The explosion of direct-to-consumer (D2C) brands over the past few years has led to a shift in the relationship between brands and consumers. There’s no longer a reliance on traditional stores or other middlemen.

And the way consumers buy everything from beauty products, glasses, mattresses to vitamins and contact lenses, is disrupting established industries and cutting out the retailer in order to own the end-to-end relationship.

Typically, these D2C brands tend to be born out of the internet, are targeted squarely at younger audiences, digital natives, millennials and are focused on driving a more intimate customer experience. They are also usually startups, with higher potential margins than general ecommerce operations.

Good examples include Dollar Shave Club, Abel and Glossier Cosmetics who are attacking large CPG product portfolios by specialising in one area and establishing direct-to-consumer relationships focused on subscription, ecommerce, data, and exceptional customer experience.

This piece explores the rise of D2C and what this means for agencies, as well as the impact this is having on how agencies work with brands, where many D2C brands are preferring to focus on in-house talent rather than outsource to agencies.

(This essay was originally published in Econsultancy’s Top 100 Digital Agencies Report 2019, sponsored by MiQ. Download the full report here).

Investment in D2C businesses continues to rise

According to IAB’s The Rise of the 21st Century Brand Economy, the future of retail growth comes from direct consumer relationships. Warby, Casper, Dollar Shave Club and Glossier have all become major players in their respective industries. Allbirds, Harrys, Everlane, Gymshark and Bonobos have moved towards profitability or been acquired.

Acquisitions by leading brands such as Unilever (Dollar Shave Club) and Procter & Gamble (women’s personal care brand This is L) continue to show the growing significance of direct-to-consumer brands in consumer packaged goods – with a key reason for acquiring these companies being to learn about the kind of scaling techniques that are employed by DNVBs.

Econsultancy’s Digital Shift Q2 2019 report highlights an insightful post from Shane O’Leary, Consumer Strategy Director Strategy Director at ROTHCO/Accenture Interactive, who draws together a number of the key strategies used by direct-to-consumer brands.

O’Leary describes how these strategies and the maturity of a DNVB typically follows a two phase process. The first phase is around testing the water, where the brand builds a simple direct proposition that owns first-party data, creates a great product and subscription offering, supported with digital and influencer marketing.

The second phase is where the D2C brand feels the limitation of its strongly vertical focus and seeks growth through different options. They recognise the need to build collective awareness and knowledge. More mature D2C brands turn to using mass-reach media like TV, outdoor, and radio. They also seek new forms of distribution, building on their understanding of supply chain effectiveness, in seeking key relationships with large retailers.

Some also look at diversifying to launch new and different brands with the same model. Harry’s Razors for example, is launching additional brands through its innovation arm Harry’s Labs. They also seek a move to physical retail, creating relationships with third-party retailers. In effect, DNVBs are becoming more like traditional brands the more that they mature, but there is still plenty that legacy brands can learn from their best-in-class digital approaches.

In effect, DNVBs are becoming more like traditional brands the more that they mature, but there is still plenty that legacy brands can learn from their best-in-class digital approaches.

It is clear that social media also plays a key role in raising consumer awareness of DTC brands. According to Rakuten Marketing, 44% of UK consumers cite Facebook as a platform that has raised their awareness of DTC brands, while 31% say YouTube, and 28% say Instagram.

Cosmetics brand Glossier was built almost entirely through Instagram, and founder Emily Weiss credits 90% of their revenue to fans on the photo-sharing platform who spread product awareness through postings. User generated online content is now said to double conversion rates, acting as social proof of an authentic, positive experience with a business.

The impact on the traditional agency model

As suggested in Marketing Week, D2C brands are taking control of their creative, digital and social campaigns and in many cases are preferring to nurture talent in-house, rather than outsource to agencies.

Direct-to-consumer brands can focus on building their own brand and being authentic because they often they have a narrow focus with a clear proposition and a strong tone of voice. What these brands are looking for is to bring top talent in-house, but they are seeking strong strategic partners who can support them in areas they are still developing.

DNVBs, therefore, require different skills from agencies they work with. For an agency, they need to be considering how they can adopt a more iterative approach to the needs of DNVBs, as well as demonstrating the ability to be as flexible and responsive as possible. New types of agencies are subsequently emerging that specialise in the different services required by these brands as well as exploring new ways of working and payment models.

YellowHammer Media Group, for instance, adopts an outcome-based marketing approach with some of the start-ups it works with and is paid based on the clients’ growth. The more sales it drives, the more money it gets.

As sectors continue to be disrupted, companies need to consider creating new opportunities for innovation and expansion into new areas and value propositions. Brands who go direct to consumer take ownership over their most important asset, their customers, and have the potential to increase customer lifetime value.

To meet changing customer expectations, companies need to focus on delivering exceptional customer experience, optimise their data and operations, whilst fostering relationships with their customers.