In the corona crisis, direct-to-consumer brands made optimal use of the changed purchasing behavior – but what will happen to DTCs in the future?
March – with its empty supermarket shelves and the rush for toilet paper – felt like an eternity ago. Everything seems like a distant memory, although only a good six months have passed. March brought some changes, but while, thankfully, panic buying didn’t last long, the pandemic has ushered in a broader shift in consumer behavior – with significant implications for brands both big and small.
In March 2020, we experienced for the first time that it is possible that even large providers, such as supermarkets, could no longer meet demand under pressure. This opened up completely new opportunities for smaller providers as consumers were looking for alternatives to purchase groceries, household goods and other products. This new situation has opened the door for some lesser known brands. Direct-to-consumer brands (DTC) in particular have taken advantage of this.
Successful through the crisis – coincidence or strategy?
DTC brands have been enjoying growing popularity for some time. A study carried out by Epsilon-Conversant in collaboration with the CMO Club showed that even before the corona crisis, 80 percent of CMOs in B2C companies believed that DTCs would influence their market. According to Euromonitor, brands like Gillette even admitted that DTC competition was responsible for a 20 percent drop in their market share. DTCs continued to be popular during the pandemic. Overall, however, consumer confidence has fallen and customers have generally been more reluctant to make new purchases. DTCs were largely able to defy these developments and experienced a surge in growth in the course of the lockdown. Many big brands froze their marketing activities in lockdown and stopped all advertising activities, especially at the beginning. DTCs took a different route. They continued their promotional activities or even increased the budget, because they now saw good opportunities to achieve more with their efforts.
With the lockdown, the perception and presence of big brands in particular has changed. Due to the exit restrictions, consumers no longer walked all over the country in the shopping streets. In addition, these brands in particular did not use advertising, which meant that fewer advertisements were seen. In addition, there were often problems and delays with orders. This created a great opportunity for DTCs who continued to advertise. The most important channel to reach your target group is social media. Prior to the pandemic, costs continued to rise and often held DTCs back when it came to attracting new customers. With the pandemic, the cost of advertising on social media also fell due to the lower level of competition. Many DTCs took advantage of this for themselves. As a result, they not only benefited from a larger pool of new customers, but also from the collapse in advertising costs.
How is the current situation?
Obviously, for brands that are less reliant on brick-and-mortar stores – as is common with DTC brands – having stores closed is an advantage. Retailers, on the other hand, hoped that as all non-systemic stores reopened, customers who previously shopped with them would come back. After all, humans are creatures of habit. However, this is not the case. If you take a look at the number of pedestrians in popular shopping streets this year and compare them with the figures from 2019, you can see that there are still significantly fewer people on the road. Distance rules and hygiene regulations still apply and are sure to keep some consumers from extensive shopping. In addition, many people have got used to shopping online. Both good news for DTCs who naturally sell online.
Now it is important that brands adapt to changing consumer behavior and new customer expectations. And some seem to succeed better than others. It is important for companies to understand that not only do consumers want to be able to buy what they personally want, they also want to buy from brands that they trust and feel connected to. Nobody wants to feel like it’s all about selling. Consumers expect real empathy and understanding. They want the brand to understand their needs as a customer. To do that, companies need to focus clearly on their customers. You need to really understand their needs and wants and act accordingly.
The DTC model is well suited for this. DTCs have the entire consumer experience for their products. That’s a lesson many learned from direct mail, where older DTC brands are often rooted. Put simply, this means: Knowing about the customer and acting on this basis in such a way that products, processes and communication are optimized increases the relevance of a brand for consumers. In terms of communication, much like direct mail, DTC brands can use their knowledge of consumers to build personal relationships with them.
This ability to use insights to personalize communications is why DTCs often outperform their B2C competitors. They deliver the right communication at the right time and offer a better customer experience. In fact, even before the pandemic, 81 percent of B2C brands said that DTCs had changed consumer expectations of their own brands to the point where consumers expect a much higher and more personalized level of service. DTC brands are focused and agile and can quickly adapt to changing situations. A recipe for success for any brand, especially when nobody really knows what is coming next.
What does the future hold?
None of this means that DTCs will have it easy from now on. Direct-to-consumer brands still face the same challenges they faced before the pandemic – and there have been a few more. Social media advertising may be cost effective, but scale-up is still an issue. The e-commerce market may now have more consumers than before, but it can be difficult for DTCs to cast a big enough network, especially when competing with established brands.
Before the outbreak of Covid-19, we were able to experience that DTCs, such as the mattress startup Casper and MyMuesli, were based on the strategies of their B2C competitors. By opening stationary stores, they wanted to reach a larger audience through showrooming. Such new openings are now on hold until further notice. In addition, DTCs often have problems with customer loyalty. Even before the pandemic, consumers who shopped online were often volatile and price-driven. The coronavirus has enabled DTCs to reach broader audiences and attract new customers, but they are still faced with the problem of retaining them.
The crisis has made it clear once again that the competition for customers is fiercer than ever today. Keeping customers is another problem. However, some lessons can be drawn from the experiences DTCs had during the pandemic that apply not only to them, but to all brands, regardless of their business model. You have to concentrate fully on the customer. This means that they have to redouble their customer focus activities. Only if brands build real relationships with customers and prospects and focus on their needs can they increase demand in the long term