The Rise, and Fall, of the Direct-to-Consumer Model
There was a brief period in the early 2010’s when a new business model — dubbed “direct to consumer” emerged and threatened to upend established incumbents. A decade or so in, the assumptions underlying the model are in tatters and we’ve come to realize, as we always should have, that Strategy 101 still applies.
Strategy 101 and the direct-to-consumer business model
Let’s start with strategy basics. In order to create a profitable business, you need to have customers who are willing to pay more than it costs you to create whatever they are buying. To scale and keep that profitable business, you need some way of staving off imitation and matching on the part of competitors, in other words, a barrier to entry, as Michael Porter told us decades ago. If you don’t have a barrier to entry, competitors can offer something similar, often undercutting your price, particularly if they didn’t have to make the investments in learning or R&D that allowed you to create the business in the first place. In novel circumstances, it’s easy to forget that this iron law applies.
As Leonard A. Schlesinger, Matt Higgins, and Shaye Roseman tell us in the Harvard Business Review, the direct-to-consumer, or DTC business model took the world by storm in the early 2010’s. After decades (literally…
