The direct-to-consumer (DTC) strategy or business model can be explained very simply: companies sell their products or services directly to their target audiences and consumers, without any intermediate (e.g. big retailers) in this process. A cosmetics company, for example, would count only on its own brick-and-mortar stores or ecommerce website to commercialize its products.
Following the many advantages that this model has to offer, many DTC brands have become real success cases in the United States, disrupting their respective industries, and even going from a startup status to an IPO in a few years.
DTC brands started to pop up in the country between the 2000s and early 2010s, most of them operating in very specific categories. It was a time when ecommerce was still in its early days, so they managed to surf the wave that later on became the norm for shopping — ecommerce sales accounted for $4,280 billion USD in 2020 worldwide.
This explains why the most-known DTC brands are so familiar to Millennials, since they’re the generation that grew up alongside the internet itself, and why some of them are also called digitally- native brands.
In 2020, direct-to-consumer ecommerce sales in the United States reached $111.5 billion USD, a 46% YoY growth compared to the $76.6 billion USD registered in 2019.
Due to its popularity and, most times, the personalized experience they offer to consumers, DTC brands have taken the spot of well-established, big consumer brands: between 2013 and 2017, the US witnessed a $17 billion USD shift in sales from big brands to small ones, out of which a big part is made of DTC ones. That eventually led to giant companies buying some of them as a solution to the growing competition.
Some of the most-known examples of DTC companies are exactly the ones that, besides mastering this business model to sustain its growth and value proposition, also developed state-of-the-art marketing strategies to retain customers.
Below we jump into the journey of each of those companies and what made them such role models.
Glossier, a skincare and make-up brand founded in 2014, revolutionized the industry in the US and in other countries where it operates, becoming a desired label all around the globe.
As a digitally-born company, Glossier started off by co-creating its products with the digital community, following the “fueled by community” strategy since day one: Emily Weiss, its founder, owned the blog Into the Gloss prior to founding the company. With over 1.5 million readers per month, these people would share their opinions and what they were missing in the industry proactively.
That was the spark that led to Emily combining all this information and transforming them into products with a — back then — unique mission of highlighting people’s natural skin with affordable, highly-technological and well-thought-out products. The attention to what the community is asking for remains a pillar of the company to this day.
When it comes to marketing, social media and, believe it or not, word-of-mouth are its biggest allies. By turning fans into micro-influencers on their own profiles, keeping brand consistency and using these platforms as the main means of communication with clients, the brand had, way back in 2018, over 1 billion monthly followers on its Instagram profile. At the same time, 70% of online sales and traffic were coming from peer-to-peer referrals.
It didn’t stop there, of course. In 2017, Glossier’s sales grew by 600% and, in 2019, it was valued at $1.2 billion USD. In July 2021 it announced Series E funding (the latest, as of 2021), which raised $80 million USD. The brand’s ascension probably won’t stop there.
Even though eyeglasses were conceptually something to be purchased in person, Warby Parker came up with a model that made it possible for them to be bought online — with products that are, at the same time, affordable and well-designed.
The recipe was to offer clients five different frames, at their choice, to try out for free. Customers would then return them to the company, free of charge, and the chosen one would be then sold with the prescription lenses. And what’s the catch of this model?, you may wonder.
With different frames delivered directly to your house, you can still ask family and friends their opinion, combine them with clothes, different hairstyles and, why not, make-up. It’s the complete offline buying experience made possible when buying online.
This is yet another case where social media and word-of-mouth played huge roles, driving people to engage with the brand and recommending it to their friends and acquaintances after having a unique experience.
That was just the beginning of a true revolution in such a traditional industry. Fast-forward eleven years, Warby Parker is a public company with over 166 brick-and-mortar stores in the US, plus a couple in Canada.
One may say that it is beyond impossible for a razor brand to take over sales from the globally-renowned Gilette. The biggest brand when it comes to this specific product, in the US, Gillette controlled 70% of the country’s sales of razors. Still, Dollar Shave Club managed to beat them at their own game.
