Innovative companies using a direct-to-consumer, or DTC sales model are giving traditional supply chains a run for their money, a detailed Interactive Advertising Bureau report indicates. Consumer packaged goods sales are stagnant or falling across multiple industries, from groceries to healthcare and even supercenters. What growth there is in fast-moving consumer goods is being driven by e-commerce, which accounted for 93 percent of growth last year, leaving just 7 percent to brick-and-mortar companies.
The DTC e-commerce sales model is growing in importance because it offers businesses several competitive advantages over traditional retail supply chain distribution models. Here’s a look at three reasons why successful companies are switching to a direct-to-consumer e-commerce approach.
One of the biggest drivers of DTC e-commerce adoption is higher profit margins. By streamlining the sales and distribution process and going directly to consumers, the DTC sales model allows brands to retain revenue that would otherwise be going to supply chain partners such as wholesalers.
For example, one pioneer in e-commerce DTC sales which has seen profitability gains has been security camera systems provider Lorex. When Lorex began during the late 1990s, Lorex distributed primarily through brick-and-mortar retail partners such as Costco, Best Buy, and Home Depot. But when the company began looking for a way to liquidate inventory from returns, e-commerce supervisor Sufi Sulaiman set up an eBay store, which generated 50 percent profit margins on its first million sales. Leveraging this success, Lorex expanded its e-commerce operations, placing an increasing emphasis on DTC to sales. The company is now poised to reach nine-figure revenue in 2018 and break the ranks of the top 50 consumer brands.
Superior Inventory Control
Another reason for the DTC sales model’s success is the enhanced inventory control it affords retailers. Instead of having to maintain physical stock levels at a brick-and-mortar location based on educated estimates about demand levels, e-commerce brands selling directly to consumers can scale their supply levels based on insight from big data into actual demand patterns.
One company benefiting from this advantage of the DTC sales model is mattress supplier Casper. Traditionally, mattress suppliers have relied upon a network of tens and thousands of local stores, manufacturers, and distributors, with the distributors supplying extra mattresses when local stores run low on inventory. Casper saw this supply chain as wasteful and disrupted it by relying on USPS for delivery, eliminating the need to store inventory locally. DTC mattress suppliers such as Casper had captured 5 percent of the mattress market by 2016, and in 2017 they were on track to reach 10 percent, Forbes reports.
Better Customer Experience
A third major advantage of the DTC e-commerce sales model is that it creates a better experience for customers. Customers prefer to deal directly with brands rather than going through third parties because it provides a better guarantee of product authenticity. Customers also feel more confident in receiving reliable customer support when they deal directly with brands. By meeting these consumer preferences, the DTC sales model promotes greater customer loyalty, translating into more repeat sales and referrals.
One DTC company that has built its brand on providing a superior customer experience is eyewear supplier Warby Parker. One innovation Warby Parker introduced was eliminating the need for physically visiting a store for a fitting, instead of allowing customers to do a virtual try-on at home using a webcam and imaging software. The company also eliminated the need for in-store eye exams by introducing an app that allowed customers to digitally measure their prescription and pupillary distance and send the results to an optometrist contracted by Warby Parker. By making the experience of buying eyewear easier, Warby Parker has built a loyal following that regularly shares pictures of their new glasses on social media, serving as brand ambassadors.
Greater profitability, smoother inventory management, and enhanced customer experience are three compelling benefits of the direct-to-consumer sales model. E-commerce brands that adopt the DTC model are cultivating more loyal customers, enjoying fewer inventory hassles and generating higher profit margins, gaining a business edge over their competitors.