What is direct-to-consumer (DTC) marketing?

Direct-to-consumer (DTC) marketing is a business model defined by direct transaction channels and customer engagement that lead directly to the consumer or customer. Called DTC marketing or D2C for short, it’s become more important than ever due to the way it has fundamentally changed the customer experience and marketplace for brands.

As eMarketer forecasted, DTC sales are expected to reach $17.75 billion by the end of 2020.

Direct-to-consumer companies mainly distribute their products directly to buyers without relying on intermediaries like traditional stores or other distribution channels. This allows DTC companies to sell products and services at lower costs than traditional brands. And it also allows them to maintain end-to-end control over the making, marketing and distribution of products.

Unlike their more traditional competitors, these D2C brands can also experiment with distribution models, from shipping directly to consumers, offering subscriptions, partnerships with physical retailers and opening pop-up shops.

DTC marketing is usually associated with disruptive retail brands. But many brands in a growing number of industries, and even those with a business-to-business (B2B) model, are experimenting with DTC marketing channels to engage more directly with consumers and customers.

How does DTC marketing work?

DTC marketing encompasses many areas, including efforts to build brand awareness, content marketing, growth marketing and performance marketing. These are all enabled by direct customer channels and direct customer engagement.

Direct-to-consumer marketing heavily relies on digital platforms including social media and digital advertising, but may also use mediums outside of pure digital, including print, out-of-home, TV, radio, etc. to interact directly with the target consumer or customer. Sometimes, these messages offer relevant content. Other times, they are designed to trigger the consumer to make a purchase.

“DTC marketing priorities are based on performance and growth marketing tactics, including customer acquisition, customer retention, product merchandising, content marketing, social media, and paid/owned/earned media.”

DTC marketing priorities are based on performance and growth marketing tactics, including customer acquisition, customer retention, product merchandising, content marketing, social media, and paid/owned/earned media. Tracking and capturing data across these efforts are done digitally. Companies measure it by analyzing customer acquisition cost (CAC) and lifetime value (LTV / CLTV).

In the pharmaceutical industry, D2C marketing plays a very different role. There is no direct route between consumers and prescription medications, so doctors are intermediaries. Though controversial, ads that encourage consumers to “ask your doctor” have been proven to boost prescription drug sales. Pharma companies spend about $6 billion on such ads a year.

How does DTC marketing result in growth and digital transformation?

The DTC model has disrupted business by opening up direct-to-consumer channels for intrinsic customer engagement with brands. The best ones are powered not just by sales, but by growing commerce with meaningful content and a community of other users. These three come together to create a powerful flywheel effect.

This personalized relationship with people has shifted expectations about brands. They expect more in terms of products, customer service and brand purpose. The approach has also transformed businesses with growth opportunities by arming them with direct and immediate consumer data, communication and channels.

How brand plays a role in DTC

A company’s brand plays a unique role in direct-to-consumer companies and should guide marketing efforts. Depending on the relationship with the consumer or customer, multiple campaigns are sometimes necessary. For example, the types of marketing that will resonate with an intermediary, such as a retailer, may differ from what will resonate with the end-user or consumer. To drive growth, companies must align the brand positioning, DTC marketing and target consumer/customer, even among these individual efforts.

Benefits of a DTC marketing strategy

Companies with strong direct-to-consumer channels have some significant advantages over those that don’t. They typically have much more customer data and can mine it for insights. Because they are often digital by nature, DTC companies have testing agility that traditional companies don’t. They can apply growth marketing tactics of constant experimenting and testing to deliver refined results. Often, they experiment with many offers simultaneously. All this information, combined with constant conversations with customers, makes them more flexible. They can make decisions immediately, shifting direction and budgets quickly.

Common DTC marketing challenges

These companies also face unique challenges. Often, they struggle to acquire consumers/customers in a financially sustainable way, requiring outside funding to power growth efforts. And since many start with only a few products, such as mattresses, razors or shoes, they have difficulty positioning themselves against new entrants in the space. They often fail to optimize multi-channel marketing approaches or take advantage of the breadth of digital customer engagement approaches. And when there are significant shifts in customer expectations, it can be especially hard for D2C companies to remain relevant.

Redefining how B2B / B2B2C companies directly engage with customers

By optimizing direct channels, business-to-business companies can achieve many of the benefits of the DTC model while driving insights and exceptional growth.

