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How Direct to Consumer Retailers Are Disrupting the Segment

Jennifer Bosavage
October 30, 2019

3 minute read

Direct to consumer (DTC) brands are transforming the entire ecommerce industry, according to new research. They’re not just reimagining the product, but the sales experience as well. For example, Warby Parker disrupted the eyewear market; StitchFix refashioned personal styling, and Casper has shaken up the mattress segment. Those are just a few examples of million-dollar, loyalty-inspiring brands founded within the last 10 years.

A report by CommerceNext and Oracle Customer Experience, “How Leading Retailers and Direct to Consumer Brands Are Investing in Digital,” found that digital-first DTC brands are investing more than traditional brands in acquisition marketing. In addition, DTC brands are increasing investment on more advanced technologies such as programmatic TV, AI-driven personalization, and customer data platforms to enhance — and disrupt — the shopping experience.

Programmatic TV

Programmatic ad buying refers to the use of software to purchase digital advertising. It is used by DTC brands as it is considered more efficient than the traditional process, which can be more cumbersome, involving requests for proposals (RFPs), human negotiations, and manual insertion orders.

According to the study, 56% of digital upstarts want to increase investment in programmatic TV to engage customers. The study concluded that DTC brands employ a winning TV advertising strategy that includes advanced linear, over-the-top video (such as Netflix) and digital premium video aimed at highly targeted customer demographics.

Direct Outcomes: Analyzing the ‘Big Bets’ DTC Brands are Making on TV“, a report from the Video Advertising Bureau, found that many well-known DTC brands have evolved their strategies from sole reliance on digital and social marketing campaigns to those that include significant television ad spending. The study reports that emerging brands experienced an average 93% increase in their website traffic “through the duration of their TV flight vs. prior to TV launch.”

AI-driven personalization

According to “How to Manage Customer Service Technology Innovation,” an article by Smarter With Gartner, “Gartner predicts that by 2021, 15% of all customer service interactions globally will be handled completely by AI, an increase of 400% from 2017.”

What are the benefits? AI can be used to predict consumer behavior or target specific groups of potential or existing customers, as well as related ones.

For subscription-based brands, custom churn models can be built to predict which customers are likely to reduce their purchase frequency or cancel their subscriptions. Companies can then take appropriate marketing action to retain those customers. Similarly, determining which customers have attributes that correlate with being loyal is an approach Stitch Fix uses.

According to the Oracle study, 55.6% of DTC brands are increasing their investments in chatbots and other AI, compared to only 41.1% of traditional brands.

Customer Data Platforms

The Oracle report found that this year, the top innovation investment priority for all ecommerce marketers, regardless of business model, is in customer data platforms (CDP): 65% of respondents have increased budget for CDP in 2019. Yet direct to consumer brands’ investment in CDP is outpacing that of their traditional counterparts; 70.4% of DTC brands are increasing investment, compared to 63% of traditional brands.

DTC brands also appear to have a leg up as far as control over the customer’s experience than traditional brands, as by nature they have first-party data to connect with prospects and customers on a one-to-one basis. This, plus a single view of customers through unifying data at the individual level across systems helps provide businesses with an efficient means of knowing and communicating with consumers. According to the report, 22% of DTC brands reported that gaining a single view of the customer was a barrier in 2018, compared to 29% of traditional brands.

Jennifer Bosavage
Jennifer Bosavage
Jennifer Bosavage is a Connecticut native and has been writing about technology since the fax machine debuted. While Jen has covered IT, retail, and customer satisfaction for many years, she also has an undercover history as a Secret Shopper.
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