Allume Group

Pursuing a DTC Model: The Pros and Cons

One of the biggest retail trends influenced by the pandemic is the increasing popularity of the direct-to-consumer or DTC model. For many brands, a long-running DTC channel proved priceless over the past year as the pandemic disrupted global supply chains and left many others struggling to keep up with fluctuating consumer demands.

This is pushing more brands to consider investing in DTC models, and giants like Nike and Under Armor are famously planning to go DTC only. But does this mean all consumer brands should have a DTC channel? Not really; it depends on a number of key factors.

There is no one-size-fits-all strategy for brands looking to grow their businesses and stand out among the competition. It’s imperative to consider the pros and cons of any new venture to ensure it meets the unique goals of your particular business, and that potential risks are accounted for. Here are six considerations to weigh regarding your decision to pursues a DTC model.

Three Reasons Brands Should Invest

From unparalleled access to consumer behaviors to vast opportunities for experimentation, DTC models create several advantages for today’s brands, including:

First-Party Data: By cutting out middlemen, brands can reach customers directly and gather first-party data on traffic and conversion rates, test new product development and run A/B tests on promotions, content and marketing. These learnings can often be leveraged across retail partners to get a leg up on the competition.

Diversification: With a DTC model, brands can diversify themselves away from the increasing costs and risks of rapidly growing retailer-owned channels and marketplaces such as Amazon and Walmart. You will also have more control over inventory levels and pricing.

Direct Relationship with Consumers: Working through a middleman retailer surely drives growth, but it can block access to end consumers. Brands with a DTC model can leverage direct relationships through loyalty programs, special discounting and promotions and unique and category-specific shopping experiences.

Three Reasons Brands Shouldn’t Invest

While there are several benefits to the DTC model, it’s important to consider the risks as well. From the financial burden to the model’s complexity, you should also consider these challenges before launching a DTC program:

Financial Cost: Driving traffic to an ecommerce site can be extremely expensive, and it can be difficult to garner enough of it across channels to make it worth the customer acquisition cost. Additionally, implementing DTC may require a retooling of your operations, including implementing third-party logistics (3PLs) for fulfillment as well as website maintenance, data and analytics, payments, and more, driving costs even higher.

Increased Complexity: Adding a DTC channel can complicate your cross-platform strategy. To be successful, you must not only manage activities on ecommerce platforms like Amazon and Target, but their company-owned channels as well. You must carefully consider how to optimize assortments, cross-retailer pricing strategy, profitability, inventory management and more, which may prove challenging.

Opportunity Cost: DTC implementation may pose a potential distraction from larger business initiatives. Brands should coordinate closely to ensure it doesn’t drain resources or attention from other significant initiatives.

The pandemic has led to “DTC-mania” and many are considering jumping on the bandwagon. However, you as a brand should carefully weigh the costs and benefits before proceeding. While entering DTC is smart for some, ensure you have the financial resources and internal expertise to execute this growing model successfully. If not, you will risk a complex set of challenges that only detract from your larger business objectives.