There are two different approaches to DTC Innovation:

B2B/B2C Innovating in Full DTC Model:

Some companies have used this approach to increase revenues, grow market share and build a stronger relationship with business partners. To begin, start by asking:

• How can we play to win with a DTC model?
• How do we position ourselves for executive and board-level investment and buy-in?
• What is our go-to-market strategy and plan?
• How do we build an operational and organizational model to support the new business?

B2B/B2C Innovating with DTC Principles and Tactics

Other businesses do better by adopting a few approaches from DTC playbooks, adjusting them to suit specific market needs. Start by asking:

• How do we experiment with DTC principles without transforming our business model?
• How do we build a customer relationship and engage with customers on direct channels, without disrupting our existing sales channels?
• How can we build a DTC offering in parallel with the legacy business?

As chief marketing executives put the finishing touches on 2021 plans, it’s clear that marketing’s role in accelerating digital selling has become a top priority. And they know it’s the only way to achieve meaningful growth. The problem is that they are not sure they can pull it off. Only 5 percent of CMOs are highly confident in their ability to impact the direction of their business, influence strategic decision and get support for their initiatives, according to a study published recently in HBR. That’s the lowest self-ranking of any role in the C-Suite.

More evidence that pressure on CMOs is building? The Gartner’s 2020 CMO Annual Spend Survey finds that CMOs are holding increasing accountability for sales. Return on investment (ROI), marketing qualified leads (MQL) and sales qualified leads are the top three focused metrics. That compares to measures like brand health/brand tracker at No. 8.

“The Gartner’s 2020 CMO Annual Spend Survey finds that CMOs are holding increasing accountability for sales.”

And at the same time, CMOs must do more with less, with 44% of CMOs facing midyear budget cuts as a direct result of the COVID-19 pandemic. And 11% are chopping budgets by more than 15% according to Gartner.

All this shows in the increasingly short tenure of CMOs. The average CMO stayed in his or her position for just 41 months in 2019, down from 43 months in the prior year according to search firm Spencer Stuart.

There are plenty of underlying reasons for this pressure, including unhappy CEOs, impatient customers and a more urgent need for growth. But perhaps the best reason for CMOs to make this shift is that they finally can, leveraging the digital innovations they’ve been building over the last several years.

Many of the companies we work with say marketing is now responsible for bringing in the best potential customers and getting these eager buyers into the hands of sales at the right time. And they know they must do it cost-effectively.

Behind the Convergence of Marketing and Sales

In many ways, this isn’t new. CMOs have long tried to make it easier for sales teams to reach the right audience in the right ways. But there are several critical differences now, making digital sales acceleration an urgent mission, not just something nice to have in the marketing plan.

The first, of course, is COVID-19. It’s disrupted the selling process in many businesses, and in some industries, it’s been crippling. In organizations with high-touch, agent-assisted sales processes, personal sales calls became impossible. That’s forced a quick–and often flawed–transition to digitally powered solutions.

Second, many CMOs are aware that marketing needs to do more to spur sales growth. And armed with increasingly sophisticated digital marketing tools, they are aware they can enable sales as never before. They are targeting quick wins and longer-term payoffs through digital selling efforts, making them a primary focus in 2021.

They know returning to growth is essential, and many are aware they weren’t delivering, even before the pandemic. (Their bosses know it, too. A study from McKinsey finds that while 83% of CEOs say marketing can be a significant driver of growth, 23% don’t believe that their marketing organization delivers on that growth.)

Customers, with their continually rising expectations of digital experiences, are also driving the change. People no longer have the patience for the old-school approach to the sales funnel. In the digital age, they expect highly personalized transactions, offered in multiple channels. Forrester anticipates that more than 50% of B2B companies will realign the sales enablement function to marketing to serve these buyers better (currently at 23% as of Q3 2018), further highlighting the convergence.

Three Ways to Speed Up Digital Selling Efforts

Just because CMOs understand it’s time to shift their agenda to help with demand generation and digital selling doesn’t mean they’re clear on how. CMOs have to define new capability requirements, reconsider their organizational design and operating model, hire new skills while upskilling existing talent, and redesign customer sales and service experience.

The smartest companies start with fundamental questions about which 2021 marketing priorities are best accelerating digital selling. And they are often building initiatives in three key areas:

1. Nurture and Engagement: Moving from One-to-Many to One-to-One

These efforts prime the buying interaction through the successful deployment of relevant and personalized content. They are empowering sales with digital content that can be updated and customized with shorter lead times. And typically, they use advanced analytics and “next-best-action” logic.

