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Nik Sharma: DTC as a channel vs Business Model?
The fundamentally different distribution model of selling directly to your audience through an eCommerce store, removes many of the inefficiencies of retail like margins, antiquated distribution models, and lack of end-consumer data. Do you look at this as your entire strategy, or a channel in an omni-channel approach?
The phrase “DTC” has been a phenomenon that has engulfed almost all areas of starting a consumer goods brand. The blurred line is whether DTC is a channel that brands can utilise as part of an overriding strategy, much like how CPG brands utilise Food Service as a channel of distribution, or whether DTC is a fundamentally different business model that plays by different rules and needs to become “the” strategy.
We spoke to DTC authority, Nik Sharma, on Episode #4 of the Blueprint Work In Progress Podcast to analyse how this looks from a brands POV. Let’s take Harry’s, the DTC-darling that disrupted an age-old razor industry with a vertically-integrated and directly-distributed eCommerce model. Harry’s pioneered the DTC model in 2013 to build legions of fans, deep data sets on their customers, and build substantial online revenues. However, by late 2016, it seems that model didn’t quite yield the returns their venture-capital funding required, as they launched offline distribution for the first time in the shape of a partnership with Target.
Harry’s CEO, Jeff Raider in 2016: “We want to make buying our products a convenient, simple and enjoyable experience. Many guys like to shop online, others prefer to shop in stores, and our partnership with Target will help us to serve both audiences while reaching new customers as well.”
Harry’s were able to use their DTC model to accelerate their expansion beyond imagination in 3 years, leveraging their customer base and data profiles to secure nationwide priority distribution. Harry’s didn’t beg to have their products in the corner of select Target stores, but rather had branded end-caps) and a “buy in-store and subscribe on Harry’s dot com" deal. This kind of deal was only made possible by a DTC-first model.
However, there are examples on the other side of the table that are built to be entirely DTC (forever), and have engineered their business to function that way. One of these co’s is Prose Hair. Prose have a 1:1, high touch on-boarding process whereby a customer answers multiple questions on their hair health, goals, and frequency to create a personalised suite of haircare products. Prose use custom algorithms and manufacturing processes to create their product range, which have been deeply rooted into every faucet of their business. With a model like Prose, it would be almost impossible to emulate the level of operational complexity in a retail setting - regardless of the scale it may promise.
"DTC, for some brands (like Prose), *is* the business model - because their moat lies within their algorithms and their ability to customise. Whereas, if you’re a coffee co that just launched DTC, that might be your business model at first, but then when you realise that a P.O into Target will flood revenue - you’re not going to say no. Then DTC becomes this channel to prove out PMF, initial understanding of who your customer is and where they live - those data points that you can use later leverage for bigger retail plays." Nik Sharma - Sharma Brands
Therefore, the argument between DTC swaying more towards a channel or business model argument is very much dictated by the business and the product itself. There is no one-size-fits-all model that executes across the board. The decision to align towards either a DTC channel or model is reflective in your product offering set-up, the customer experience, the intended scale, the business vision, the team, the competitive landscape and any other important elements that are taken into consideration at the genesis of a business.