How the Starbucks Red Cup Campaign Became a Cultural Phenomenon
Coffee lovers rejoice! Here’s everything you need to know about how Starbucks' simple red cup became a controversial cultural phenomenon.
Think of direct-to-consumer (D2C) brands as the control freaks of the consumer products industry. Instead of relinquishing power to wholesale or retail partners, these brands maintain full control over product development, messaging, go-to-market strategies, expansion plans, and anything else related to their business.
For many D2C brands, their strategy is working. Basically, once you go D2C, you’ll likely never go back. Research shows 40% of U.S. internet users expect D2C brands to account for at least 40% of their purchases by 2024. And though D2C brands take a gamble when shirking the exposure offered by traditional retail channels, they reap many benefits that ultimately make up for it — especially when it comes to consumers.
Here’s everything you need to know about the perks of going D2C.
For additional reading around what it means to be D2C:
One of the most significant advantages of D2C brands is they don't have to share first-party data with retailers. They also don’t have to beg for insights into their customers. Instead, they know precisely who bought their products, and when, and through which channels. They have insight into returns and complaints — or praise — about the customer experience, allowing them to react accordingly. This data is priceless compared to simple inventory information typically provided by retailers.
This customer data helps brands enhance their marketing efforts, resulting in better messaging and targeting. Plus, D2C brands can expand their audience of prospective customers by identifying similar consumers who may be interested in the brand. The reality is, companies don’t get this kind of intel by selling through a partner.
By definition, D2C brands have direct relationships with customers, which means they’re not dependent on whether or not a retailer gives them shelf space or a promotional push. These brands control the entire customer experience. If an order doesn’t arrive on time or if a customer service agent has a bad day, the brand is in charge of taking ownership (or not). That’s not the case when a retailer is a customer’s point of contact instead of the brand itself.
In fact, D2C brands are better positioned to respond to customers at all touchpoints — and all hours of the day. By interacting directly, D2C brands develop more intimate and ultimately stronger brand-customer relationships. D2C brands show customers who they really are — values included.
For more on how to build customer relationships:
Cut out intermediaries, and D2C brands can automatically sell for less. In the traditional retail model, products pass from manufacturer to distributor to retailer to customer. In this scenario, a brand must initially offer goods at a low enough price point to entice wholesalers and retailers. Ultimately, resellers inflate the original cost to take a cut of the revenue. That’s not great for a brand or its customer.
Without the go-betweens, brands can offer better deals to shoppers. Besides, as the investing tips site Motley Fool points out, D2C brands can charge the same price as they would if they were using wholesalers and retailers and simply take in more profit, as well as test different price points.
Another benefit of independence from retailers is the ability to call the shots on promotions and sales. That’s not the case when working with distribution partners. Motley Fool notes these deals often come with exclusivity agreements and set price points, limiting a brand’s ability to offer specials.
For more on how to plan promotions and discounts:
As D2C brands gently nudge their customers toward conversion, they’ll encounter opportunities to upsell with their related products. Retailers do the same, but they don’t have the same impetus to offer additional products from the same brand.
By focusing on a single product category, D2C brands can truly perfect the item. Analytics firm CB Insights points to Casper, Bonobos, and Harry’s as examples of successful single-product (at least early on) D2C brands.
This allows D2C brands to position themselves as the best in their category, which gets customers’ attention. This also helps lure customers away from a site like Amazon, where ample alternatives exist.
D2C brands can position their products as worth seeking out. And in the meantime, they can continue to tweak their items until they are the best in a given category.)
Without retail partners, D2C brands have the freedom to beta test new products. They can also solicit direct feedback about those products instead of convincing retail partners to give a new item a chance.
That first-party data we mentioned helps D2C brands perfect their product assortment. By listening to customer feedback and monitoring site behavior, D2C brands can develop the products their customers will like — or specifically request.
For more on data-driven marketing
The freedom afforded by D2C means brands are responsible for their destinies, which means that they can go national — or even international — when they decide the time is right. That simply doesn’t happen in a traditional retail model where brands have to convince wholesalers their inventory can and will move.
It can take years for brands to convince wholesalers they’ve established a regional presence worthy of national distribution, according to Motley Fool. Though a direct website, a D2C brand can theoretically sell to anyone anywhere as soon as the site is live.
The power to go to market when and where they want means D2C brands can also choose when — and if — to go omnichannel and open their own brand store.
Sure, physical retail comes with some big challenges, as Motley Fool points out. However, when D2C brands see traction and develop loyal fans, it can be a smart move. D2C companies like Away, Everlane, and Rent the Runway are a few good examples of brands that have successfully made the plunge into omnichannel success.
For more on omnichannel marketing:
By offering fewer products, D2C brands streamline the shopping experience. They don’t overwhelm shoppers with listings for seemingly identical products from brands they’ve never heard of. Instead, they offer a curated selection that eliminates other pain points common in retail. Casper, for example, offers a 100-night trial for its mattresses — plus, free returns. They even send a courier to pack and remove the mattress, so customers don’t have to squeeze it back into the box. That’s the kind of service that wins customers for life.
These advantages explain some of the hugely successful D2C acquisitions we’ve seen, such as when shaving brand Harry’s was sold for nearly $1.4 billion last year. They also explain why companies like Allbirds, Away, Warby Parker, and Glossier are among a group of elite private brands worth more than $1 billion. By focusing on products, pricing, experience, and relationships, these D2C brands continue to forge their own paths.
Though estimates show more than 80% of commerce still occurs in physical stores, it would be shortsighted of brands to discount retail completely. However, D2C certainly offers several advantages worth considering in the interim.
Last updated on November 4th, 2022.