Photo: RetailWire
If DTC is broken, is CTC the fix?
Direct-to-consumer (DTC) retail is not getting the positive buzz it did a few years ago — far from it. In fact, downturns among major DTC brands have some industry experts thinking that the model might be on its way out, and that companies that have grown accustomed to doing business as DTC outlets might have to make some changes to thrive.
In a recent Wired article, Shimona Mehta, managing director of EMEA at Shopify, pointed to the stock drops of Allbirds, Warby Parker and Stitch Fix as a sign the model may be broken. While inflationary spending pullbacks were cited as one set of speed bumps, a longer-term hurdle may be shifts in the digital advertising landscape, marked by Apple’s move to block third-party cookies.
To adjust, Ms. Mehta suggests that the DTC model must evolve into a new iteration of itself that she calls “connect-to-consumer (CTC).”
She writes, “This new approach is about taking many pathways to reach customers simultaneously: From social media to Web3, from online shopping to the high-street stores.”
A recent Fast Company article is more bullish about DTC’s future, though it reaches some of the same conclusions about the model’s shakeout and future success strategies. Though it does not call for a whole new acronym, it suggests that DTC brands diversify their marketing strategies instead of relying on one channel, like social media advertising. The article further advises brands to expect the DTC market to continue to grow at pre-pandemic levels into 2025, rather than at the accelerated speed at which it grew during the pandemic-induced bubble. And it anticipates DTC expanding into other business verticals and offering more subscriptions and flexible payment models.
Some DTC standouts that have experienced stock slides have already been moving to a more multi-platform approach. Both Allbirds and Warby Parker now maintain significant physical store footprints.
Post-pandemic shakeout, DTC appears to be picking up in some niche verticals, such as DTC alcohol sales. A recent survey found that 80 percent of craft spirit drinkers want to purchase the libations via DTC ordering, according to a press release.
- Direct-to-Consumer Is Dying. It’s Time for a New Paradigm – Wired
- Has Warby Parker reinvented its business model? – RetailWire
- Is Allbirds doing something wrong or something right? – RetailWire
- DTC state of the union – Fast Company
- 80% of Consumers Want to Purchase Craft Spirits via Direct-to-Consumer Shipping – PR Web
- Are DTC brands still primed for growth? – RetailWire
Discussion Questions
DISCUSSION QUESTIONS: Do you see CTC (connect-to-consumer) as being meaningfully different from DTC and will embracing different pathways to the customer give brands an advantage? How do you see the future rolling out for the DTC model?
Poll
Loading …BrainTrust
Jeff Sward
Founding Partner, Merchandising Metrics
Phil Rubin
Founder, Grey Space Matters
CTC is an attempt to address one of the major shortcomings of DTC. Namely, most brands don’t have a relationship with the end-user, and therefore their products don’t necessarily have a context, as would be provided by which retailers are presenting it, and which collections it appears in. Colloquially, “borrowing other people’s audience” gives the consumer a starting point of how/where a product fits in with their other purchases and their lifestyle. CTC may still come up short, in that a product’s context is likely to be only viewed by the proximity to other products on social media, as opposed to curated in collections by a consumer’s chosen arbiters of taste.
CTC sounds like a new name for centuries old thinking. Retail has always been about connecting to the consumer. It’s the How and Where and When that keeps changing.
Yup. As they say, move along, nothing to see here.
Dion highlighted the biggest challenge for DTC — a relationship. There are unique situations with a unique product offering in which the DTC site is the only place to get the product. Essentially the relationship between the online shopper is with Amazon, Walmart, Target, and others. If you want eyes, DTC is not the way to go.
Social commerce, owned retail, and e-commerce would all seem to be part of the direct-to-consumer realm. If anything, more brands are revisiting wholesale as they see the value of harnessing others’ existing physical and digital assets. As Dion pointed out, context matters.
