Direct-to-consumer (DTC) eCommerce has disrupted traditional retail channels and allowed self-starting businesses to bypass the retail middleman. Direct-to-consumer may as well also mean “direct to connection.” Because without middlemen in the supply chain, DTC brands can better connect with their customers.
But what does it take to succeed in the increasingly competitive DTC space?
Over Anatta‘s 15 years of partnering with DTC eCommerce brands, we’ve learned the ins and outs of the DTC eCommerce model. In this article, we’re exploring the huge benefits DTC offers and its current challenges. We’ll also take a look at the inspiring journey of a few industry-leading DTC brands we’ve partnered with, and share insights into how they got where they are today.
Key Article Takeaways
- Direct-to-Consumer (DTC) eCommerce is a business model in which brands sell products directly to consumers. Selling DTC offers advantages for both consumers and brands; like better customer experiences for shoppers and greater control of product supply chains for brands.
- DTC is becoming a crowded space. Successful brands must distinguish themselves. Thoughtful marketing, great customer service, and a strong market position are key.
- DTC brands should leverage data (especially first-party data and user research), to guarantee success while staying agile in an ever-evolving eCommerce landscape.
Understanding Direct-to-Consumer eCommerce: The Basics
The DTC eCommerce business model is a relatively new type of business model that uses the Internet to market, sell, and distribute products from an eCommerce website. Direct-to-consumer eCommerce is different from the wholesale retail model and comes with its own unique set of benefits and challenges.
What is DTC?
Direct-to-consumer (DTC) is when a brand sells its products directly to customers online. A DTC business controls the entire customer experience. Along with the marketing, production, and shipping of the business’s products.
Key traits of DTC eCommerce include:
- Direct sales to customers
- Data-driven decision-making
- Tailored marketing strategies
- Personalized customer experiences
- Greater control over the customer experience by the DTC brand
- Fulfillment and distribution of orders via a 3PL (third-party logistics) provider
A trademark of the DTC business model is customer personalization. Without a middleman between a customer and a brand’s products, DTC businesses can engage with their customers via personalized email offerings, shopping cart upsells, unique unboxing experiences, and more.
Beyond just a trademark of DTC businesses, the brand experience a customer receives often separates successful DTC eCommerce brands from brands stuck on a growth plateau.
Here’s what we consistently see from the best DTC brands in the space at Anatta:
- Engaging, unique, and on-brand store visuals
- A strong, thoughtful market position (or Unique Selling Proposition)
- A seamlessly smooth, fast, and effortless online shopping experience
- On-trend marketing strategies that leverage customer data & user research
What is a Digital Native Brand (DNVB)?
A digitally native vertical brand (DNVB) is a brand that got its start and scaled selling products online via DTC. A DNVB may continue selling primarily DTC as the brand grows — but will often expand the brand experience by opening its own brick-and-mortar stores. Or by partnering with traditional retailers like Target, Walmart, or Nordstrom.
DNVB is often used to mean DTC. But DNVB describes the type of business (usually a start-up). And DTC describes the business’s channel of selling. A brand that uses a DTC channel may not be a DNVB. However, many of a DNVB’s traits apply to brands using the DTC eCommerce model.
Andy Dun, a co-founder of Bonobos, coined DNVB in 2016, explaining:
“The digitally-native vertical brand is maniacally focused on the customer experience.”
Key traits of DNVBs:
- Controls the distribution of products
- Builds community by making brand values clear & personalizing the customer journey
- Focuses on creating exceptional online brand experiences informed by zero-party & first-party data
- Physical stores opened by DNVBs aim to be “experiential retail stores” that mirror and complement the brand’s online experience. Apple stores are a great example of an experiential retail store.
The Rise of DTC eCommerce
The Direct to Consumer eCommerce market has been taking off since its start. During the mid-2010s, famous DTC disruptors like Casper, Warby Parker, and Allbirds positioned themselves as success stories for DTC. These DTC darlings also helped usher in waves of investments into DTC brands by bullish venture capitalists.
At the start of the COVID pandemic, even established brands like Nike and Adidas opened their own DTC channels to adapt to reduced in-person shopping.
