Introduction

Starting a new business can be an exciting experience, but after the first few months of drive and passion, it’s easy to realise that a clear strategy or pathway can be still hard to see.  Developing a brand from scratch entails years if not decades of work, but in reality, the time it takes to get to your goals is strictly connected to how clearly you are seeing your goals. DTC (Direct-to-Customer) brands often need to focus on their strategy early on, as their small size, and limited resources during the startup stage may call for a very clear long-term vision.

There are hundreds or even thousands of ways in which a strategy for your brand can be designed, and as the saying goes ‘the broken clock is right twice a day’. Each of us can invest all the time necessary to go through an extensive trial-and-error approach until we find the way forward, and just sit back and enjoy the ride.

At the same time, we can use some academic theory to see how in most cases brands that aspire to world dominance develop similar strategies that focus primarily on five essential steps:

• Conducting research to develop a market insight
• Validating their business through lean management practices.
• Expanding within their domestic market
• Entering new markets to gain growth opportunities
• Establishing the management of the firm over international markets

Clearly exploring each of these steps in full length might be too much, but we can attempt to provide a breakdown of each step to help you see where a red line can be drawn to connect digital and physical distribution, as well as domestic and international market presence.

Alright then, let’s get into it, and with no further ado, let’s see how your DTC brand can rule the world through these 5 steps.

1. Conducting research to develop a market insight
2. Validating their business through lean management practices
3. Expanding within their domestic market
4. Entering new markets to gain growth opportunities
5. Establishing the management of the firm over international markets
6. Conclusions

1. Conducting research to develop a market insight

As we start developing our brand, it’s important to take into account how there are essentially two different ways to build an organisation, one is by focusing on the market, the other is by focusing on the product. Let’s see each in more detail:

• Market Orientation. The brands that follow a market orientation, are essentially looking for insights that may suggest that a market or a particular customer category is underserved by current brands. A company using this approach will identify the service or value it needs to deliver and will then retro-engineer its business model to bring that value to the market. Many DTC brands follow this approach, and in the initial stages of their development in fact revolves around using the Business Model Canvas and a variety of research methodologies to identify the unique value proposition they’ll be delivering to their customers.

• Product Orientation. The product orientation is instead focused on identifying how to improve a product that has an already established market in order to compete with an edge that can come from design, quality, reliability, innovation etc. This approach is not as connected to marketing as much as to management, as the brand will focus mostly on engineering the highest quality production process.

Either way, the brand will work towards developing a competitive advantage that can make the brand able to withstand the competition by the industry and hopefully develop a strong differentiation profile capable of providing a strong profit margin. 

If you’d like to read more about the process of market research in a global context, this article is focused on the topic:  International Market Research Explained.

It must be noted, however, that only a part of this process can be conducted behind closed doors. Once the brand has started to identify a possible pathway to building a product or service, then it’s usually time to get out the door and assess how your customers are going to respond to your value proposition. This is why in our next step we’re going to take a look at how your business idea can be validated through the use of the Business Model Canvas and other lean management practices.

2. Validating their business through lean management practices

One of the strongest benefits of the market orientation typical of a Direct-to-Customer brand is the opportunity to test markets and customer demands before investments on production and manufacturing are made. This is an essential advantage of this model as exploring market opportunities and reacting to customer feedback is of the essence of lean management. At this stage, DTC brands start building their brand associations, by discovering what values their brand stands by. 

There two basic approaches to validation, which follow:

• Simple numbers. Validation can simply be delivered by the trends and results listed in your financial statements. Both your balance sheet and income statement can show patterns that allow you to make good estimates of the rate of growth of your firm. This is a great way to assess the potential of your company by using frameworks such as the Boston Consulting Group Matrix which allows you to assess the relative market share of your brand in relation to the relative market growth of your industry. If your company is playing a small part, but in a big business sector, that can still show a great opportunity to investors and business partners.

• Crowdfunding Campaigns. Another form of market validation comes through crowdfunding campaigns. This is one of the most popular forms of validation because it can allow brands to do three things at once: from one end a brand tests a product, and customer’s interest and willingness to buy, while in the process develop a large community and collects funding for manufacturing investments if the campaign succeeds. Crowdfunding is a really challenging strategy, apt to test every single process in a startup company, if you are able to endure it, you’ll experience one of the steepest learning curves in terms of learning and development.

Assuming your validation stage was successful, it’s not time to establish yourself within your domestic market. This is an optional step, as some firms may consider themselves “born global” and immediately approach international environments. At the same time, international marketing can provide you with an overwhelming degree of complexity which can be really difficult to manage, and as a result, getting started with a market you’re more familiar with can be a more manageable strategy.  That’s why we’re going to talk about domestic presence development next.

