Technology has enabled rapid business growth, with an average of 30,000 new products launched annually. Many new businesses are direct-to-consumer (DTC) brands that sell and deliver products through digital channels—and they’ve become a force across industries.
Despite DTC’s skyrocketing growth, it can entail significant marketing challenges.
What Is Direct-to-Consumer Marketing?
One of direct-to-consumer companies’ key differentiators is that they employ marketing strategies that bypass traditional retail channels.
“Instead of traditional advertising through television and print media, they utilize digital and social marketing tools to acquire and engage consumers,” says Harvard Business School Professor Sunil Gupta, who teaches the online course Digital Marketing Strategy. “Even with limited budgets, they’re able to challenge large, established traditional brands that have been dominant in their industry for decades.”
Newer DTC companies, however, are encountering challenges that first-generation brands didn’t. Here’s an overview of those challenges and how to overcome them.
Top 3 Direct-to-Consumer Marketing Challenges
1. Scalability
DTC brands make up nearly 13 percent of all U.S. e-commerce businesses. Despite their market share, many experience unsustainable growth and scalability obstacles.
One reason is that creating personalized customer experiences can be challenging as DTC companies expand.
For example, Digital Marketing Strategy highlights how online shaving products company Harry’s drove its initial success by gaining customer insights from its new website and referral campaign.
“The company created a site for its razor, asking people to sign up if they were interested,” Gupta says in Digital Marketing Strategy. “Harry’s hadn’t made the product yet. It was simply gauging consumers’ interest and encouraged people to share the campaign with their friends on social networks to get free products.”
Within a week, 100,000 people signed up for Harry’s pre-launch, confirming a strong consumer interest in its products. Harry's had to refine its marketing strategy post-launch to emphasize personalized customer journeys. It used marketing tactics like cart abandonment emails, free trials, and customizable shave plans and handle colors to keep them engaged.
Trying to generate continuous customer engagement, similar to Harry’s strategy, requires a substantial digital marketing budget. If your company grows too fast or loses its novelty, that spending can strain the business.
As your company grows, you must transition from relying on customer feedback to data collection methods—like analytics tools and market research—to gather broader insights. Doing so can enable you to better understand diverse customer segments and evolving trends.
2. Increased Brand Competition
The online DTC market is highly competitive.
For one, established brands like Nike, adidas, and Levi’s have started to embrace DTC marketing. According to Insider Intelligence, they’ll make up over 80 percent of DTC e-commerce sales by 2025.
DTC companies also face fierce competition from emerging brands. According to the Robin Report, the U.S. had over 110,000 DTC companies in 2023 alone, compared to 320 in 2019.
While you can turn to innovation to address brand competition, it isn’t always an option.
“Typically, DTC brands have almost no budget for [research and development],” Gupta says in Digital Marketing Strategy. “They don’t have the resources, people, and capability for R&D.”
Yet, you can pivot in other ways—like modifying current products to meet evolving customer needs.
“Instead of focusing on adding new features, many DTC companies attempt to simplify them,” Gupta says in the course.
For example, technology company GoPro is known for its high-quality action cameras. But, the company struggled to fund innovation as others started creating cheaper alternatives for consumers. To stay competitive, it simplified one of its most popular product lines—the Hero camera—and focused on essential features its target audience needed when filming action shots.
This kind of strategic shift can benefit your company if it faces financial challenges. By simplifying and streamlining offerings, you can optimize production and inventory management—which can be financial burdens if you struggle to compete with similar brands.
3. Higher Advertising Costs
DTC brands focus on advertising to and engaging with consumers across digital channels.
“This allows DTC brands to be much more focused in their marketing,” Gupta says in Digital Marketing Strategy, “rather than having a mass-marketing approach through television ads.”
It also helps keep advertising expenses down. While established brands can spend up to $150,000 to produce and broadcast a 30-second TV ad, DTC companies can stretch funds by avoiding costly channels.
However, the surge in DTC businesses and digital ad usage has increased advertising costs—especially on platforms like Facebook and Google.
“It was a lot cheaper to advertise on Facebook in 2004 when Facebook started, but it is far more expensive now as so many brands advertise on Facebook,” Gupta says in Digital Marketing Strategy. “In fact, the cost of advertising on Google and Facebook has gone up so much that it’s becoming comparable with non-digital channels.”
As a result, customer acquisition costs (CAC)—the money you spend to win a new customer—are on the rise. According to a Business Wire report, CAC increased 222 percent between 2013 and 2022.
To combat rising CAC costs, you can diversify your marketing tactics and embrace cost-effective alternatives, such as:
- Influencer partnerships
- Owned media
- Community engagement
These strategies significantly reduce CAC by leveraging trust and credibility. By enhancing brand visibility on social media channels, publishing your own blog content, and building a brand community, you can rely less on costly paid advertising methods and make it more likely that customers will repurchase.
How to Overcome DTC Challenges
Since DTC marketing prioritizes digital over traditional channels, it shares many of digital marketing’s challenges, such as rapid changes, customer engagement, and increased competition.
"Digital marketing has its benefits, but it also has its limitations,” Gupta says in Digital Marketing Strategy. “It’s very good for what’s called 'performance marketing.’"
Performance marketing is paying for services that help meet specific marketing key performance indicators. This type of marketing is efficient because it focuses on measurable outcomes at every stage of the marketing funnel—awareness, consideration, and decision.
For example, in a pay-per-click (PPC) campaign, you only pay when a user clicks on a digital ad. You can easily assess how much money you spend on consumer engagement using this approach, allowing you to optimize your strategy quickly and efficiently. However, it doesn’t create a brand story that customers want to engage with.
"Digital marketing can have a harder time building brands,” Gupta says in the course, “building the imagery, and creating a story around the brand. This is changing over time, but typically, digital marketing has been focused on performance marketing rather than on brand building."
Brand building is generating broad consumer awareness and knowledge of your brand. It’s crucial to your long-term success because it establishes a unique identity, fosters customer loyalty, and achieves differentiation in a crowded market.
By blending these two strategies, you can ensure you attract customers and keep them coming back.
DTC Marketing’s Future
As the direct-to-consumer landscape and customer needs evolve, DTC marketing must also adapt.
One of the most effective ways to stay ahead of the curve is by enrolling in an online marketing course, such as Digital Marketing Strategy. Through real-world case studies and interactive exercises, you can develop digital marketing skills to help your DTC company compete.
To learn more about tactics and tools you can use to position your brand for success, explore Digital Marketing Strategy, and for a quick reference to key marketing terms, download our free Marketing Terms Cheat Sheet.
