Selling Products Direct To Consumers Is Challenging
As more and more brands are shifting to a direct-to-consumer (DTC) model, it’s essential to understand the challenges that come with this approach. Having worked with many brands with multi-channel challenges, including DTC, I have learned some helpful lessons I’d like to share. I’m scratching the surface on each topic, but this beginner’s overview gives you a bird’s eye view of the DTC landscape.
Here are the top ten challenges and topic areas a brand needs to be aware of when it comes to DTC marketing.
Critical Issues to Understand About Direct-to-Consumer Marketing
- Customer acquisition costs. One of the biggest challenges with DTC marketing is the cost of acquiring new customers. With traditional retail models, the retailer typically bears the burden of marketing and customer acquisition. In a DTC model, the brand must invest in marketing and advertising efforts to attract and convert new customers. How much are you prepared to spend to acquire a customer, and how often will they buy from you? CAC is a math problem, and it is hard to spend $150 to acquire a customer who may buy twice from you with an average order of $30.
- Limit distribution channels. In a DTC model, the brand is solely responsible for getting its products into the hands of consumers. This can be challenging, especially for small brands that don’t have the resources or established distribution networks of more prominent brands. Many options exist for the fulfillment, and you need a sharp pencil to ensure your approach will be profitable. 3PL (third-party logistics) offers solutions, but you are paying for them to make a profit. Doing this yourself makes sense as you learn the costs and challenges of fulfillment. Working with Amazon means you give up margin but can let go of this problem. Where should your focus be – acquiring customers or servicing those orders?
- Competition. The DTC space is becoming increasingly crowded, with more and more brands competing for consumer attention. This can make it difficult for a brand to stand out and differentiate itself from the competition. Brands are screaming in social media channels for your consumer’s attention. How will you be distinctive and offer substantial value? Instagram is a crowded selling environment –like a bazaar with vendors flailing their hands at you trying to get your attention. Your competition isn’t just your category but everyone else selling stuff and trying to get your attention.
- Customer service expectations. Consumers buying directly from a brand often have higher expectations for customer service. Brands must be prepared to handle customer inquiries, complaints, and returns promptly and efficiently. How will you serve the customers you seek, and what are you willing to do to keep them happy? Brands like Zappos built their business on going above and beyond with customer service. Be strategic and thoughtful about handling customer disappointment, complaints and problems. This can quickly be an unexpected cost that wasn’t planned in your financial model. But it can also become a selling advantage when you are remarkable at something others see as the cost of doing business.
- Lack of brand recognition. Building brand recognition and awareness are one of the biggest challenges for new or smaller brands. Without exposure and credibility from being carried by major retailers, it can be difficult for a DTC brand to gain traction. By finding an existing market to serve, you can enhance the ability to become known among people who care about the solution you offer. See Lefty’s catalog for left-handed gardening and kitchen tools. They serve a specific and narrow market. (About 15% of the U.S. population is left-handed). How will you gain “top of the funnel” awareness, so prospects know you exist?
Before You Launch a DTC, here are Five More Challenges to Consider
- Limited access to customer data. When consumers purchase from a retailer, the retailer typically has access to a wealth of data about the customer, including purchase history and demographic information. The brand may not have access to this data in a DTC model, making it harder to personalize and target marketing efforts. Beyond making a sale, how will you learn more about your customers and their needs? Data is vital for ongoing success so you can fine-tune your message and targeting. The tradeoff of selling through Amazon means they retain customer data. That can be a high price– even higher than their fees. Think carefully about what you give up through these types of selling channels.
- Fulfillment and logistics. In a DTC model, the brand is responsible for fulfilling orders and managing the logistics of getting products to customers. This can be challenging, especially for brands with a large and diverse customer base. Speak to others who sell directly to see their experience with various fulfillment and logistic options. An unhappy customer will share them and displease a lot of prospects. How will you meet their needs?
- Returns and refunds. With a DTC model, the brand is also responsible for managing returns and refunds, which can be time-consuming and costly. The ease of making returns can be an asset to a brand, but it can also be an enormous sinkhole. Test and analyze the data to discover a profitable and sustainable strategy as you grow.
- Marketing to a specific audience. In a DTC model, it’s essential to clearly understand your target audience and how to market to them effectively. Without the exposure and reach of traditional retail channels, it can be difficult for a brand to reach a diverse audience. We buy from experts and specialists – rarely from generalists. How narrow and specific can you segment your targeted audience? Know thy consumer. Polarizing brands do a great job of defining who they serve. Don’t be for everyone. Be for some specific group of consumers.
- How Do You Keep Up with industry trends? The DTC space constantly evolves, with new trends and technologies always emerging. Brands must stay updated and be prepared to adapt to remain competitive. Trade conferences can be great places to connect informally with savvy marketers in non-competitive categories. They may have insights about DTC that could save you time, money, and energy. I know several deep experts in DTC marketing who I can introduce you to if that might help guide your strategic efforts.
Direct is Daunting
While the challenges of DTC marketing may seem daunting, the benefits can be significant. By building a direct relationship with consumers, brands can gather valuable data, establish a loyal customer base, and have more control over the entire customer experience. With careful planning and execution, a DTC model can be a highly effective way for a brand to grow and succeed.
Hiring an experienced DTC marketing professional in-house or through an agency can help you quickly move up the learning curve. If you need some recommendations, I’m happy to connect you with pros I know.
You can set up a time to chat with me about your marketing challenges using my calendar. Email me jeffslater@themarketingsage.com Call me. 919 720 0995. The conversation is free, and we can explore if working together makes sense. Watch a short video about working with me.
Photo by Kira auf der Heide on Unsplash
