COVID-19 has had dramatic effects on consumer behavior and shopping patterns across every industry and category.
The new “stay at home” way of life has rapidly shifted consumer shopping behavior online and has catapulted ecommerce into hyperdrive.
Now DTC brands are facing a new challenge: How to stay relevant in the post-coronavirus world. In this post, we’ll look at how they can plan for the future.
The impact of COVID-19 on online retail
Before we get into the how, let’s talk about the why.
The reality is: global pandemic has transformed life as we know it, and the need for social distancing sped up ecommerce adoption by as much as 4-6 years nearly overnight. In fact, the online share of total retail sales went up by an unprecedented 13% in the span of just eight weeks.
- A Digital Commerce 360 study showed online spending was 16.2% of total retail sales in the first quarter one of 2020, which marks the second-highest online revenue share for any quarter in history.
- In April, CCInsight data showed U.S. retailers’ online year-over-year (YoY) revenue growth is up 68% as of mid-April, surpassing an earlier peak of 49% in early January.
- In May, Adobe data showed that total online revenue reached $82.5 billion, up 77% year-over-year.
And while the fear of the unknown drove people to stockpile food and essentials as the virus lockdown began, after this phase of panic buying, people also started shopping online for other items. Online shopping for non-grocery items tripled — from 12% of consumers who once shopped in physical stores to 36% by mid-April.
So what were the implications of this for DTC businesses?
The first resiliency test for DTC businesses
Even though DTC businesses were facing some challenges before the pandemic, this has been the first major resiliency test.
Historically, many DTC brands relied strictly on venture capital (VC) funding. CB Insights reported in early 2019 that DTC brands received a cumulative $3 billion in venture capital funds since 2012—$1 billion of that was allocated in 2018.
Now, however, DTC brands will have to show more than their ability to acquire customers if they want to attract new investors. Moving forward, VC investors will be more selective, and they will likely give more weight to brands who can show profitability, customer retention, and a solid business model. This means DTC companies must evolve to stay relevant.
By 2028 ecommerce will account for approximatly 40% of total retail sales.
The good news is that coronavirus has fueled a shift toward online shopping and the projections show that by 2028 ecommerce will account for ~40% of total retail sales. For DTC brands, ecommerce is like having a home-field advantage: It’s what they’re best at. Now is the time for brands (DTC and otherwise) to focus on future-proofing strategies that will make their businesses more resilient in the long-term.
12 ways to build a future-proof business
The virus has caused a once-in-a-generation shift that has changed the way people work, socialize, interact, and shop. Now it’s up to companies to adjust accordingly if they want to ensure business continuity.
But…how? Here are a few strategies to consider.
1. Focus on increasing LTV
Instead of focusing so much on acquiring new customers, DTC businesses must focus on increasing customer lifetime value (LTV). Besides the fact that it’s five times more costly to attract a new customer than it is to retain an existing one, increasing customer retention rates by 5% can increase profits by as much as 25% to 95%.
The magic formula to increase customer LTV is to give consumers a reason to purchase more often, to spend more money, and to keep them as customers for longer. All of the tactics below will bring you closer to increasing customer LTV.
2. Build a loyal, engaged community around the brand
Today people look for more than a product at an acceptable price. They look for engaging experiences that make them feel like they “belong.” Getting them to buy your product is just the first step. Keeping them loyal is the hard part. Many businesses rely on retention marketing to accomplish this goal. This often includes events, activities, and other tactics that make customers feel like they’re part of a bigger community.
Glossier and NoBull are great examples of DTC brands that have strong communities and customers that feel so connected they end up acting as brand ambassadors (officially or unofficially.) Glossier confirmed that 80% of their growth and sales come from peer-to-peer recommendations or their own channels.
Having customers that are raving fans of your products (and your brand in general) will take care of the heavy lifting for you.
3. Rely less on paid acquisition tactics
Even though businesses should focus more on retention as opposed to acquisition, they should still have a solid mechanism for attracting new customers.
One of the key pillars of fast-growing DTC brands has been paid customer acquisition through social media. Due to the pressure to prioritize growth at any cost, DTC companies became highly dependent on paid customer acquisition channels.
Unfortunately, paid acquisition can only take you so far. Within the last couple of years, the market became overly saturated, and social media acquisition channels became more expensive and less effective. Data from HubSpot shows that over 60% of marketers say that their customer acquisition costs have increased in the past three years.
The question is: what next? Smart DTC brands know that the only way to get to the other side is to evolve and build a sustainable and scalable business model. More on that next.
4. Invest in the post-purchase experience
One of the most underutilized areas of ecommerce is the post-purchase experience. Brands that excel at this aspect of the customer experience can gain a foothold with customers because so many still overlook this stage.
Instead of passively waiting for customers to make the next purchase, leverage different tools to build meaningful relationships. From personalized recommendations and replenishment notifications, to a stellar returns process, to loyalty-focused incentives that motivate customers to buy again—the post-purchase experience can be a game-changer for your retail business.
5. Automate returns to delight customers
Let’s talk more about returns, as the unprecedented boost in ecommerce sales opens up a larger conversation about this aspect of the buyer’s journey. According to the Reverse Logistics Association, the return rate of ecommerce purchases is three to four times higher than that for brick-and-mortar purchases.
