July 7, 2021

To DTC or not to DTC - Product category decides

The dynamics of the chosen product category play a big part in the success rate for DTC companies.

Product Category Dynamics Important Success Factor for DTC Companies

In the last couple of years, we have seen new entrants across many different product categories of consumer goods applying the direct-to-consumer business model. After observing this trend for a few years, a certain pattern can be traced more clearly. The dynamics of the chosen product category play a big part in the success rate for DTC companies.

Let’s start with some basics. Consumer goods have for a long time been segmented by how often you would buy them. Purchasing a new piece of furniture is not the same thing as picking up some more toothpaste. This distinction makes sense in the online world as well, where repeated purchases could help increase customer lifetime value (CLV).  

On the other hand, things you tend to buy more seldom have a tendency to be a bit pricier, so you need to take that into account as well.  

OK, so far we have established that frequency and price are important to consider. Not exactly a eureka moment but hear us out.

Now add engagement as a factor, defined as a measurement of how much you care when buying something. As consumers, we are not only paying with our money but also with our attention. Switching from the mainstream to something else could probably save you some money but it requires a decision, which is equal to attention and brainpower.  Most of us make our consumer decisions based on pure laziness when dealing with low-engagement consumption.

Entering a product category with a low-engagement behavior and low-frequency using a DTC model is very tricky. It won’t matter if your product is 10x better, we simply don’t care enough to change our behavior. Instead, this product category is perfect for marketplaces. They can introduce their private label and quickly make them the option of least resistance.  

If we look at the low-engagement/high-frequency segment, we will find DTC entrants which we like to call “Everything as a Service”. Their challenge is to convince us to subscribe to things like toothpaste and detergent.  

The benefit is of course to never run out of that particular product. The downside is that you now have to manage another subscription. The big crises of running out of detergent can be handled by just swinging by the closest convenience store to pick some up.

Colourful toilet paper
A "shitty" DTC player - Who gives a crap?

Now, let’s have a look at the high-engagement side. What would trigger high engagement in a consumer decision?

One answer would be offerings that function as an extension of the individual, and how it wants to be perceived. This is where we find brands within fashion, beauty, skincare, and accessories (signalling attractiveness). We also find brands with new smart features (signaling intelligence), and brands that are driven by a certain purpose or cause (signaling high moral).  

Regardless of what type of signaling you are looking for as a conscious consumer, you are definitely engaged in your purchase. Now, let’s get back to the question about frequency and price.

There are DTC success cases within the low-frequency high-engagement category, but they all stand out as high-ticket items. A few examples worth mentioning are mattress company Caspar, premium luggage brand Away and luxury bedding company Brooklinen.  

Woman traveling
Away - A hight ticket low-frequency item with high engagement purchasing behavior

The last category is what we call the DTC sweet spot but also probably the most crowded category. Offerings that fall under this category benefit from a high level of engagement as well as high frequency.

Consumer goods that with a steady interval needs to be replaced is a clear subsegment within this category. Beauty and skincare products can easily be traced to this category.

The purpose of this easy framework is to help you navigate and better understand the dynamics of the chosen product category. Think about how you can improve the engagement level and frequency when designing your offering.

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