Quick stats on the DTC eCommerce Market (as of Q4 2023):
- In 2022, Raydiant found that 56.6% of U.S. consumers prefer shopping online over in-person.
- According to Statista, DTC sales in the U.S. are forecasted to reach $213B by the end of 2023.
- Data from Business.com states that China is currently the biggest eCommerce market globally at $2.78T. It’s also the fastest growing, with an annual growth rate of 21%.
Direct to Consumer vs. Wholesale
A DTC brand sells directly to a consumer, while a wholesaler sells products in bulk to a retailer. A wholesale business uses third-party middlemen like Amazon or Target to sell and advertise their products. A DTC brand cuts out the middlemen entirely and owns the entire customer experience, the marketing strategy, the production, and the shipping of the brand’s products.
Here’s how the DTC vs Wholesale model looks:
- Wholesale: Manufacturer -> Wholesaler -> Distributor -> Retailer -> Consumer
- DTC: Manufacturer -> Advertising (social ads + Google) -> Website -> Directly Shipped to Consumer
Advantages of a DTC Model
Selling directly to consumers empowers an online business to enhance the customer experience, collect insightful data, and even streamline the supply chain.
A DTC business model appeals to both shoppers and businesses:
- With DTC brands, customers often enjoy better prices, personalized experiences, and the convenience of shopping online. According to a 2018 report from Epsilon, 80% of consumers are more likely to buy from a brand if the experience is personalized.
- Without third-party middlemen, DTC retailers can be more strategic with their marketing, use customer feedback to improve their products and website, and potentially grow faster.
Enhanced Customer Engagement
In DTC eCommerce, personalized customer experiences are key to increasing engagement and loyalty. A DTC business can gather comprehensive insights regarding its customers, such as their preferences, demographic information, and purchase history, which can be used to create targeted marketing campaigns and tailored product offerings.
Data-Driven Decision Making
Leveraging customer data is crucial for making informed decisions and optimizing marketing strategies in a DTC model. The ability to analyze and utilize customer data allows brands to understand their target audience better, identify trends, and predict future customer behavior. This valuable information can help brands fine-tune their marketing efforts, ensuring they effectively reach and resonate with their ideal customers.
At Anatta, our bespoke solutions and site designs are always informed by deep user research. Learn more.
The Challenges Facing DTC Brands Today (2024)
In recent years, some of the biggest advantages of Direct to Consumer eCommerce have turned into its biggest challenges. After remarkable growth during the COVID-19 pandemic, many DTC brands are finding that growing today is much more difficult with consumers once again shopping in-store. Add in more competition and higher CACs, and DTC has taken several hits over the past two years.
Here are some of the challenges DTC brands are facing today:
- A rapid influx of competition
- A constant need to innovate
- Logistics and fulfillment
- Higher advertising spend
- The need to find a balanced, thoughtful approach between DTC & retail channels
- Finding ways to grow & grow profitably
- Partnering with the right agency & team
The DTC market today is getting more and more crowded. There are two key reasons for this:
- User-friendly eCommerce platforms have lowered the barriers to entry for ambitious entrepreneurs. This has given way to a multitude of new brands in every vertical. Some of these new brands aren’t just your typical startups, either. They’re well-funded, thoughtfully built, and have solid market positioning.
- DTC is also no longer just for the digital native. Established brands have opened and expanded the DTC side of their businesses. At the end of May 2023, Statista found Nike Direct had generated $21.3B in revenue.
Facing stiff competition in the DTC market, the digital native brand must differentiate themselves to succeed. Establishing a strong brand identity and offering a unique value proposition is a great place to start.
The Need to Technically Innovate
Even if a DTC brand isn’t selling on Amazon, that doesn’t mean they’re free from Amazon’s influence. The eCommerce giant has set the standard for the online shopping experience with extremely fast site speeds and shipping options. For DTC brands to offer a similar experience, the need to technically innovate becomes a constant. However, the need to innovate can quickly send DTC brands down a technology rabbit hole.
At Anatta, we believe that leveraging a robust eCommerce platform like Shopify Plus and buying apps and solutions over building (whenever possible) empowers you to go to market faster. And cuts costs on maintenance and time.
