-to-Cs are in a stronger position to do this than many traditional brands, thanks to their strong first-party data and natural tendency for agility and speed. The richness of their customer files provides the firmest basis for assessing whether they're missing out on any key new customer profiles that might be better served by a dedicated brand extension.
Activate New Marketing Channels
D-to-Cs have risen to prominence due to their mastery of performance acquisition strategies via addressable media channels like social and search. Even before the pandemic, many D-to-C brands were approaching a saturation point in these channels, where the marginal cost of acquiring new customers exceeded their target customer acquisition cost. No platform is infinitely scalable, and for D-to-Cs to extend their 2020 growth, they'll have to start experimenting with new channels and diversifying their media mix.
More than ever before, the performance strategies championed by D-to-Cs are viable in channels that many wouldn't suspect. Streaming and even linear TV can deliver performance. So can podcasts and terrestrial radio. Direct mail has long been one of D-to-Cs’ best-kept secrets. Pinterest, TikTok, Snapchat, SMS, outdoor and display all merit dedicated attention.
The distinction between digital vs. traditional channels is blurring. Thanks to advancements in data and lookalike modeling, a strong customer file and disciplined performance tactics can unlock any and all of these channels and provide D-to-Cs with a way to reach new customers and promote retention among existing ones.
Don’t Get Complacent
D-to-Cs are one of the few positive stories to emerge from the pandemic’s catastrophic impact on the economy. The D-to-C playbook was well-positioned for the unique circumstances of the stay-at-home economy, and that running start was a big reason for their success. However, they can’t rest on their laurels. A year in, many of the world’s largest and most well-resourced companies have made unprecedented progress in catching up to the D-to-C models, accelerating their digital transformations to adapt at a record pace. To stay in the lead, D-to-Cs will need to return to their fundamentals and experiment into new avenues for growth. If they don’t, their 2020 success may prove to be short-lived.
Polly Wong is managing partner, strategic/e-commerce/creative services at Belardi Wong, the leading direct marketing firm in the industry, working with more than 100 retailers and best-in-class brands.