DTC Brands are a Prime Target for Gen Z's $143 Billion of Buying Power. Here’s Why.
The current pandemic has proliferated an already rapid embrace of online shopping, signalling a digital transformation that is reshaping retail. With this rise of ecommerce, there’s been a rise in the popularity of direct to consumer brands as well.
DTC companies, who sell their products directly to their end customers, were already growing fast prior to coronavirus. And although lockdowns have helped to promote DTC growth, there’s another factor that can’t be ignored: Generation Z.
While Millennials prefer DTC brands by a margin of just 4% over traditional retailers, Gen Z prefers these online-born brands to their legacy counterparts by over 40-45%. And given that Gen Z is now entering their peak spending age, this preference for DTC means that this generation of spenders will be key to the continued growth of DTC.
Understanding the Gen Z consumer is the first step that DTC brands can take to best leverage their affinity with this generation of spenders. To get you started, read on to learn more about the rise of DTC and how to attract Gen Z customers specifically.
What is direct to consumer commerce?
In a traditional retail landscape, many manufacturers are limited in the ways they can reach consumers. Often, manufacturers sell their products at wholesale prices to retail stores. Those stores then sell the goods at retail prices to consumers who shop at their physical locations.
In a direct to consumer (DTC) model a brand sells their product directly to their end customers without third-party retailers or wholesalers. This means that DTC retailers have control over every aspect of their brand and how it is presented, from marketing to pricing.
Many of today’s DTC brands are digitally native. They began online, and continue to rely on ecommerce rather than a brick-and-mortar store. Some are primarily online, but will occasionally host a pop-up.
An example of a DTC brand is one of Diff’s clients, Wild Fork Foods. Based in Florida, this food market has changed the way consumers buy meat by offering high quality, affordable meat and seafood. Their meats are sourced from slow feeding American farms, and blast frozen so the meat is delivered at peak freshness.
Then, there are legacy brands that are embracing DTC. Jamieson Vitamins, for example, is Canada’s leading manufacturer of high quality natural health products. In 2019, they shifted from selling their products through third-party retailers to embracing the direct to consumer online marketplace.
Their website offers consumers personalized digital content and communication, and the ability to order Jamieson products for home delivery. The introduction of a DTC channel allows Jamieson to reach new customers and improve customer retention. And, it signals the large retailer's recognition of the value of direct to consumer commerce.
The rise of direct to consumer brands
There’s been a steady increase in the popularity of DTC brands over recent years. In the Direct-to-Consumer Brands 2020 report, eMarketer predicts that DTC sales will account for 17.75 billion of total ecommerce sales in 2020. This is up 24% compared to the previous year.
The rise of DTC can be attributed to the various benefits that this model presents to both retailers and consumers.
- DTC is a customer-centric model.
Customers today expect a personalized shopping experience that caters to their specific needs. In fact, 80% of frequent shoppers only shop with brands that personalize their experience. Because DTC brands communicate and sell directly to their customers, they are able to leverage data to deliver personalized experiences and highly targeted consumer messaging strategies.
- DTC brands can leverage customer feedback.
DTC brands are able to communicate directly with their customers, which enables them to gather customer feedback in real-time. Because the DTC model tends to be more agile, brands can implement adjustments quickly in response to ever-changing consumer expectations, and shifting consumer habits. This contributes to DTC’s customer-centric approach which ultimately helps these brands gain customer loyalty and trust.
- DTC brands have full control.
In selling directly to consumers, DTC retailers have control over many aspects of their brand and products. Because they do not sell their inventory wholesale to a retailer for distribution, DTC brands can choose the price points of their products. They can also adjust prices based on market fluctuation. DTC brands also have full control over their brand image. Everything from product display, to images and messaging is in control of the retailer.
DTC brands are notably making use of digital tools that allow them to create detailed and personalized shopping experiences online. This is exactly what attracts the Gen Z demographic to these companies. For the full picture, it’s important to understand the characteristics and values of Generation Z.
Understanding Gen Z’s unique characteristics and values
Gen Z is the cohort born between 1996 and 2010. They’re the first generation to be truly digitally native, having grown up immersed in technology. Because of this, they are remarkably tech-savvy, connected, and informed. And now, Gen Z is joining the workforce, which means that they are gaining spending power.
To understand how best to market a DTC brand to Gen Z, it’s important to first understand what it is that characterizes this generation. Here are four unique characteristics that help to define Gen Z as a demographic market:
- Gen Z is practical and financially focused.
Gen Z grew up witnessing the economic crash of 2008. They saw their parents and peers struggle with economic pressures, employment, and financial stress. Because of this, they are pragmatic in the way that they shop. Their focus is on smart investments that offer long-term value. Since Gen Z is very aware of what can go wrong when it comes to money, they are focused on saving.
- Gen Z is digitally native.
The first truly digitally native generation, Gen Z has a strong grasp on technology and they welcome technological advances and change. From early youth, they’ve been using the internet, social media and networks, and technology like mobile devices. As a result, they are very comfortable with online shopping.