Managing Logistics and Fulfillment
Managing logistics and fulfillment can be complex for DTC brands, requiring efficient systems and partnerships to ensure timely delivery and customer satisfaction.
Challenges in this area include:
- Difficulty scaling fulfillment
- Optimizing warehouse picking and packing
- Managing inventory
- Coordinating shipping and delivery
To overcome these obstacles, DTC brands may need to:
- Invest in technology
- Form partnerships with third-party logistics providers
- Streamline processes
- Guarantee satisfactory delivery of their products with a great return policy
Increased Customer Acquisition Costs (CACs)
DTC brands use paid social ads to both target customers and generate awareness. But with Apple’s IOS 14.5 update, customer acquisition costs have soared. 14.5 gave users the option to block Apple’s identifier for advertisers (or IDFA) which measures the performance of paid social ads across mobile devices.
According to SimplicityDX, as of Q3 2022, customer acquisition costs have risen by nearly 222%.
The Tricky Balance of Omnichannel
Balancing DTC and traditional retail channels can be challenging, but it is necessary for brands looking to maximize their reach. Potential issues include managing inventory and pricing across both channels, avoiding channel conflict, and preventing cannibalization of retail sales.
To maintain a balance between DTC and traditional retail channels, brands must carefully manage their product offerings, pricing strategies, and marketing efforts, ensuring they cater to the unique needs and preferences of customers in each channel.
A digitally native brand must also have a strong brand identity built online. That way, even if a DTC brand loses control over the customer experience in a retail setting, the brand can still encourage a retail customer to buy from its website.
The Need to Grow Profitably
DTC brands were once an enthusiastic investment for venture capitalists. But after disappointing IPOs from several DTC darlings, the question continues to be asked by once-bullish VCs: “Can a DTC brand be profitable?”
In 2024 and beyond, a DTC brand at the mid-market level should focus on a roadmap that’s as close to ROI-positive as possible. Because as many brands and VCs have learned, fast growth does not always correlate with profitability.
A few ways to do this could involve:
- Investing in the usability of your brand’s website (especially your mobile site experience)
- Adopting a CRO strategy informed by user research & revenue impact
- Shifting beyond an acquisition-only growth strategy to LTV & CLV-focused growth
- Expanding into international eCommerce markets
- Approaching omnichannel thoughtfully and intentionally
- Finding the right agency partner who can offer strategic guidance backed by years of DTC experience
Why the Right Partnership Matters Now More Than Ever
DTC startups all have one thing in common. The leaders and entrepreneurs who founded the business are incredibly ambitious. They often put in long days and nights scaling the business to success. But in today’s evolving DTC, hustle alone won’t take a brand at the mid-market level to its next stage. Finding the right partner and building the right team is more imperative than ever.
Our agency, Anatta, specializes in supporting mid-market DTC brands ($25M to $500M) on their journey to scale. We offer dedicated digital product teams of UX Designers, UX Researchers, UI Developers, Technical Architects, Creative Directors, and more. All to empower your brand for long-term growth and success. Learn more about Anatta.
Successful DTC Brand Examples and Lessons Learned
Learning from the trailblazers is always beneficial. In the world of DTC eCommerce, successful brands like Rothy’s, Athletic Greens, and Dollar Shave Club have showcased innovative approaches to marketing, product offerings, and customer engagement. Let’s take a look at their success stories.
Rothy’s, a sustainable fashion brand, has achieved remarkable success by manufacturing shoes and bags from recycled plastic bottles. Since Rothy’s began, the brand has transformed more than 160M plastic bottles into their signature footwear and apparel items.
Rothy’s strong market positioning (comfortable, stylish, and sustainable shoes) paired with its attention to customer feedback were both key in the brand becoming a DTC industry leader.
How Anatta supported Rothy’s on their journey to scale
From 2014 to 2021, Rothy’s and Anatta worked together as partners until the brand’s $1B+ acquisition.
Highlights from our partnership:
- Anatta launched 400+ CRO tests for Rothy’s
- Anatta successfully redesigned Rothy’s website 6 times to meet changing consumer needs
- Anatta migrated Rothy’s to a PWA to accommodate explosive growth in site traffic
- Anatta supported Rothy’s journey to scale from $0 to $220M in annual revenue in just 4 years
You can explore Rothy’s and Anatta’s partnership here.
