Retail

Direct To Consumer: Challenges Facing DTC Market

Over the last few years, in the midst of the retail revolution, merchants have begun moving toward a more direct retail approach.

Given how eCommerce has greatly impacted traditional brick-and-mortar retailers, it is no surprise that an increased number of innovative retail solutions have recently sprung up. This swing in the retail pendulum has given way to companies like the Dollar Shave Club, Etsy, Warby Parker and many others.

Rather than selling products through a third party, these companies reach out to their consumers directly. By removing the middleman, these companies have found a way to make operations more streamlined and efficient.

A direct-to-consumer (DTC) approach allows companies to potentially have greater quality control, gather deeper customer insights and, according to some, increase sales and end user satisfaction. However, it isn’t all smooth sailing for retailers looking to implement a DTC approach to sales and operations.

According to Gartner’s Best Practices for Direct-to-Consumer Strategies, there are three key challenges involved in DTC for organizations: lack of commitment to a DTC strategy, consumer product companies’ lack of retail experience, and uncertainty of how DTC approach will impact competitors — which then dilutes the strategy.

Without a clear and concise plan of action to develop or enhance a DTC process, DTC retailers and manufacturers can find it difficult to sync up priorities or put a solid plan in motion. Gartner’s research shows that without a strategy in place, it’s possible businesses will “marginalize the initiative” resulting in “starving it of the funds and resources required to succeed.”

In the DTC space, retail experience seems to be the key to helping businesses push initiatives along. “Consumer product companies lack retail experience, and do not realize early enough that DTC requires a new retail-based approach to doing business, causing them to do too much learning post-implementation and putting consumer adoption at risk,” said the Gartner’s report.

Fearing the potential backlash over entering the DTC market can sometimes mean brands never realize their product or service’s full capabilities. According to Gartner’s, “Companies are uncertain about negative reactions from their existing retail partners, and so tend to limit the degree to which they feel they can compete directly with them, which dilutes their DTC proposition in the eye of the consumer.”

Having a well-thought-out strategy in place may make all the difference in DTC success, giving retailers an important tool to help avoid future potential DTC challenges.

In other DTC news last week, Nike has given up on its two-year resistance to Amazon.

The shoe retailer has decided to sell directly to consumers through the eCommerce giant. While some question if retail through Amazon will move the profit needle for the company, Nike is hopeful and confident that this decision will point it in a good direction. Nike’s CEO Mark Parker recently commented on this strategic Amazon move to investors. “We are looking to improve the Nike consumer experience on Amazon by elevating the way the brand is presented and increasing the quality of product storytelling,” said Parker.

Another up and coming company — stemming from an MIT grad student looking to get into the hair care business — made headlines this week. Dubbed Function of Beauty, the DTC offering allows consumers to receive custom-blended shampoos or conditioners to fit their specific hair type or goals. After consumers input what they want out of a hair care system — including reduced frizz, improved shine, added length and increased volume, among other possibilities — Function of Beauty’s algorithm creates a customized shampoo or conditioner blend to fit those needs. The company is currently able to produce 12 billion different customized concoctions.

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Our data and analytics team has developed a number of creative methodologies and frameworks that measure and benchmark the innovation that’s reshaping the payments and commerce ecosystem. The July 2019 Pay Advances: The Gig Economy’s New Normal, a PYMNTS and Mastercard collaboration, examines pay advances – full or partial payments received before an ad hoc job is completed – including how gig workers currently use them and their potential for future adoption.

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