Direct-to-Consumer (DTC) Programs

Companies bring in a direct to consumer consultant to settle one question before any storefront gets built: whether holding a direct relationship with end customers earns more than it costs, and what that relationship is supposed to produce for the rest of the business. It is a business-model decision before it is a commerce decision. A direct program launched without settling it becomes an expensive second route to market, selling the same proposition to the same people at a worse margin. Vivaldi has worked on demand-side and route-to-market strategy since 1999.

• Since 1999demand-side and route-to-market strategy
• 200+published case studies
• 10 officeson four continents
• 5xWirtschaftsWoche Best of Consulting, Strategy and Innovation

Two different questions get filed under the same three letters, so it is worth naming which one this page answers. This page covers the business-model decision: whether to go direct, which demand space the direct relationship is meant to win, what the first-party data is worth to the rest of the company, and what acquisition cost the model can sustain. Our direct-to-consumer and adaptive e-commerce strategy work covers the execution layer that follows: commerce architecture, platform and merchandising decisions, and the operating rhythm that keeps a direct channel competitive once it exists. If you do not yet know why you are going direct, start here.

When companies bring us in

The trigger is rarely a wish to open a store. It is usually one of these.

• The board has asked for a direct channel and nobody can state, in a sentence, what it is for beyond margin
• A direct channel already exists, and the unit economics do not close once fulfillment, service and returns are counted honestly
• Retail or distribution partners are pushing back, and the current answer to channel conflict is to make the direct offer deliberately worse
• The company sells through institutions, resellers or distributors and has no view of the person who actually uses the product
• Customer data is being collected and nobody outside the channel team can use it, so the largest claimed benefit of going direct never arrives

Why the direct channel playbook produced so many unprofitable businesses

The generous reading of the last decade is correct as far as it goes. Direct relationships really do produce better data, faster feedback and higher gross margin per unit. That was not the mistake.

The mistake was treating those advantages as the proposition. Penetration is maintenance rather than a growth strategy, and a direct channel selling the existing range to the existing buyer is penetration with a higher fulfillment cost. A large number of direct businesses acquired customers at a price lifetime value never justified, because what they offered the customer was distribution rather than demand. Buying the same category of product from a different website is not a reason to change behavior, so the behavior had to be bought, over and over, in paid media.

Inside large incumbents the pattern repeats in a specific form:

• The direct channel launches with the existing assortment, so it competes with retail partners on price rather than on a different job
• Acquisition cost is measured against first-order margin instead of against a realistic retained lifetime value
• The customer data is captured and then lands in a system nobody outside the channel team can use
• Channel conflict is managed by restricting the direct offer, which removes the only reason a customer had to use it

The useful question is not whether to go direct. It is which demand space a direct relationship lets you own that intermediated distribution cannot reach, and whether the data it produces makes the rest of the business measurably better. Where there is a real answer, the economics tend to work, and the direct relationship becomes a way of meeting intent rather than buying attention. Where there is not, no amount of performance marketing rescues them.

What our direct to consumer consulting services include

1. Settling the strategic case

• The demand space the direct relationship is meant to win, stated as a customer situation rather than as a channel target
• What the direct offer does that the intermediated one structurally cannot, whether that is configuration, subscription, service, replenishment or continuity of context
• The value of first-party data to the rest of the business, priced explicitly, since this is often the largest part of the return and the least often quantified
• An honest position on cannibalization: how much of the direct volume is genuinely incremental

2. Building the economic model

• Sustainable acquisition cost derived from retained lifetime value and contribution margin, not from a channel budget
• Cohort economics with a realistic view of repeat behavior, tested against your own retention history rather than category benchmarks
• The fixed cost of running direct, including fulfillment, service, returns and the technology nobody includes in the first business case
• The threshold at which the program is judged to be working, agreed before launch rather than argued about afterward

3. Handling the channel relationship

• Where the direct proposition differs enough from the retail one that both can be defended in a partner conversation
• Pricing and assortment rules that do not require the direct offer to be artificially handicapped
• What retail partners gain from the direct channel existing, which is usually demand signal and product insight, and how that gets shared

4. Turning the relationship into an asset

• A data model that makes customer information usable by innovation, pricing and portfolio teams rather than only by the channel
• A feedback path from direct customer behavior into what the company builds next
• Clear ownership, since a direct program parked inside e-commerce tends to be measured on revenue and starved of the strategic remit that justified it

How a direct-to-consumer engagement works

1. Diagnose. Customer and non-customer research, a read of your own cohort and retention data, partner and channel interviews, and a view of where demand is already forming outside your category lines. The output is a statement of which customer situation a direct relationship could own.
2. Decide. The direct proposition, what it does that retail cannot, and the economic model: sustainable acquisition cost, cohort payback, the real fixed cost of operating. The output is a go, a not yet with conditions, or a no, each written down with its reasoning.
3. Design. The offer, the pricing and assortment logic, the partner position, the data model and who outside the channel uses it. The output is a program that other parts of the business have a reason to support.
4. Embed. Ownership, decision rights, the operating rhythm and the measures the program is judged on, so it is not quietly reassessed as a revenue line in its second year.

Why companies choose Vivaldi for direct-to-consumer programs

• We start from demand spaces, which is what makes it possible to say what a direct relationship would be for rather than only what it would sell
• We will tell you not to go direct, or not yet, when the model does not close. A firm whose revenue depends on a program being built rarely delivers that sentence
• We price the first-party data against the decisions it would improve elsewhere in the company, because that is usually the largest and least examined part of the return
• We work the partner side rather than treating channel conflict as a communications problem to be managed after launch
• We hand over the ownership model, not only the plan, since direct programs fail more often from drifting remit than from bad execution

How to evaluate a direct to consumer consultant

Including us. These are the questions worth asking before the engagement is scoped.

• Ask whether they will tell you not to go direct. For a meaningful number of businesses the answer is no, or not yet. A firm that has never given that answer is selling a program rather than advising on a decision.
• Ask how they calculate sustainable acquisition cost. If the method starts from a media budget or a category benchmark rather than from your own retention data, the model will not survive contact with the second year.
• Ask what they do about channel conflict. The credible answer involves differentiating the proposition. The weak answer involves restricting the direct offer until it is unattractive.
• Ask what happens to the customer data. If the plan does not say which teams outside the channel will use it and for what, the largest claimed benefit is decorative.
• Ask who runs it afterward. Direct programs need a standing owner with a strategic mandate. If the answer is the consultancy, or nobody, the program drifts into a discount storefront.

Strategy consultancy vs performance agency vs commerce implementer?

Related work

A direct program touches three neighboring decisions.

• Demand landscape mapping before the program, to establish which customer situation the direct relationship is meant to win.
• Commercial strategy where going direct changes the route to market for the whole business rather than adding to it.
• Direct-to-consumer and adaptive e-commerce strategy once the model is decided and the question becomes commerce architecture and operation.

This capability sits in our Competitive Strategy group, which works on where a company competes and on what terms, inside the Business Strategy and Transformation practice at Vivaldi, the strategy firm behind the Demand Landscape and the Interaction Field.

Direct to consumer consulting in the US and worldwide

We work from 10 offices on four continents, with US teams in New York and Los Angeles and European teams including Hamburg, Munich, Düsseldorf, London and Zurich. That matters for direct programs more than for most strategy work, because the answer is local: retail concentration, marketplace share, data rules and delivery economics differ enough between markets that a model which closes in one can fail in another. Where a program spans regions we build the economics per market and keep one proposition, rather than the reverse.