Athletic Greens (AG1)
Athletic Greens, a powdered supplement company, has established itself as a well-recognized name in the health and wellness and the DTC industry for over a decade. AG1’s commitment to quality control and ingredient sourcing, despite the higher cost of their products, has garnered a devoted customer base. AG1’s customers regularly report positive outcomes such as improved digestion and energy.
AG1’s sweeping success in both health and wellness and DTC highlights the importance of maintaining high standards in product quality and delivering on customer expectations. Two non-negotiable parts of unwavering customer loyalty. Today, Athletic Greens also benefits from having a single product offering that reduces decision fatigue for new customers.
How Anatta supported Athletic Greens on their journey to scale
For nearly 7 years, Anatta and Athletic Greens partnered together for DTC success. Anatta’s core goal of the partnership was building Athletic Greens a robust website that could handle high traffic and high order volume.
Highlights from our partnership:
- Anatta helped migrate AG1 to an exceptionally fast PWA. The PWA also allowed AG1 to keep the same URL across global eCommerce marketplaces.
- Anatta launched 250+ CRO tests for AG1
- Anatta helped AG1 enter international markets like the U.K.
You can explore Athletic Greens and Anatta’s partnership here.
Dollar Shave Club
Dollar Shave Club disrupted the grooming industry with its subscription model for razors, providing a convenient and affordable option for consumers. DSC’s viral ads, strong product-market fit, and distinct brand identity propelled DSC to the forefront of the DTC industry. In 2016, Unilever acquired DSC for $1B.
The success of DSC demonstrates the power of innovative marketing strategies and the importance of understanding the specific needs of your target customers.
How Anatta helped Dollar Shave Club recover revenue
Beginning in 2021, Dollar Shave Club and Anatta partnered together to take on an ambitious growth project. During their year-long partnership, Anatta helped rebuild DSC’s CRO program and launch more than 60 CRO tests, recovering considerable revenue.
You can explore Dollar Shave Club and Anatta’s partnership here.
Essential Steps to Launching Your DTC eCommerce Business
Success in DTC eCommerce takes a well-thought-out strategy. Here are a few key parts to consider:
- Defining a unique selling proposition
- Developing a comprehensive marketing plan
- Optimizing your online store for usability & performance
- Implementing seamless order fulfillment processes
- Continuously monitoring and adjusting the strategy
Define Your Unique Selling Proposition
A unique selling proposition (USP) is a statement that highlights specific benefits of a product that make it stand out when compared to others like it in the market. A USP does all of this in a clear and engaging way.
Key Tips for Defining Your USP
- One of the best strategies for developing your USP is to leverage first-party and zero-party customer data. Try to uncover why customers buy your products based on different demographics. You can also turn to customer reviews, surveys, or interviews for great insights. Because when it comes to advertising, customers are often your best marketers.
- A successful market position doesn’t force a USP that isn’t there. Your position should focus on the benefit your offer already has in the minds of your customers.
Develop a Comprehensive Marketing Plan
A comprehensive marketing plan is vital for reaching your target audience and driving sales in the DTC eCommerce environment. This includes leveraging digital channels, such as social media platforms, email marketing, and search engine optimization. Targeted messaging and advertising campaigns should also be tailored to your ideal customers.
Optimize Your Online Store
An optimized eCommerce store is essential for providing a seamless shopping experience and maximizing sales potential. Key components of an optimized online store include fast website speed and user-friendly design.
Today, a fast online store that’s easy to navigate and tailored to your customers’ needs will quickly turn site visitors into loyal customers. And drive growth for your brand.
Implement Seamless Order Fulfillment Processes
Efficient order fulfillment processes are critical for ensuring timely delivery and customer satisfaction in your DTC eCommerce business. This involves:
- Managing inventory
- Processing orders
- Packaging products
- Coordinating shipping and delivery
By investing in technology and partnering with third-party logistics providers (3PL), you can streamline your order fulfillment processes and ensure a seamless shopping experience for your customers.
