Before ecommerce, shopping generally involved going to one store that sold multiple types of items like groceries, clothes, or home goods.
Ecommerce sales have continued to grow worldwide for the past 10+ years.
What is the direct-to-consumer model (DTC, D2C)?
The D2C model is replacing the traditional model of businesses selling products through intermediaries. In a traditional retail model, manufacturers increase the price of their products as they move to stores, who then increase the price again before selling them to consumers. In a sales arrangement like that, businesses don’t make much profit from the markups.
The money does not go toward advertising but instead goes toward other things such as the additional costs of product shipping, retail employee wages, real estate, and countless other incidentals. In the end, consumers end up paying higher prices, so nobody wins.
In a D2C model, manufacturers sell products directly to customers, rather than selling through retailers. This reduces the amount of money that manufacturers have to spend, so they can make more profit from each sale while still charging consumers less than they would in a normal store. D2C sales are similar to ancient times when artisans would sell their wares to consumers in local markets. Nowadays, manufacturers can use the internet to sell their products to people all over the world, not just people who live nearby.
Differences Between D2C and Wholesalers
One way to think about the difference between products and services is to consider how they are distributed. Products are generally distributed through channels such as retailers, while services are delivered directly to customers.
In the typical retail model, manufacturers sell their product to wholesalers, who then distribute it to retail stores. They work with retailers to ensure that the right amount of product is available in the right place, and the customer gets the traditional brick-and-mortar shopping experience.
The direct-to-consumer model allows manufacturers to connect with customers without going through wholesalers or retailers. This reinforces manufacturers’ feedback loop and, if done properly, establishes direct relationships with your product’s most outspoken supporters.
The greatest feature of a D2C business model is that it eliminates the middleman, but there are some drawbacks to this. Even if you’re selling directly to customers, most of the steps in the typical retail model still have to happen, but without the help of a wholesaler or retailer.
Why are Brands Going Direct-to-Consumer?
With the advent of online shopping, the role of traditional retail stores is rapidly evolving.
More and more customers are buying items online, and they’re often going straight to the source rather than to department stores. For example, they might visit Chanel’s website to research makeup options instead of going to Neiman Marcus’ website or store.
A direct-to-consumer model gives businesses more control over their profitability by allowing them to manage the entire process from manufacturing to shipping and delivery. D2Cs often have higher margins than their competitors, making their prices more competitive.
But it’s not just for already-well known brands. Many older brands are still trying to keep up with the innovation and change that is happening with newer brands who are native to the digital world.
In D2C retailing, technology has made it much easier for new companies to get started. Entrepreneurs can be successful without needing retail shelf space, a large ad budget, or their own factory.
The potential downside to a manufacturer adopting a D2C business model is that said manufacturer would then be responsible for all aspects of the retail process. The good news is that customers are now more loyal and more likely to return, and there are also more options for new customers who want something different from what they’re used to.
3 Advantages of D2C
In 2019, ecommerce sales in the U.S. reached $14.28 billion. According to eMarketer, the number will reach $17.75 billion in 2020 and $21.15 billion in 2021.
There are many benefits to interacting with customers online, and this trend is likely to continue growing. The following are specific advantages you should be familiar with.
1. Owning customer data.
When you sell your products wholesale to a retailer, you have little to no information about how that retailer’s customers are using your products. When you sell D2C, you are making data visible to yourself.
A couple of examples:
- Web analytics showing how shoppers interact with your website
- Demographics around who is shopping for your products — and who is buying
Data is power because it allows you to know more about your customers so you can give them a better experience.
2. More control over the customer experience.
If you sell your product directly to the consumer yourself, you will have more control over what their experience is like. This is because you will be in charge of every step of their journey as a buyer. You can utilize your customer’s data to create a shopping experience that would attract your ideal customer. Do they want to shop on Instagram? Do they prefer one-click checkout?
This means that you can tailor your marketing strategy to be more specific and effective. Where do they discover products like yours? It is easier for customers to reach out when they need help. Great customer support can transform a customer’s opinion of your company from negative to positive.
More feedback from customers can help you improve the customer experience by allowing you to respond quickly to any changes in customer demand or behavior.
3. Better relationships with customers.
Without a direct-to-consumer presence, manufacturers are less exposed to customers, resulting in less feedback and opportunities to build relationships. D2C allows you to directly connect with and sell to customers without a middleman.
You will be able to collect shoppers’ email addresses and phone numbers so that you can market directly to them in the future. This will include SMS marketing. You can increase brand awareness and community involvement by using social media channels, encouraging user-generated content, and word of mouth. This quote is saying that brands that create a better overall experience for their customers by making it easier to purchase and receive items, as well as being responsive to complaints, have a better chance of becoming lasting brands.
