The Top 5 Growth Challenges Facing Direct to Consumer Brands in 2020
Look around your home. If you’re like 81% of U.S. customers, you probably own a few items that you purchased from a direct to consumer (DTC) brand. These companies are everywhere: Native, Prose, Casper, Warby Parker, Rugable, Billie, and Hims are great examples – to name a few.
These brands have rocketed to the top of consumer consciousness and done a fair job of disrupting long-established sectors (consider how Dollar Shave Club delivered a gut punch to industry giant Gillette, who once controlled 70% of the U.S. razor market). Still, creating a long-lasting DTC brand is an art and not one that all companies have yet mastered.
The Challenging State of Today’s DTC Market
Here are a few of the most significant growth challenges facing direct to consumer companies today:
One of the first noticeable challenges facing DTC brands is variety. Most of the companies listed above launched with a single product or a minimal product line. Casper, for example, hit the scene in 2014 with a single mattress model. Today, it’s a multi-billion dollar company.
In the beginning, though, Casper was just like everyone else. It offered a single product and sold it entirely through its website. The brand was able to provide competitive pricing on a high-quality product because they cut out the middleman. They also took the reins on manufacturing. The close contact with consumers allowed them to intuit exactly what customers wanted and how best to propel themselves into the market.
While that strategy worked well for Casper and similar brands, it’s gotten progressively harder to master since those brands launched, five to seven years ago.
The direct to consumer market is becoming saturated, and it’s tough for brands to cut through the noise – especially when there’s another company right on their heels, waiting to release a similar product with similar marketing and branding. If you need an example, look no further than the Willow breast pump:
Marketed as the world’s first hands-free, no-wires, wearable breast pump, Willow made a massive impact with moms around the globe, most of whom weren’t even swayed by the pump’s $499 price tag – which is high compared to other, more traditional pumps on the market.
Within just a few years, though, Willow had a major competitor – one that looked and felt a lot like Willow itself. The Elvie pump:
Boasting the same price tag, the same features, and much of the same branding, Elvie came in to disrupt the disruptor. It’s the same story many DTC brands have experienced in recent years.
3. Decreasing Profit Margins
Advertising prices on social media platforms are increasing. As they do, they’re cutting into the profit margins of popular direct to consumer companies. While going direct used to be the least expensive option, it’s slowly moving to be on par with traditional forms of advertising like video marketing.
According to author Hilary Milnes, in a recent Modern Retail article:
Online consumer startups, mostly VC-backed, which began outreach by targeting customers on Facebook, Instagram, and other performance marketing platforms, are expanding their reach to more traditional channels to capture audiences that may not have run into the brands’ ads on social media, or aren’t willing to buy from an online brand they’ve only seen on Facebook. And as the cost of customer acquisition on channels like Facebook and Google continues to climb, DTC brands are spending more on traditional outlets like TV. In 2018, according to a Video Advertising Bureau study, the top 125 DTC brands spent a combined $3.8 billion on TV ads, up 60% over 2017.
Brands that once spent $10 to target a particular term on social are now paying $15, for example, and the prices show no signs of slowing any time soon. Home goods brand Parachute, meanwhile, estimated its Facebook spend for a single month would exceed $20,000 if it intended to reach the number of customers it reached through diversified media mix earlier this year.
Related Reading: How to Enhance Your Brand Through Instagram Stories
While Millennials are comfortable buying from DTC brands, and the number of customers shopping with DTC retailers is projected to rise by 20% in the next five years, other segments of the consumer population need help to see DTC brands as legitimate and trustworthy. For brands, this means an increased focus on visibility.
As different demographics see direct to consumer brands in various settings (city billboards and social advertisements, for example), they’ll gain a deeper sense of trust and come to understand that the brand is legitimate.
Related Reading: 3 Tips for Marketing to Millennial Consumers
5. Low-Consideration Purchases
For brands that sell things generally classified as “low-consideration purchases,” such as razors, staying top-of-mind can be difficult. Again, this splits across age groups. While some consumer segments want their feminine hygiene products, vitamins, and toothbrushes delivered directly to their doors, others are more than happy to walk down the street to the drugstore to pick these things up.
The challenge, then, has become how these brands make low-consideration purchases as easy as possible for consumers. Generally, the idea is to introduce a subscription model, as companies like Billie and Lola have done.
3 Tips to Build a Durable DTC Brand
Fortunately for direct to consumer companies, it’s still possible to build a successful, long-lasting brand. It does, however, require some newfound artistry and intention. Here are a few tips:
1. Design for Luxury
What separates one mattress from another, or – sticking with our earlier example – one breast pump from another? Each product is similar, and they all serve the same purpose, so why would consumers choose to purchase from a DTC company rather than from traditional channels? The answer, for long-lasting DTC brands, is a luxury.
To illustrate, check out the difference between the marketing materials of a traditional mattress outlet, and e-commerce giant Casper:
Everything about Casper’s advertising looks more luxurious, and customers are willing to pay for this experience. Successful DTC brands understand how to marry simplicity and luxury and how to carry that philosophy into everything they do. To begin promoting luxury in your brand, start with top0quality images from The H Hub.
2. Cater to a Niche
Take a closer look at many DTC brands, and you’ll see that they cater to very particular niches. The brands that have made it have done so by taking the concept of a target audience to the extreme.
At first, the approach may seem overly narrow, but it works for brands like Bark Box:
DTC companies have the advantage of ample information about their customers. They also have the agility to pivot early, pending feedback from early-stage adopters. The brands that leverage these things intelligently are the ones who become successful.
3. Diversify Channel Mixes
Take a lesson from the direct to consumer brands that are currently struggling to adapt to changing advertising landscapes: diversify your channel mix as early as possible.
While budget is a consideration for early-stage DTC brands, out-of-home campaigns are still important. Done well, they spell the difference between successful, long-term brands and companies that get lost in the fray.
Related Reading: The Importance of Brand Authenticity for DTC Companies
The DTC Landscape Continues to Look Bright
While the direct to consumer model will remain popular, brands within the vertical are noticing that there’s a demand for some big shifts in operation. Luckily, brands launching today can pay attention to the mistakes of their predecessors, which will allow them to avoid many such struggles and build a long-lasting brand from the get-go.
Are you looking for beautiful visual assets to boost your brand? Check out the content at The H Hub today.