I agree with Jeff. CTC is just consultant/analyst talk for retailing. As for DTC, it will continue to be more effective in some categories, like customizable tech and apparel, and less in others, like most FMCPG.
I disagree with the premise that DTC is broken. Sure, it has been implemented badly by many (perhaps most) firms associated with these letters, but let’s not toss the baby out with the bathwater. One of the strengths/advantages of DTC is the enhanced ability to use (so-called) CTC practices; it’s far easier to build relationships in a DTC world than a traditional retail environment that relies on intermediated distribution practices. So let’s continue to recommend/promote DTC — in part because it enables very effective CTC capabilities.
CTC is just another shotgun marketing version of DTC. It is not just how one markets the message (and the product) to the consumer as much as what is marketed to the consumer (price, product, channel). Differentiated product marketing is still key to targeting a product message, no matter what it is called.
Another day, another load of crap, sorry. Building direct relationships with customers across channels, including direct, is nothing new. Nor is the fact that so many companies are so bad at it. The value in zero- and first-party data is coming to the fore only because the automated digital advertising model is now more obviously failing than it was before and it is forcing companies to have to be better at building relationships directly with their customers, regardless of their distribution, but rather in tandem with it, whether it’s direct, indirect, digital, analog or hybrid. The slide in stocks, especially in a market that was way over bought and is correcting (appropriately) merely reflects that companies aren’t very good at relationship marketing (or loyalty marketing) or delivering a great customer experience.
Call it what you want, but as Peter Drucker wrote years ago, the purpose of a business is to create a customer. Sustaining value yield from that customer is the obvious corollary and one that has been consistently under appreciated and underinvested in. Except by the leaders.
So … it’s all about doing business well? I hate it when sexy new initials are created but only mean avoiding the errors of the last thing.
DTC fails when it is attempted for mass scale. There is no way to mass scale except through physical stores. This has been known for decades, only every now and then a group of investors think they’ve discovered it as an entirely new thing. Nope.
So, then, long story short: omnichannel is better than single channel? If your whole goal is to maximize revenue — i.e. ignore the underlying costs — that would seem rather obvious. (And the same for marketing: the more channels the more you’ll sell … but again ignoring costs.) So I don’t think Ms. Mehta is really pointing out anything epiphanic here.
The two glaring challenges with DTC are the high marketing and distribution costs. A DTC needs to first compete with well-established and deep-pocketed brands to establish itself and gain share of voice, and then it needs to get the products in the hands of customers, who are widely dispersed. It shouldn’t be a surprise that profitability is out-of-reach.
For retailers, the largest expense is usually rent, but having a store in a high traffic location serves two purposes: it makes the brand visible to potential shoppers and it enables the distribution of the goods. A DTC needs to find customers whereas in retail the customer finds you. The only way DTCs can work (when they do finally find those customers) is with high margin products that can absorb the shipping costs, and a fulfillment strategy that minimizes those costs.
A recent trip taken to a retail (call it what it is) Bonobos location unveiled how difficult the DTC plus CTC strategy can be, where I was met with a sliver of an offering in materials, sizes and cuts. Products may look good online, in professional lighting, but I wanted the tactile feel of fabrics and in representative sizes, cuts. Ultimately, there wasn’t enough product, nor did the average lighting or customer service help me make decisions.
The middling spot is unforgiving. If you do retail plus DTC, make it a memorable experience. Commit to doing both well (like Warby Parker).
I’m a little perplexed here; how does the DTC model differ from the CTC model? The DTC approach, in my opinion, aims to initiate direct relationships with customers while also focusing on providing a unified customer experience across all brand channels. Furthermore, brands such as Allbirds and Warby Parker have already established a direct connection with their customers.
As a result, introducing a new term is illogical until it is supported by some key distinguishing features. In order to cultivate direct relationships with customers, brands, in my opinion, will continue to take a DTC approach.
Seems like CTC is simply an unnecessary acronym for omnichannel.