2 Challenges of D2C
Selling direct-to-consumer has its challenges, too. The addition of new business processes to an already complex relationship between wholesaler and retailer creates additional complexity.
D2C brands are expected to be more creative and innovative than other types of brands. ” There is no one-size-fits-all guide to building a successful online business. DNVB growth must be a malleable and agile operation. Brands must find opportunities where there were none. They need to try to do something that hasn’t been done before.
1. Managing the operations of the business.
The main advantage of selling direct-to-consumer is that it eliminates the middlemen in the traditional manufacturer-distributor-retailer relationship. However, this also causes one of the biggest challenges.
In the past, your customer-facing interactions were limited and your business operated primarily through bulk sales. If you sell your products directly to consumers, you will have more personal and complex interactions with them, requiring you to manage almost the entire supply chain. Your business will be in charge of:
- Packaging the product for end customers
- Creating and maintaining an ecommerce storefront and other digital sales channels
- Customer acquisition, support and retention
- Order processing and shipping
2. Lack of tech.
They forget to account for the impact that search engine optimization will have on their bottom line. One of the things that manufacturers forget when they sell D2C is that they don’t take into account the impact that search engine optimization will have on their bottom line. The technology to underpin their ecommerce program. You’ll need to change how your brand appears on digital platforms to give customers a better experience. This may also mean overhauling your back-office tech stack.
If you don’t sell products on your website yet, it’s worth using a SaaS ecommerce platform like BigCommerce. This way you can accept payments online using methods that are customer-friendly, run discounts and promotions, and integrate with partners that make shipping easier.
5 key features of a D2C company
It is not common for manufacturers to also be their own direct-to-consumer companies. A small number of visionary businesses are leading the way in the latest retail strategy evolution. There are some key features that are common among D2C businesses, which can be used to create a profile of the typical D2C business.
Those features include:
- The tendency to spring from industries with low retail barriers to entry
- They’re agile businesses with flexible operations and little in the way of owned infrastructure
- These are customer-oriented companies and are dedicated to high service standards
- They rely on big data and analytics to fine-tune product offerings and day-to-day operations
- These retailers leverage digital marketing as a primary driver of their sales funnels
This means that most D2C businesses today are digital companies that do not spend a lot of money on infrastructure and instead focus on customer service. Companies who engage in niche marketing also commonly offer specialized product lines that are cheaper, faster, and more convenient than those of their competitors.
4 benefits of the D2C model
There are several benefits for businesses pursuing a D2C model, which should be obvious by now. We’ve talked about some of them before in the sections before this. There are four main benefits to the D2C model:
One of the main advantages of selling products in a D2C model is that there is less overhead costs associated with not having to maintain a large physical store. There are no costs for renting physical locations, operating expenses like utilities and maintenance, or labor costs associated with manning each location.
A business can offer lower prices while still making a profit. D2C companies often have more resources available to invest in marketing and customer service, which are among the most important aspects of the D2C model.
Direct customer connection
In a traditional retail model, a manufacturer has little to no control over how customers interact with their product. This disconnection can often lead to customer frustration and a lack of brand loyalty. Retail associates are responsible for answering questions potential customers might have about products. This means that addressing post-sale issues and other customer service functions are important.
The D2C model gives manufacturers more control over the customer experience since they can communicate with customers directly. The business can collect data from every customer they interact with, as mentioned before.
Having to rely on intermediaries to get products to market can be a big obstacle for businesses, especially if they want to sell in multiple markets. Many retailers won’t agree to carry a product unless it has already been proven to sell well.
Many stores that agree to carry a product insist on an exclusivity agreement that limits where else the product can be sold. In a D2C model, businesses can offer their products to consumers without going through middlemen.
Exercising brand control
The direct-to-consumer model gives businesses more control over their brand and its image. Maintaining a positive brand sentiment and excellent brand reputation is solely dependent on how the business treats each individual customer – without any intermediaries in between. The company has complete control over all product marketing, so they can manage their image without worrying about outside promotions.
A D2C model eliminates the need for retail partners, which also means that a business won’t have to invest the time and resources into growing their presence in each individual market. D2C businesses that use digital selling platforms are accessible to anyone with an internet connection.
This makes it easy for them to introduce new products and have them available to consumers right away. E-commerce businesses don’t have to worry about maintaining relationships with countless competing retailers, and don’t have to worry about one partner cutting into the sales of another.
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