Core KPIs for DTC Brands
Success in DTC is fueled by several core KPIs. Here are just a few DTC brands should regularly measure:
- Conversion Rate (CR): How often customers are converting/completing your customer journey from product discovery to checkout.
- Customer Life Time Value (Customer LTV): How much a customer is likely to spend with your brand over the life of their account.
- Average Order Value (AOV): How much a customer spends on a single order.
- Customer Acquisition Cost (CAC): How much it costs to acquire a new customer through paid advertising.
- Monthly Recurring Revenue (MRR): The amount of recurring revenue your business is generating each month.
Continuously Monitor and Adjust Your Strategy
In the dynamic world of DTC eCommerce, it’s crucial to continuously monitor and adjust your strategy based on performance metrics and customer feedback. Analytics tools, such as Google Analytics, can help you track website traffic, conversions, and other key performance indicators (KPIs). Surveys and customer feedback can provide valuable insights into customer satisfaction and loyalty.
By staying agile and adapting your strategy as needed, you can ensure your DTC business remains competitive and continues to grow in the ever-changing eCommerce landscape.
Succeeding in DTC today starts and ends with understanding your customers and their needs. While competitor analysis is helpful, basing all of your strategy on what others are doing can distract you from what’s more important: your customers. Listen to their feedback and keep their needs top of mind; there’s nothing more effective you can do for steadfast brand loyalty.
Anatta offers Game-Changing Partnerships for Fast-Growing DTC Brands
At Anatta, we support DTC brands on their journey to becoming DTC industry leaders through game-changing partnerships.
Anatta can help your direct-to-consumer eCommerce brand:
- Build an exceptionally fast online store (load times under 1-2 seconds) for both mobile and desktop
- Optimize your website for better customer experiences, translating to higher conversions & revenue
- Help your brand expand internationally
- Augment your existing internal team with dedicated staffing solutions
- Migrate to a new eCommerce platform such as Shopify Plus
- And much more
Frequently Asked Questions – DTC eCommerce
What does DTC mean in eCommerce?
Direct-to-consumer (DTC) eCommerce is a business model where merchants sell their products directly to customers online without involving third parties like wholesalers and distributors. DTC empowers brands to build customer insight, generate community engagement, and improve product access for customers. DTC eCommerce has become increasingly popular in recent years, as it allows brands to have more control over their products and services and to understand their customers better.
Is eCommerce considered DTC?
eCommerce can be considered DTC (direct-to-consumer) as it is a business model where companies sell their products or services directly to customers without involving third parties. DTC brands sell their products through their own online stores.
How is DTC different from B2C?
Direct-to-consumer (DTC) is a business model in which a company sells its products directly to end customers without relying on middlemen like wholesalers or retailers. DTC offers companies more control over their supply chain. The Business-to-Consumer (B2C) model involves various distribution channels and middlemen, like Amazon or eBay, where multiple brands sell their products.
What is the main difference between DTC eCommerce and wholesale?
The main difference between DTC eCommerce and wholesale is that DTC allows brands to have more control over pricing, marketing, and customer relationships. Wholesale involves selling through traditional retail channels.
What is a DNVB?
A Digital Native Vertical Brand (DNVB) is a business that began selling its products or services online via DTC. As a DNVB grows, the brand will often open up its own brick-and-mortar stores or pop-ups, and may even partner with traditional retailers.
Is DTC growing?
eCommerce platforms like Shopify have made it easier than ever for new businesses to set up an online store and start selling products. Over the past few years, because of Shopify’s ease of use and global events like the COVID-19 pandemic, the DTC market has grown remarkably. As global internet access expands and more people shop online, DTC continues to stand as a promising business model.
Get in Touch With Anatta
Looking for support on next quarter’s roadmap? Our team would be happy to offer you our perspective during a free consultation.
- Nirav is the CEO and founder of Anatta. Nirav received his engineering degree in 2006 from George Washington University. Prior to Anatta, he served as founder of Dharmaboost, a software company working with Cisco Systems, Hewlett Packard, and New Leaf Paper. He is also cofounder of Upscribe, a next-level subscription software for fast growing eCommerce brands.