How The DTC Model Is Gaining An Edge In Commerce

Don’t call it a makeover, not yet. But direct-to-consumer (DTC) retail is undergoing some significant changes, which could help strengthen DTC activities for years to come.

Personalization is among the trends gaining fuel in the DTC world, reflecting larger changes in the retail world. A recent example comes from the world of hair care, where consumers spend some $87.9 billion annually on products to make their locks look good.

Function of Beauty Founder and CEO Zahir Dossa noted that all consumers have different hair types and hair goals, which translates into robust and different needs. All of that helps prepare the ground for innovation. “In 100 years, the value chain for beauty is almost totally unchanged, and is utterly laden with unnecessary middlemen,” Dossa said.

Personalization and Instagram

That’s a big part of the reason that Dossa’s company is dedicated to the proposition of constructing a more functional DTC model – in essence, a better way to match consumers to the right hair care products by custom-creating them. Function shoppers complete online surveys – a basic part of the DTC website experience these days. The survey is designed to help customers build a hair profile: They answer questions about their hair’s structure (straight, curly, dry, oily, etc.) and how they want to change that biological material on their scalps (more volume, deep conditioning, length, etc.) The consumer also gets to customize the color and scent of their shampoo.

But personalization in the direct-to-consumer world does not guarantee retail success down that road. As many companies involved in DTC have learned – and as Function of Beauty is learning – scale stands as a big challenge. Sure, other DTC operators turn to such tactics as pop-up shops or wholesale relationships with brick-and-mortar operators, but as Dossa explained, his company’s customized products and core value are not well-suited to physical retail.

“We could do in-store experiences or partnerships with retail, but then we couldn’t achieve scale or hyper-growth,” Dossa told Glossy. “One of the sacrifices of doing personalized products is that if we want to achieve scale, we have to do things in an automated way – but that requires a more centralized model.”

Candles, too, provide a chance for DTC to grow – specifically, scented candles. They are not only Representing a $50 billion annual global industry, the product appeals to millennial consumers who are moving toward their peak earning years, according to Otherland Founder Abigail Stone. “I realized I had an opportunity to create a modern brand with a focus on art while incorporating storytelling and community,” Stone said. That’s one reason her direct-to-consumer firm has built a loyal core of users, creating a sense of narrative and community via such methods as Instagram images of its candles flickering on wooden bookshelves.

DTC Analytics

In other parts of commerce, the DTC model is undergoing additional changes that could eventually impact the larger world of retail. And much of that innovation and disruption comes down to better analytical prowess. One recent example comes from Los Angeles-based Pepper.

The company has raised $5.6 million in seed funding from Upfront Ventures, Lerer Hippeau and Manta Ray Ventures, as reported in late 2019. That new capital is earmarked to boost Pepper’s mission to assist DTC startups and digitally native businesses. Pepper strives to help startups predict and understand how their investments affect the health of their business.

After all, the potential trouble with DTC brands is that the name belies how hard it is to reach and recruit consumers. This is particularly challenging for unknown emerging brands, and it gets exponentially harder the more crowded the field becomes.

If DTC were a rising thoroughbred, bettors would likely be placing more money on it. This method of selling promises to continue growing not only bigger, but also much smarter in the years to come.