- Gen Z are driven by strong values and authenticity.
Gen Z has grown up with limitless information at their fingertips. Because of this, they are highly tuned into world events and are a socially conscious generation. Social awareness and authenticity is a big part of how Gen Z forms their identities. This means that their personal values impact their shopping preferences.
- Gen Z wants personal shopping experiences.
In the age of ecommerce, Gen Z have been noted for their surprising love of brick and mortar shopping. Shopping in physical stores allows them to see and feel items before making a purchase, and adds an element of “experience” to the purchase. This points to how much Gen Z values personalization. Though they appreciate brick and mortar, Gen Z does enjoy shopping online. But when they do shop online, they expect a high level of personalization.
Why do Gen Z love DTC brands?
The DTC model has created a generation of retail brands that uses new tools to fine tune every aspect of their brand. Through an evolving digital presence, social media platforms, and personalization, DTC have positioned themselves to appeal to a younger demographic.
There are three specific aspects of the DTC model that have helped attract Gen Z:
- DTC brands are marketing on the channels that reach Gen Z.
DTC brands have been successful in reaching Gen Z consumers because they have a presence on the channels that Gen Z love to use. Rather than focusing on more traditional marketing channels, DTC brands are experimenting with new channels that younger generations are tapped into. For example, some, like Sakara, are experimenting with launching podcasts. Others are embracing new social media platforms like TikTok.
Fitness apparel brand GymShark was an early adopter of TikTok. Through a combination of influencer partnerships and branded TikTok challenges, Gymshark has amassed over 1 million followers on the platform. This is relevant because TikTok is where to reach Gen Z. About 60% of TikTok users are Gen Zers.
Want to know more about TikTok as an acquisition channel? Read TikTok Tops 800M Users: Is it Retail’s Next Big Gen Z Acquisition Channel
With an in-house marketing team that handles everything from campaigns to analytics tracking, DTC brands are able to take a versatile marketing approach. They aren’t restricted to traditional marketing strategies because they can gather data in real-time to see the impact of their efforts.
- DTC brands have a customer-centric approach.
Many DTC brands are digitally native and don’t have brick and mortar stores. This doesn’t mean they can’t be customer-centric. Without in-person experiences in physical stores as a touchpoint, many DTC brands have honed in on providing streamlined digital experiences. These highly personal digital experiences are what attract Gen Z consumers.
One aspect of customer-centricity is personalization, which means using data to inform optimization. For example, using A/B testing and behavioral analytics, DTC brands are able to quickly see how customers are engaging with their website. They can then use this data to optimize so that their customers are given the best experience possible.
But customer-centricity extends beyond just personalization efforts. To be truly customer-centric, DTC brands cultivate great customer service. DTC eyewear brand Warby Parker uses Twitter to socially listen to their customers. They monitor conversations that relate to their brand, engage with both satisfied and dissatisfied customers, and they re-Tweet positive feedback to amplify their brand.
This customer service strategy is appealing to Gen Z because it meets them where they are. Having grown up with social media, platforms like Twitter are where Gen Z naturally go to find information and solutions. Brands that are easily accessible on these platforms are able to avoid frustrated Gen Z consumers who prefer to send a Tweet or a DM over phoning a customer service line.
The combination of personalization and great customer service that DTC brands are empowered to provide is what makes these brands attractive to Gen Z. They are able to create long-lasting connections with Gen Z consumers by providing personalized digital experiences and meeting them in the digital spaces they frequent.
- DTC brands feel more authentic.
Surveys show that 50% of Gen Zers consider DTC brands to be more authentic than traditional brands. This has given DTC brands a benefit in reaching this demographic because authenticity is an important value for most Gen Zers.
The reason why DTC brands “feel” more authentic to Gen Z is because of their personalization and communication strategies. Interactions with their customers are made to feel more meaningful because DTC companies know in a consistent and comprehensive way who their customers are.
Let's circle back to the Warby Parker example. They make a point of responding to every Tweet that they are tagged in, regardless of how relevant the Tweet is. Personal details like this keep Gen Z engaged and loyal to DTC brands.
How DTC brands can effectively reach Gen Z
Marketing on channels that Gen Z loves, having a customer-centric approach, and leaning into authenticity are the best strategies for DTC brands to reach this demographic. These three strategies speak directly to the unique characteristics of Gen Z.
While these strategies are a great starting point for any DTC company, it’s important to remember that creativity will set you up for marketing success. To reach Gen Z, DTC brands should actively leverage their personalization data for some experimentation.
Developing a TikTok campaign, running podcast ads on a niche show that relates to your brand, or creating an Instagram community that provides user-generated content are some ways that you can experiment with marketing for DTC. Just remember to keep your communications authentic and customer-centric.
Gen Z now accounts for over one third of the American population, and about 40% of all consumers with over $143 billion of buying power. By tapping into this demographic of spenders that is embracing digital transformation, DTC brands can earn long-lasting customer loyalty that will fuel their company growth.
Are you considering moving your brand to the DTC model? Get in touch with us to learn how we can help.
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