Half of Americans Are Buying Direct-To-Consumer Goods. This Is Why
SMITH BRAIN TRUST – If it seems like everyone you know has eyeglasses from Warby Parker, cosmetics from Birchbox, razors from Dollar Shave Club, a toothbrush from Quip, food from Blue Apron, a mattress from Casper or bedding from Parachute, then welcome to 2019.
Nearly half of U.S. consumers – 48 percent, according to a recent IAB study – have bought stuff from a direct-to-consumer brand. The consumers are a coveted group, skewing generally younger and more affluent than those who are loyal to traditional brands. Roughly 84% of them are 53 or younger, and most have a household income above $75,000.
But those aren’t the only factors that make these consumers among the most desirable for brands. It’s what they do when they buy something they love. They share.
And that’s helping to fuel the success for disruptor, DTC brands, says P.K. Kannan, Dean’s Chair in Marketing Science at the University of Maryland’s Robert H. Smith School of Business.
Kannan teaches and researches marketing modeling, digital marketing, customer relationship management, and pricing at Maryland Smith. He’s also the editor-in-chief of the International Journal of Research in Marketing, associate editor of the Journal of Marketing research and serves on the editorial boards of several other journals.
He says the boom in disruptor success comes down to three key factors.
The power of the social pitch
Many of today’s thriving DTC brands found success by reaching out and making a pitch directly to consumers. Kannan points to the men’s shaving industry, where DTC startups like Harry’s and Dollar Shave Club took aim at incumbent razor giant Gillette.
“And in Harry’s case, the brand was using social media and pitching directly to men, with a pitch that said, ‘You’ve been overpaying for razors,’” Kannan says. “Gillette was a very well-known brand with a lot of clout in the market.”
For years, Gillette had been making minor innovations in razors – essentially adding blades for closer shaves, and increasing its prices every step along the way. “That was it: Add some blades, and add some more dollars to the price,” Kannan says.
Harry’s saw an opening.
More and more brands are doing this – going directly to consumers, upending the way consumers buy groceries, eyeglasses, clothes, cosmetics, fragrances, wine, pet supplies, bedding and more.
The importance of word of mouth
Social media has played a paramount role in the business of DTC disruption, providing alternative channels that are far cheaper than the big-money advertising routes that legacy brands traditionally have taken. For example, while Gillette was placing expensive advertisements on television and in the established glossy men’s magazines, its disrupting rivals were creating social media outreach strategies with a compelling to-hell-with-those-prices vibe.
“They gained virality,” Kannan says. “The posts were funny. People shared them. And so, on a shoestring budget, they were able to gain awareness very quickly.”
That meant a surge in new customers and influencers who were willing to try the upstart brands – and write reviews about them. “The whole game changed,” he says.
“Previously, if a no-name brand entered the marketplace with a pitch that said, ‘Hey, buy my products. They’re cheaper,’ I might not trust that brand. But if it has 10 or 15 other people writing reviews saying, ‘I tried it. This is great,’ then I might try it.”
Word of mouth has always been one of the most powerful marketing tools. “It’s no wonder those were able to really take off.”
The beauty of the subscription model
Many of the direct-to-consumer brands are structured around a subscription model. Harry’s and Dollar Shave Club are examples, as are the Blue Apron meal kit service, the BirchBox beauty products service, the BarkBox dog supplies service, the Stitch Fix clothing style service. And there are dozens of others, appealing to just about every consumer segment there is.
Under the typical subscription plan, a brand will send a parcel of goods to a member every week or every month, under some kind of purchase agreement. It’s a business plan that delights investors and investor analysts for the steady stream of revenue it connotes.
“Along the way, the customer and that brand are creating a relationship,” says Kannan “And because of the subscription model, the investors and investor analysts are very happy. They can easily see what your cash flow will be going forward, based on your number of customers. And they can easily do the valuation of your company.”
That’s why more and more upstart, disruptor brands are hammering a subscription model into their business plans.
“It makes the DTC model very appealing. And that’s why we are seeing so many of them.”
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