The Key Differences Between DTC and Retail

Online,Shopping,/,Ecommerce,And,Delivery,Service,Concept,:,Paper

The world of commerce has totally transformed over the past few decades, and there have never been more channels to reach customers with your products. With the rise of digital consumers, direct-to-consumer sales (DTC) are fast becoming a powerhouse e-commerce channel. However, the traditional retail channel continues to present significant advantages for producers and manufacturers too, offering unparalleled consumer reach and greater efficiency.

Read on to learn how these sales channels differ so that you can leverage them in a way that’s better for your business.

Consumer Reach and Relationships

The DTC approach often involves more legwork in terms of building customer reach, drawing customers away from the retail market to purchase from manufacturers directly. This limits customers’ choices to the offer of a single brand only—although the paradox of choice tells us that this isn’t necessarily a bad thing.

The clear benefit of direct sales is that manufacturers can tailor their products to their audiences and engage in more personalized interactions. When it comes to resolving any customer dissatisfaction, this is also a useful relationship to have fostered. Brand accountability could salvage a relationship between the company and customer.

Loyalty & Values

For loyalty and value-based engagement, DTC has several distinct advantages. Firstly, a direct transactional process means DTC manufacturers can track customer loyalty and offer rewards to repeat customers.

What’s more, having a clear set of values behind your business has become a major point of interest for today’s consumer. Brands operating through DTC processes have total control over all elements of supply, production, and sales, enabling them to enforce ethical production standards and integrate their values across their business. Presenting a strong value alignment to your customer is an exceptional way to connect with them on an emotional level, proving that your brand has integrity and authenticity. As a result, they’ll be far more likely to shift their loyalties in your direction.

Margin & Pricing Models

In the DTC approach, manufacturers have more flexibility around pricing: they can reward customers for loyalty, create subscription models, and define their own returns procedures. Because the middleman is eliminated from the transaction process, brands also retain more of the profits generated from sales—which means DTC can actually rival retail channels in terms of revenue. These additional profits can then be reinvested into the brand’s future, with loyalty programs or investment in product innovation.

Innovation

DTC brands have an advantage over retailers because the direct relationship provides more avenues for information exchange, feeding into innovation efforts.

Retailers tend to buy large batches of products. While permitting them to save through economies of scale, it also means that they don’t have immediate access to customer feedback about how products can be improved. DTC manufacturers, on the other hand, can leverage a smaller, more loyal customer base to obtain instant feedback on products and make tweaks accordingly.

Insights & Data

The retailer channel and DTC model generate two different types of data: market and consumer behavior. Because of their role as a distributor, retailers have the lead in market data, giving them comparative insights on different products. This makes it possible for retailers to forecast demand, and adjust their supplies accordingly.

Both retailers and DTC brands have access to consumer behavior data, but they may be used to different ends. Retailers tend to use these insights to define pricing strategy and increase consumer lifetime value. Through their carefully nurtured relationships with their customers, DTC brands leverage consumer behavior insights to personalize the consumer experience—a proven effective marketing strategy.  The DTC model also has a competitive edge in using these insights to innovate, capitalizing on trends emerging among their select audience.

Summing Up

DTC sales reached $111.54 billion in 2020 in the US market alone—and they are forecasted to climb all the way to $174.98 billion in 2023. Today, DTC sales represent a promising avenue of opportunity.

____

Want to know more? Sign up for Mapp’s DTC webinar with VTEX on Tuesday 7th December, at 2pm GMT. Register here now!

Share this post