It’s one of the biggest eCommerce trends at the moment: Direct To Consumer (DTC), as well as vertical brands, selling their wares, wait for it, direct to consumers—typically exclusively online. The most prominent examples include US companies Warby Parker (glasses), Away (suitcases), Casper (mattresses) and Harry’s (razors)—and ex-Wharton prof David Bell is right in the middle of it. Bell dropped by the OMR podcast to discuss his role in the DTC economy, why the business model’s success can be traced back to exactly three reasons and to what extent DTC brands now need local branches.
During his long tenure as professor at the University of Pennsylvania’s Wharton School of Business—one of the leading business schools on the planet, David Bell was one of the first to recognize and articulate the DTC trend back in 2010. In the same year, a group of Wharton students founded specs startup Warby Parker and solicit Bell’s advice on marketing and company structure. “I was thinking to myself, what kind of a crazy idea is this? People want to touch and feel? This is a tactile product,” he says in the OMR Podcast to guest host Florian Heinemann.
The young entrepreneurs quickly convinced Bell of their test and return business model. Shortly thereafter, Bell invests in Warby Parker—and in other DTC projects by Wharton students, like Meundies (briefs), Harry’s (razors), Burrow (furniture) and many more. Hardly a surprise then that he’s dubbed the “DTC Guru.” Today, he invests professionally in such eCommerce startups via his company Idea Farm Ventures.
The three factors explaining the existence of DTC brands
“For DTC brands to exist and be successful, they need a reason to exist. They have to solve a real problem,” says Bell. “In my experience, there is some combination of three things for the business model to work: 1.: Superior value. 2.: There could just be some true innovation. And number 3.: There create this incredible customer journey, where previously there was none.”
As examples, Bell names Harry’s razors as having a better product than Gillette, Away as being a true innovator on the market and mattress startup Casper as having created a customer journey that had previously never existed in the mattress game. The examples show the benefits of the DTC business model. Without any intermediaries, products of similar quality can be offered to consumers for less—and the companies themselves can determine how consumers perceive them and their services.
Direct to consumers—even from brick and mortar stores?
Some of the most prominent DTC brands no longer limit their offering to online channels. “If you are a DTC brand, almost now from the get-go, you want to be thinking about offline,” says Bell. “Showrooms can be a great way to acquire customers.” He goes on to say that Away luggage opened a showroom in big metropolitan areas, where customers can get to know (the brand) better and buy more of your products in the future. This also applies to mens’ clothing brand, Bonobos, who “pioneered the idea of a zero inventory store, but also established relationships with Nordstroms and (other major US retailers),” he says. For their part, Harry’s razors are available at Walmart and Target. He says that these examples show that a DTC is great for the start, but that more traditional channels are essential for later growth.
Check out the OMR podcast and hear David Bell talk about which DTC companies have the best marketing strategies at present, the role that Amazon should play for entrepreneurs launching a startup, how much revenue young companies need to generate for a lucrative exit, and much, much more.
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The David Bell podcast at a glance:
- What’s the genesis of David Bell’s interest in Direct-to-Consumer (DTC) brands?
- Why is David Bell no longer active in academia?
- What are the biggest differences between CPG brands and new vertical brands?
- How should DTC brands position themselves? High-end, mid-class or low-end for the masses?
- Which role do reviews play for young brands?
- Regarding distribution, despite the label DTC brands no longer exclusive sell directly to their customers. What strategy does Bell recommend?
- Are marketplaces like Amazon a suitable channel for DTC brands?
- How can new brands create recurring customers?
- To what extent can influencers assist in establishing a new brand?
- How does Bell see the current trend of lucrative exits in the industry?
- What tips does Bell have for founders who would like to use their brand building capital more efficiently?
- How important is PR today for DTC brands?
- What criteria does David Bell use when deciding which DTC companies he’ll invest in?
- Are there any B2B ideas that could employ a DTC strategy successfully?