2. Experience and Innovation: Bridging Journey Inconsistencies Toward a Smoother Purchase

CMOs are looking for ways to get rid of friction, framing the buying process around customer personas. They’re dissecting the buying journey to prioritize and address high-value digital pain points and opportunities. And they are investing–sometimes heavily–in service design that leverages supporting technology to improve the entire purchase experience.

3. Organization and Culture: Spanning Siloes in Integrating Workflows

These efforts focus on training specific skill development, such as social selling. Sometimes they require work on a company’s operating model and an organizational redesign, comparing the current model to new priorities and jobs to be done. They also include business-case development, pilots and reinforcing mechanisms that can transform culture and drive buy-in. And they include defining and implementing critical shared metrics, aligning the organization as a whole (and individual teams) around common goals.

As challenging as 2020 has been for marketing executives, it’s also been an accelerator of change. Amid pandemic disruptions, many companies found ways to reset, making fundamental–and often overdue–changes in their marketing organizations.

Those resets have opened doors to opportunities. As we help our clients map out 2021 marketing plans, we see important new ways for marketing to continue to enhance and even transform its role in accelerating a company’s growth.

We see several shifts that present a rare opportunity to develop the kind of marketing organization many people have been aspiring to work in, and lead, for more than a decade. These changes are built into marketing plans now and will sharpen focus and create more impact in the year ahead, as well as serve as building blocks for long-term growth.

Important Focus Areas for CMOs Developing Their 2021 Marketing Plans

Blur the Lines of Marketing

The best CMOs understand that solutions lie beyond their own departments and functions. The first wave of alignment has traditionally been marketing and sales, and more recently, deeper coordination with corporate communications. Increasingly, we also see CMOs building into their marketing plans integration with experience, tech, digital and HR teams. That’s because a genuine cross-functional approach is no longer nice to have, it’s essential for growth. While marketing may have responsibility for its plan and budget, leaders must see how collaboration with other functions is critical to the company’s success.

Elevate the Insights Function to an Operating System

As adept as many companies have become with transactional customer analytics and data, CMOs are keenly aware that insights often lag behind the accelerated pace of change happening across industries. That means plans are always a few steps behind what’s going on with customers right now. The pandemic, especially, has triggered profound changes in people’s behavior, making the need for constant pulsing imperative. Marketing leaders need a system that combines transactional customer analytics with current insights on human, consumer and user attitudes and behaviors.

Develop New Digital-Selling Strategies

Marketers can add value in the long term through brand reputation building, but they also need to play the critical role of generating leads and demand. Luckily, sales teams aren’t just welcoming this change, they’re pleading for it. Unable to jump on planes or meet face-to-face, salespeople need new digital tools, content and tactics to nurture every step of the sale. While there has always been a desire to push marketing and sales together, the pandemic is realizing the true merge of these two functions.

“A genuine cross-functional approach is no longer nice to have, it’s essential for growth.”

And, while this is certainly true for direct-to-consumer sales, an even larger opportunity for marketing is in B2B transactions. These customers, who are also enthusiastic digital consumers, are hungry for seamless solutions to procurement problems. By helping sellers answer that call, marketing has a rare purview to transform the selling process.

Create a New Talent Strategy

Finding the right people to run these intensely cross-functional operations requires a new approach. CMOs need to hire people who can look inside marketing and beyond, quickly jumping into a sales or product or experience or a tech conversation. And it’s likely recruitment efforts won’t be enough, at least to answer 2021’s pressing needs. What gaps can be filled by hiring? Partnering with other organizations? Upskilling? Even an acquisition?

Build-in Quarterly True Ups

CMOs need to be lighter on their feet than ever. Plans must be dynamic, allowing companies to be more responsive to shifts in the market and adjust in real-time. And this flexibility needs to be embedded in the day-to-day fluctuations of the company’s core businesses. Thorough scenario and contingency planning are mandatory for each goal and objective to be ready and responsive, with closer tracking of brand and sales performance.  Dynamic planning, responding and acting will now become the new normal for marketing. At the same time, making smarter tradeoffs in the near-term will be part of the secret sauce for reframing marketing’s role in driving a long-term growth agenda.