The return rate for ecom purchases is 3x – 4x higher than that for brick-and-mortar purchases.
Many brands that didn’t historically invest in ecommerce will be forced to find ways to handle returns and exchanges at a volume they didn’t in the past (as they’ll soon discover it’s becoming a full-time job.)
Returns present an opportunity: Instead of ending a customer relationship with a return, businesses should make it easy to exchange for the right product, return for store credit, or request a refund and create a moment of surprise and delight that improves the overall customer experience. By automating product returns, you help your team be more efficient, increase CLV, and even create a new revenue stream.
6. Make decisions based on customer data and analytics
In a world full of data and advanced analytics, making decisions based on a “gut feeling” is like walking blindfolded. Today’s customers are digitally-native, armed with data, and they tend to make informed decisions. What’s more, they’ve raised their expectations, and now it’s up to companies to adapt to individuals’ changing preferences and assure they have top-notch online shopping experiences.
The best way to do so is by understanding the data and knowing when to act. Using the insights that you gather throughout the customer buyer journey will let you optimize customer experiences, thus attract, engage, and retain consumers.
Pay close attention to sources of churn, examine what makes customers stay loyal, and open an ongoing dialogue with shoppers to constantly work on making smarter, more data-informed decisions moving forward.
7. Introduce personalized ecommerce experiences
In the future of e-commerce, there is no room for a “one-size-fits-all” approach. If you’re not willing to go the extra mile and offer personalized experiences, customers will turn to your competitors. Accenture data shows that 75% of shoppers are more likely to buy from a brand that recognizes them by name, recommends options based on past purchases, or knows their purchase history.
The latest advancements in information technology like artificial intelligence, geotargeting, and automation make it easier for companies to personalize their approach. With all the customer information at hand, you can enable hyper-personalization within different segments–from content and ads, to design, product recommendations, and everything in between.
8. Create an unparalleled mobile shopping experience
We live in a mobile world. Back in 2016, Google confirmed that more than 50% of all web traffic is coming from smartphones and tablets. Soon after that, they shifted indexing from desktop to mobile-first. Smartphones have empowered customers to get what they need when they need it. They’re also the key component of other advanced technologies like augmented reality, voice search, visual search, and others.
People don’t just browse on their phones; they also buy products with them. As reported by BigCommerce, by 2021, mobile ecommerce sales are expected to account for 54% of total ecommerce sales. This is a clear sign that prioritizing mobile experience will pay dividends in the long run.
9. Leverage product reviews and user-generated content
Customers today know the difference between paid promotion and honest customer feedback. That’s why they are constantly looking for unbiased customer reviews that help them decide whether or not they should buy a product. According to Google, 42% of internet users in the U.S. list “reviews from other customers” as a feature that would most increase their likelihood of buying a product.
Giving customers the chance to review your products and post images on your product page is social proof that shows you’re confident in the products you sell and that you have plenty of happy customers. What’s more: It’s ready-made user-generated content you can repurpose for social media and email campaigns.
10. Improve choice and flexibility especially during the last mile
As customer experience slowly overtakes price and product as the key brand differentiator, the last mile supply chain becomes another key battleground. And with shopping moving online, this is even more critical.
An Onfleet survey from 2019 showed 78% of consumers said their experiences with Amazon have raised their expectations for all types of deliveries. Customers are looking for convenience, fast delivery, precise order tracking, and reassurance that the retailer will stick to the delivery promise date.
Last mile delivery is becoming more important than ever due to the online sales surge. Some customers appreciate free delivery; others will only settle for one-day delivery. If you want to succeed in the ecommerce game, you have to offer choice and flexibility.
11. Go omnichannel
Modern customers are channel-agnostic. They don’t think in terms of channels. Instead, they want to shop both online and in-store, across different devices and get a seamless omnichannel experience.
As such, this will require a rethinking when it comes to omnichannel commerce. Even major retailers like Target are taking note: In May 2019, Target reported 80% of its digital sales (comprising in-store pickup, drive-through pick-up, or home delivery) were fulfilled from its physical stores. The future is now.
12. Expand your options
For some DTC brands, future-proofing will require acquisition. We’ve seen many big retailers buy successful DTC brands, and this will only continue.
Looking at their roots, DTC brands started as pure plays. However, they soon realized that even though the future is digital, being able to meet customers at every touchpoint and offer an end-to-end frictionless experience is the main ingredient for success. Over the next 5-7 years, there won’t be a ‘DTC’ world; it will slowly morph into general CPG.
Despite what many think, this isn’t bad news for DTC brands. Besides the fact that acquisition means an injection of cash, it also includes knowledge, expertise, and data that can fuel the DTC brand growth in the future.
The future belongs to businesses that are ready to evolve
The actions you chose today will set a solid foundation for the post-COVID future. Make a difference by focusing on tactics that will make your business more resilient in the future, like personalized experiences, automated returns, and improved last mile delivery.
The most important thing you should have in mind to recover from the coronavirus pandemic is to recognize the situation as an opportunity, make the shift, and step-up your game.