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  • Writer's pictureMarc Warburton

To DTC, or not to DTC; now that is the question...

That Dollar Shave Club ad was seriously cool, wasn't it?1m33s of juicely viral content that crashed Michael's Dubin's site when he posted it overnight in June 2012 and cost a bum-fluffily-spritely $4,500 to make when shot in a single day. A literal drop in the ocean for the $200m a year revenue business sold a few years later to Unilever for the f**cking great sum of $1bn.

And what is it with blades? Harry's comes along a bit later (2013) and is now looking at a $1.4bn exit to Edgewell. Between the two start ups they had 14% share of the US blades market in 2018. Poor old P&G.

I am assuming that Harry's co-founder Jeffrey Raider probably wasn't a P&G shareholder, nor is he in Specsavers as his earlier venture, Warby Parker, is now worth about $1.75bn.So what exactly is going on? According to the New York Times:

"The direct-to-consumer brand revolution is one of the most dominant forces in retailing business today".

So time to jump in with your FMCG big brand size size 11s, right? Actually, I'm not convinced.

DTC is a hot topic in many a FMCG behemoth right now. The slowing global growth rates, the draw of unfiltered insight into customer behaviour, and a (potentially) margin accretive business model of cutting out the pesky retailer to own the end-to-end relationship, are making DTC a route to market worthy of consideration.

But howsabout another quote, this time from Jeffrey Raider's BFF Warby Parker co-founder Neil Blumenthal:

"It’s never been cheaper to start a business, it’s never been harder to scale a business".

And herein lies the dilemma:

Launching a DTC = easy / good idea; making it a viable business proposition = difficult / bad idea.

Technology, macro consumer changes and the brand owners themselves are equally responsible for enabling the rapid take off of DTC in the last few years.The rise of platforms like Shopify or Stripe have opened up eCommerce to DTC players; shoppers are trusting big brands less and want transparency with a new specialised relationship; and let's be honest, many big brands have been caught napping as loyalty plummets and they just don't know their shopper like they used to. Oh and there's something about Amazon too.

But don't let a fundamentally self-induced brand catastrophe convince you that the solution is a new route to market.

As Marc Speichert, GSK's CDO nicely puts it:

"When a small company knows our customers better than we do, that's just not acceptable".

DTC will not solve your brand ills if lack of it is not the cause of your brand problems.

Sure you can probably launch a platform with a bit of wonga, and you may also have the DTC essential pre-requisite-success-requirement of a well oiled supply chain to make it work. But without a clear shopper benefit that is not available through any other existing retailer or marketplace selling your brand, you're facing a proper uphill struggle.W

hy not you just go 3P with a brand store on Amazon instead?

The front margin might not look as tasty as a DTC business prop but I bet the (honest) back end business case will.

It wouldn't surprise me to learn that there wasn't a single Amazon brand store that didn't have more traffic than the same brand's owned DTC platform, or even the brand website (notwithstanding major traffic driving investment of course, which could probably be better spent on Amazon or another established market place anyhow).

As one refreshingly straight talking Spirits Marketing Director puts it:

"There are people much better placed than ourselves that do this – the obvious example is Amazon – and our business with them is absolutely booming. It is growing extremely fast. I’m not surprised about that."

Yes we get the fluffy brand stuff, but is an owned brand site really where your consumers want to go to engage with your brand when there are one or two other options available that it won't cost you a fortune to send them to? And will making it shoppable really make the payback worthwhile? It might sound crazy but why not fish where the fish already are...

But what about all that lovely unfiltered insight into our consumers?

Ok, reasonable point, but how many businesses are really set up to make the best of another data stream? If you are genuinely set up and ready as a business, then reach over your shoulder and pat yourself on the back right now. If you are like pretty much every other FMCG then make much more of the data you've already got / what you can get from your (established) retail partners first.

Can you honestly say that more data is what your business needs right now, and not more insight?

I'll leave you to ponder that one.

In many ways (some) DTCs have worked because they are the antithesis of what makes old school FMCGs' wheels turn round. The virtuous sales flywheel of an organic Word of Mouth community, monetizing social following and optimising performance marketing spend works for DTCs when they get the balance right. It doesn't work for mainstream FMCG because everything else in their business gets in the way.

And even the (less than ten year old) 'traditional' DTC model is starting to fall apart in some ways already. Many DTCs, including well known ones such as Glossier with its $390m valuation, are struggling to satisfy the financial expectations of their venture backers as revenue growth stalls and realising profit early is a problem.

If you're an established FMCG business and you want to sell more online do these things, in this order, before even considering DTC:

1) really understand what your shoppers are doing online and take action. This means much more than buying a bit of kit with snazzy dashboarding.

2) build a comprehensive eCom strategy that covers Prize, Look of Success, Alignment, Nuts & Bolts or Resources (or maybe se Daedal's PLANR© product to do just that; sneaky sales pitch over ;-) )

3) Accelerate Omnichannel

4) Unlock Capability

5) Work Data Driven Magic along the entire Path To Purchase

DTC will work well for start ups that get the basics right. It won't work efficiently or effectively for established FMCG without a lot of pain and side stepping many other opportunities on the way.

Even the start ups need to constantly evolve the model: there are signs that millenials, the demographic lubricant that have facilitated a lot of the DTC boom, are becoming tired of the traditional DTC playbook now. There are so many new products with 'fresh' branding, a delightful unboxing experience, purposeful founder story, native social ads and some influencer promotion that it's becoming a bit 'wood for trees' out there.

Diageo pulled away from their DTC platform Alexandar and James in 2017 because they couldn't make it work, and focused on retailer and marketplace partnerships instead. This is a sensible approach. Even Unilever, with annual eCom growth of 60-70% is focusing on learning from Dollar Shave Club and applying this to other brands, considering the DTC model only 'where it's sensible'.

If you've got a spare $1bn to learn about a sales channel then buy a DTC and go for it; if you haven't then think very very carefully before proceeding. In fact maybe so carefully that you forget what you were thinking about and get distracted by something else.

And if you want a reasoned argument with lots of case studies rather than a LinkedIn rant, then please feel free to drop us a line.

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