When you think about where direct to consumer (DTC) came from, it started with a simple concept: Anyone could come up with an idea and create their own online store. Then in the mid-2000s, e-commerce platforms like Shopify made it easier for anyone to launch an online store. And social media giants like Facebook (now Meta) gave brands new ways to reach customers directly, and that’s really where this whole world was born.
During the 2000s, DTC was dominated by massive mail order catalogs and late night TV was a wild west of “as seen on TV” products that promised to change lives. The DTC revolution started when disruptors like Warby Parker, Dollar Shave Club, Casper, and Blue Apron showed everyone that slick websites and cheeky ads plastered all over Instagram feeds and subway commutes was a legit business model. These brands mastered the DTC playbook—-cutting out the middleman, slashing prices, and turning customer feedback into product gold.
The 2010s brought the DTC boom with companies like Warby Parker, Allbirds, Casper, and Away, proving that DTC could build massive brands by cutting out retailers and going straight to consumers with clever marketing and subscription models.
Today, DTC has evolved from a scrappy alternative into the mainstream (nearly every major brand has some direct sales component) and is an essential part of how all modern brands operate. Even brands like Levi’s have been doubling down on their own DTC channels to present a more revamped brand and direction.
The big challenge facing DTC brands today is the rising cost of customer acquisition, two DTC experts told Retail Brew. However, the impact of AI, particularly ChatGPT, on consumer behavior and advertising strategies is potentially going to be one key game-changer for the future of DTC. While DTC isn’t going away, it’s about to get disrupted in interesting ways.
“We’ve seen a lot of shifts, with [the] introduction of Amazon, or with the introduction of now AI,” Jamie Domenici, CMO at Klaviyo—a marketing platform that enables DTC brands to group all their customer data from their website, email, SMS, social media etc in one place—told Retail Brew. “I think [AI] is that next evolution.”
While the core principles of DTC remain the same—digital-first marketplace, customer acquisition, and building a great brand—Domenici said, with AI democratizing things like ad creation and image generation, having a great product and elevated brand is a no-brainer to stand out from the crowd.
Abir Syed, co-founder of UpCounting, agreed. “The only really fundamental change might be with respect to AI,” Syed told Retail Brew. Particularly if ChatGPT succeeds in integrating product recommendations directly into their platform. Instead of manually researching products on Google and watching reviews, people might just go straight to ChatGPT for buying decisions, Syed added.
“The rise of Open AI or ChatGPT as an advertising platform,” is the kicker, he said.
OpenAI and Shopify are reportedly working on a major integration that would allow users to shop directly within ChatGPT without ever leaving the chat interface. It’s the same story for everyone in retail from product research to checkout.
Domenici said the companies she works with, from Skims to Summer Fridays, are actively asking themselves: “How am I going to be the first to be ready for what’s coming next?”
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The answer, Domenici said, lies in “thinking about operationalizing all of their channels, all their communication touch points, how they’re there, how they’re thinking about them holistically, and driving that engine across everything they do.”
Return to the retailer: Seven years ago, when Syed first got into the e-commerce business, “the dream” was to cut out the middleman and go DTC. However, as competition heated up, ad platforms like Meta, Google, and Amazon ended up becoming the new middlemen, Syed explained.
Meta’s most recent earnings show that average price per ad across Instagram and Facebook went up 9% YoY.
“Each brand that got onto the e-comm train, they were willing to sacrifice more and more of that margin to the ad platforms to be able to acquire the customer. And, in theory, you always just regress to that point of breakeven. And that’s where a lot of the brands that I work with these days are at,” Syed said. “They’re struggling to make money happen from purely a ‘direct-to-consumer through Facebook ads’ type of play.”
As digital ad rates have exploded over the past 20 years—going from practically free to supporting entire billion-dollar businesses—brands are shifting back to a more omnichannel approach to avoid being overly dependent on expensive paid advertising.
“Consumer behavior during Covid-19 changed a lot because obviously people weren’t going to stores, purchasing a lot online. I think that now they are because people can go back to stores. I think it’s kind of moving back a little bit in that direction,” Syed said. “So there are some forces that are continuously getting people more and more comfortable with the online purchasing behavior.”
For smaller DTC brands, the advice Syed offered was to stay organic—and it wasn’t food he was referring to. “It’s easiest to start organic on one channel and just do the best job that they can there, and then diversify after they add traction,” he said.
Domenici agreed that it’s “not an easy place” to be a small brand, but she added that “within change, within disruption, there is an opportunity for you to optimize first.”
AI fast forward: With AI making creating ads super easy, the real gold mine for DTC brands becomes actual humans doing their thing—-creators going live, being messy and authentic in real time, Syed added.
“I think that’s still the opportunity to be able to do better if you’re going to focus on the organic side,” Syed said. “When people get more fed up with the inauthenticity of AI—because there will come a point where people just get irritated at how much fake content there is—the respite will be, I think, [shopping] lives, because that is hard for AI [to replicate], and then in-person.”
Meanwhile, Domenici said in-person or online “disruption” will be key to the future.
“This is a place where people who are set up the right way can really jump ahead at the competition and differentiate, but it’s going to be a battle, and it’s a new battleground where you have to think about every channel, every interaction, how you optimize for this new world,” she said. “Your marketing mix will look very different in this new world disruption.”