3. Expanding within their domestic market

This step is one we consider optional, as not all brands would consider this necessary or desirable. One of the elements defining the Direct-To-Customer Brand business model is its ability to serve customers without any long-term distribution investment or commitment in any specific market. In this sense, a Latvian company can potentially have the bulk of its customers in the UK and in the US, for instance. Here are some considerations.

• Building loyalty and customer advocacy early on. This is another element to consider, in terms of developing attractive brands. If you are able to create a strong loyal following early, this does help building aspirational and intangible values early on, which can allow you to claim higher profit margins connected to a strong connection to the country-of-origin effect and a strong home market authority.

• Challenges in the management of a marketing mix. For those companies who are instead interested in their domestic space, this step can be helpful in terms of growing some degree of marketing and management experience, in a relatively more sheltered environment. It’s necessary to consider that the management of a marketing mix is highly impacted by the pace of adoption of a product, and as businesses enter fast-paced production cycles, the marketing mix can vary at every adoption level (from early adoption to early majority, late majority and laggards).

Dealing with the complexity of a time-sensitive marketing strategy can really throw a few curve balls to your organisation and as a result, getting your business prepared for an even more complex global environment may take some extra time.

• Degree of global competition in your industry. Not all industries are the same, some – for instance the aircraft industry – are more global, whereas other industries – like food – have stronger domestic features. In this sense, not all brands should feel the same degree of pressure into growing internationally from the very start. As we’ve mentioned, you can build experience domestically before embarking in more stormy waters beyond your national borders.

For those who do want to compete globally, our next paragraph will look as some of the reasons that might make the ‘gamble’ worthwhile.

4. Entering new markets to gain growth opportunities

Entering new markets can provide a wealth of opportunities, and there may be different reasons and motivations to consider. The decision to enter foreign markets is not necessarily connected to expanding your customer market, it can be also linked to managing your value chain. Let’s take a look at some reasons connected to growing your business abroad.

• Accessing cost efficiencies. This is one of the reasons that made global growth a priority for many companies wishing to expand in order to locate their production facilities in countries that provide lower labour costs, or cheaper access to raw materials. Locating a production facility in a foreign country can also help in terms of skipping tariffs and other trade barriers when entering the country.

• Accessing new customers.  A more market-oriented approach is simply connected to broadening the audience of potential customers who may want to buy products and services from you. DTC brands usually start testing these customers with exports due to some unsolicited foreign orders, but may then decide to target specific niches over multiple countries.

• Responding to local threats. Aside from the proactive (opportunity-seeking) reasons listed above, we should not forget reactive (threat-reacting) reasons. In some cases, the choice to target customers who are not in your domestic market can be due to oversaturation, or a degree of competition so fierce that it can make your business tremble. 

If this is a topic you’d like to read more about, here’s an additional resource that focuses on this topic: Motives to Start International Expansion.

Almost done. Given that your service is designed on the grounds of extensive market research, that it has now been validated, that your brand has developed a local following, and is building cost-efficient assets globally, what else is there to do? Well, one more challenge lies ahead: managing the complexity of an international brand. That’s the topic we’re going to discuss next.

5. Establishing the management of the firm over international markets

How is your company going to address the challenges of managing an international market presence? Well, that’s a big question. The focus here is on company culture. 

Company culture is the keyword to explore the challenges of not managing a business only in the context of the product or service you are delivering to the market, but in terms of managing a collection of people who have different narratives and come together to serve a common purpose. In this context Human Resource Management plays a huge role in terms of establishing a common cause. This step is the most intangible, but at the same time one of the most difficult to tackle as establishing a strong sense of Corporate Social Responsibility can be something that fosters an environment so full of opportunities and meaning that it can lead to attract, hire and retain the worlds’ best talent.

It’s now time to move towards a wrap up with our conclusions.

6. Conclusions

There you have it! From rags to riches in 5 steps. Jokes apart this is not a get-quick-rich scheme but quite the opposite a simplified roadmap to figuring out what is a streamlined process to develop a DTC brand.

As we’ve seen we’re going to start by developing insight through market research, test our assumptions and validate our ideas by staying lean and open to criticism. Once you’re sure that you’re onto something, you can start building your brand domestically by leveraging digital technologies and creating your first cohort of loyal customers.

As you learn more about your industry and you dare to take on the additional risk you can take a look at international market opportunities and extend your reach. Last but not least to keep your company healthy and competitive you can then look towards optimising your management and developing a business environment and company culture that fosters an innovation-oriented approach, to maintain your advantage over the long term. 

It’s obviously not as easy as we put it, but it’s still a starting point to reflect on how you want to grow your business through the DTC business model, which allows for an innovative and competitive approach to the market.

Here at 440 Industries, we love business, entrepreneurship and international marketing. Please look below to see if you can find any additional article that can help you on your journey.