Founded in 2011, the company has a simple value proposition: to deliver great, affordable razors and other bathroom products directly to customers’ houses on a monthly basis through a subscription service, which led to a huge customer retention rate. Instead of actively leaving their houses or browsing online for razors, they just wait for the package to arrive at home.
By heavily investing in branding, customer experience and, of course, a real, needed solution that has fit a huge market, DSC was reaching around $200 million USD in annual sales. In 2016, it was acquired by Unilever for $1 billion USD.
A mattress company whose operating model was replicated in several countries, Casper was launched in 2014 with a purpose that, at first, may seem impossible to bring to life: selling compressed mattresses that fit into a box of a refrigerator on the internet and delivering it for free with a 100-day trial period. Customers didn’t like it? They could simply return it.
Plus, by offering this experience, the company managed to transform the boring, expensive process of buying a mattress into something fun, long-awaited and out of the box. It created expectations and would incentivize consumers to share their experiences online, with family and friends. The result couldn’t be better: in its first month of operation, Casper reached $1 million USD in sales.
It later on expanded its product offering to sheets and pillows, providing a complete sleeping experience, and even expanded its channels and opened a chain of brick-and-mortar stores.
Another point that Casper got differently than its competitors is data. It has what it calls Caspers Lab, that originated from a database of around 15.000 customers that had participated in the product development process — testing prototypes, giving feedback, etc. According to Casper, it helped the company build a “group of evangelists” of the brand.
Plus, keeping track of customers and asking them to fill in a form with personal information allows them to send anniversary and other gifts, reinforcing the relationship with customers. It’s not about simply selling them a mattress.
The sustainable sneakers company was launched in 2016, initially operating only through its ecommerce website. With a single model for sale back then, Allbirds managed to sell 1 million pairs in the first two years operating.
What Allbirds got right was understanding its customers’ expectations and desires. It understood that they were omnichannel, so it opened brick-and-mortar stores and managed to still keep digital sales as its main business: back in 2020, with over 22 physical stores open, 89% of all company sales came from digital operations, the remaining 11% originating from brick-and-mortar locations.
Its main strategy was to use brick-and-mortar retail for customer acquisition and to drive traffic to the digital platform, keeping shoppers close to all points of contact.
Not different from the companies aforementioned, Allbirds also heavily invests in branding and communications focusing not only on customer experience but also on the sustainable choice shoppers make by choosing the brand.
Allbirds is another company that joins the list of DTC brands going public: it had its IPO in November 2021.
Away is not a luggage company, it is a travel company, as its founders like to call it — a narrative perfectly built, to which we’ll come back later. Launched in February 2016 by two Warby Parker alumni, Away sells travel luggage and has US customers in the palm of its hands, being able to easily (and successfully) join a $32 billion USD industry that already has big, traditional names.
It all started by a complaint from one of Away’s cofounders that there were only two options of luggage: low in price and poorly made, or high in quality and too expensive. And there was the value proposition — to create and sell affordable, well-designed and great products.
The main key to turning the vision into reality was to cut distribution costs by operating DTC, which also allows companies to have a direct communications line with consumers and to offer them the best customer experience possible by collecting feedback and understanding their pains and gains.
Plus, it created a narrative that no other luggage company had ever invested in before: making it all about travel, of which luggage is just a part. In an interview from 2018, one of the co-founders explained: “People don’t really care about the suitcase they’re buying; they care about the journey they’re about to embark on with that suitcase in tow”. So by inspiring travelers through content, the company was also able to build a community of brand evangelists.
All that combined resulted in over $12 million USD in sales in the first year of operations and more than 500,000 suitcases and accessories sold by the end of 2018. In less than three years, the company was generating over $125 million USD in revenue.
One can tell that a few points were repeatedly mentioned throughout this article: great marketing strategies, customer experience, convenience and a well-thought-out product that fits a market gap while also reinforcing brand message. There you have it: the key strategies followed by the best-known DTC businesses in the US, which are all backed up by a strong digital presence.
The CCX Company, in collaboration with VTEX Commerce Cloud, expresses gratitude for having had the opportunity to enhance its understanding of the advantages, trends, and other elements addressed in the current topic. This article was jointly developed and is brought to you by the VTEX Commerce Cloud team.
