Forrester: 81% of consumers plan to purchase from a DTC brand

As the direct-to-consumer business model grows in popularity, it also grows in profitability. Traditional brands that don’t find ways to adapt the model to their business could see their market share dwindle amid the changing consumer culture. Recent Forrester research reveals the potential for brands that get DTC right.

DTC selling has existed since the late 19th century. But the last decade has seen a unique form of DTC brands emerge that have attracted a segment of enthusiast consumers whose spending is projected to increase at an 18% compound annual growth rate through 2022, according to Forrester. So, what do these brands look like? Forrester defines them as “challenger firms that launched in the past seven years, initially on digital channels, that offer services beyond online ordering, such as the personalized curation of products, in-home product trials, or product shipment subscriptions; and that have disrupted existing markets and complacent legacy brands.” There are currently over 400 such firms, Forrester finds.

Indeed, they do pose a threat to preexisting, reputable brand names who previously dominated large portions of the marketplace. According to Forrester research, Gillette’s share of the men’s razor market dropped from 70% in 2010 to 54% in 2016. Meanwhile, in 2011, Dollar Shave Club snatched up 16% of the market and galvanized a $3bn VC frenzy — and an acquisition by Unilever. The company succeeded not because of e-commerce, Forrester suggests, but because it identified customers’ needs and curated its products to fulfill those needs.

Advertisement

Customers like convenience, especially in today’s busy, hyper-stimulating world, and Dollar Shave Club’s automatic shipment is just that. Plus, by ensuring future business with subscriptions, the DTC standout can invest against a reliable revenue stream and outspend competitors such as Gillette and Schick, Forrester’s research suggests.

“The silly concept of just being a recognized brand name signifying high quality isn’t relevant anymore,” said one member of Forrester’s online community. That opinion isn’t singular. People are more interested than ever before in relatable, culturally relevant brands that specialize their products for their individual tastes and ship it directly to them, rather than stocking shelves full of generic, one-size-fits-all goods. Hello Fresh’s food prep and Stitch Fix’s curation of clothing are examples.

Forrester’s data reflects this trend; in 2018, 54% of US online adults said they are always willing to try new things, up from 39% in 2009. Additionally, two-thirds of US consumers expect direct connectivity with brands, and 81% plan to make a purchase from a DTC brand in the next five years.

One of the driving forces behind this change is advancing technology. Mobile phones, smart speakers, and wearable tech have revolutionized the way people interact with producers, and traditional firms often have been left behind. While the top 20 cosmetics brands grab 90% of the consumer dollars going to brick-and-mortar retailers, they only capture 14% of the online share, according to Forrester. The virtual realm is where DTC brands thrive, and they especially excel in social media. On YouTube, for example, users viewed a combined average of one million beauty and fashion videos every day during October 2018. Naturally, Instagram is also ripe for producers of beauty products, with 70% of millennials purchasing such items through the platform.

Advertisement

However, at the heart of the trend toward DTC branding is a profound cultural shift, one which can largely be drawn along generational lines. Forrester’s research shows that over half of US online adults who have bought from a DTC brand are between the ages of 18 and 34, and they aren’t just tech-savvy. They’re progressive.

“Millennials and Gen-Z have an acute sense of equality and fairness, and this drives their brand choice,” says Jeff Fromm, president of independent agency collective FutureCast and a partner at marketing agency Barkley. Brands such as Rihanna’s Fenty Beauty, for example, are an attractive option for women of color who have a limited choice of makeup shades in the traditional marketplace. Glossier takes a similar leap from the status quo by appealing to those who want to define beauty for themselves rather than conform to the societal standards imposed upon them.

Advertisement

But transitioning toward a DTC business model isn’t as simple as abandoning retailers, curating products, and connecting with consumers online. Low-priced products, for instance, may not be worth the shipping costs associated with selling directly to customers. Indeed, DTC transactions currently comprise a tiny fraction of the total sales of most large firms, so corporate leadership may be hesitant to invest in something that might not be as profitable as existing channels.

The question marketers must ask themselves now is: How can we find a place for our brands in the emerging markets, where digitally native, youthful startups are gaining traction?

Advertisement

Given the unique circumstances each firm operates within, they need to pave their own road forward and tailor the way they approach DTC to their strengths and weaknesses, the Forrester findings suggest. Universally, this will mean taking a consumer-centric approach to marketing and putting brand and personality before product, not the other way around.

Share This Story