BUSINESS STRATEGY

The unstoppable growth of Direct-to-Consumer and the caveats and limitations of subscriptions models

DTC is growing, but are subscriptions models are already dead?

Direct-to-Consumer models are gaining traction, as full ownership of data and customers’ relationship allow (1) the creation of better products, tailored to customers’ needs, (2) improved customer experience, through continuous A/B testing and (3) repeated purchases and higher retention rates, especially when subscription models are adopted. But… is this enough? Or is this just a fade? Go on and read to find out…

Disclaimer: this in-depth analysis is a collection of personal thoughts, data points and quotes from experts. All info is publicly available. The content hereby written does not reflect in anyway the position of the company I work for.

The importance of Direct-to-Consumer

Dear reader,

Direct-to-Consumer (DTC) brands are products, services or “experiences” that are financed, designed, produced, marketed, distributed and sold by the same company, without the need of a retailer. They bypass the middleman and connect directly to consumers. More than 40% of brands now sell DTC[1] and are predicted to reach $130bn by 2025[2]. The potential is huge. And the trend seems unstoppable.

DTC models are becoming more and more important for the Consumer Packaged Good (CPG) industry and many other big players. Here a few examples by well-known companies:

• Sneaker and sport apparel manufacturer Nike, grew its DTC channel eight times faster than its wholesale business in 2016. While this channel only generated $9.1 billion of revenue, or 28% of Nike brand sales for the company in fiscal 2017, it accounted for 70% of the growth
• Disney ended the deal with Netflix and it’s planning to launch its own DTC subscription streaming service soon
• Kellogg has eliminated direct-store delivery for its snack division to redirect resources and efforts to direct-to-consumer marketing and increased support of e-commerce

Big companies are investing more in DTC because of consistent disintermediation: via DTC they can get a deeper understanding of their consumers and behaviours while developing agile solutions to keep pace with start-ups’ agility.

The explosion of subscription models