Is Direct-To-Consumer Segment Seeing A Revival? 3 reasons why VCs are hungry to fund DTC brand.
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The last 10 years of VC interest in direct-to-consumer (DTC) businesses has been lackluster. A decade ago, investors saw DTC companies as poor investment choices.
But there has been a renaissance of interesting eCommerce brands in this segment. Thanks to technological advancements, we are seeing booming private sales as brands invest in hardware and software, real-time purchasing capabilities through mobile platforms, and strong supply chain drivers.
Nike, for example, plans for its DTC sales to grow by 2.5 times in the next five years. That's equivalent to $10 billion in growth by 2020. Having control over their sales channels allows companies to intelligently price, manage inventory, and make smarter merchandising decisions.
Nike is just one of many companies jumping onto the direct-to-consumer (DTC) bandwagon and for good reason.
Here are some reasons why the DTC revolution is taking place.
Can predict consumer behavior more accurately
One of the most appealing reasons to sell with the direct-to-consumer model is the opportunity to collect massive amounts of consumer data. This makes it incredibly easy to learn customer behavior, track customer responses, and develop targeted lead lists that ensure time and money are not wasted on selling the wrong products.
"Marketing processes can precisely track customer responses which ensure a strong return on investment. A process called "Collaborative Consumption' feedback from consumers actually dictates what the product will be." says Raphi Mahgerefteh, CEO of Allurez a direct to consumer jewelry company. Money can be spent on marketing rather than on retail locations.
With consumers willing to purchase online rather than from retail locations, where the cost of brick and mortar locations can be expensive, it just makes more sense to invest on marketing rather than on leasing expensive real estate.
"When I started Allurez, I researched different verticals of the retail industry and found that fine jewelry was nearly absent from the influx of DTC companies blossoming in 2010. It wasn't without its challenges, but by leveraging technology, and focusing on customer satisfaction we were able to grow our consumer base very quickly and organically," explains Mahgerefteh.
They embrace a self-policing customer experience
"It's fairly simple, if a brand loses trust and compromises the relationship with their customer, the customer will shop elsewhere," says Mahgerefteh. "This is a self-policing structure that forces companies to be extremely innovative, provide the best products and unparalleled Customer Experiences (CX)."
According to a report on Gartner, customer experience is the new marketing battlefield. Companies in the DTC arena need to realize that not only do customers have a number of purchasing choices, they also have various channels to speak their minds. Brands successfully executing DTC make it a priority to invest in tools and resources that will allow them to provide superior experiences for their customers.
Overall, customer experience is a broad directive. It encompasses all branded interactions – pre and post sale. As a consequence, investments in customer experience become hidden within every other category of spending.
With companies building closer bonds with their customers by getting to know them more intimately, they are investing in processes that talk directly to their customers. As some experts predict, the brand that understands and communicates more closely with its customers is going to win.