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Direct to consumer brands like Mama Earth, Dollar Shave Club, or Noise: Audio products, work on a D2C business model. In recent years the D2C business model has been adopted by a lot of new ventures and startups. Selling the products directly to consumers seems to give businesses a higher profit margin. But what does the Direct to consumer business model exactly mean & how is D2C different from traditional retail business?
What is D2C?
Direct to customer or D2C means a strategy where businesses do not have to rely on middlemen, distributors, or retailers for selling their products. These businesses sell their products to customers through a network. The important thing is the business has complete control over all the processes, that is manufacturing, marketing, and distribution, etc.
This way Direct to consumer differs from the conventional retail business model. However, we all live in a digital world, and eCommerce has taken a significant rise in the last decade. With this growth, there also has been a space where the D2C business model lives in this digital world, and it is called D2C eCommerce.
What’s really between d2c and b2c? As mentioned before, the first is an online selling model in which manufacturers sell their products directly to consumers. In standart B2C models, manufacturers usually sell their products to retailers in bulk, who later resell these products in much smaller quantities as part of long-term deals; usually, retailers have a wide target audience and offer their customers more than one brand of the same product, which means higher competition for manufacturers and a real fight over the attention of potential clients.
A lack of prioritization of D2C by top leadership can often lead to D2C being treated as an afterthought, especially if leadership pursues too many strategic priorities. Lack of prioritization of D2C compared to other areas tends to prevent “breakthrough” decisions are being made, and can amplify the other factors preventing success.
Brands can make the mistake of attempting to implement a multitude of fragmented D2C ideas and solutions—for example, by using the D2C platform for both brand-building and sales growth in a nonintegrated way, managed by different teams. As a result, new initiatives and investments are justified incrementally in the standard business-planning process, leading to slow progress, which in turn limits buy-in for faster and greater investment, creating a vicious, self-perpetuating cycle.
Within an organization, D2C teams are often formed organically, with leaders in their mid to late career transitioning into D2C and e-commerce roles. These leaders often lack knowledge of how to build the new type of business needed for successful D2C, which requires disruptive and innovative thinking appropriate to the fast-moving digital environment, including testing and learning new data-driven ways of working. Leaders without specific talent in D2C and the digital environment can struggle to adapt, and may be unable to unlearn certain inbuilt corporate behaviors. This is true across functions, including marketing, merchandising, supply planning, IT, and product development.
In order to grow a new channel, existing channels must often be disrupted. For D2C, the fear of upsetting channel partners (such as retailers) can become a real obstacle to D2C e-commerce growth, as new products or promotions are not introduced or are “watered down” to appease existing channels including retail and eMarketplaces. Similarly, misalignment may result from differences in marketing messages across different communication channels, managed by teams that are responsible for different channels and customer groups. Finally, if supply is short, questions arise as to which channel gets stock allocated, and which has to let customers down.
D2C teams often have little or no incentive to focus on consumer-centricity and journey thinking, which are generally seen as the domain of different teams. Instead, the prevailing attitude is often that D2C “is just a channel to sell” and will optimize for profits. Additionally, D2C typically does not control product or brand development, which makes it difficult to prioritize for long-term customer value creation. Another important example is found in Supply Chain, which has emerged as a differentiator for e-commerce in recent years. Online “pureplays” and large multi-category retailers are lifting the standard on operations-enabled experience elements, including delivery times (“Same Day” and “Next Day”), traceability, product personalization and seamless returns. Having a competitive Supply Chain and Operations function for e-commerce will require something different than serving existing retail customers (B2B2C), and comes with a price tag, collaboration across functions and management of partnerships with logistics suppliers. Typically, these cross-functional dynamics and levels of investment required weaken the ambition to create a world-class customer experience on the D2C platform, and may hamper growth over time.
Growth in D2C e-commerce may be held back by hesitation to take advantage of the much broader set of product opportunities that e-commerce allows for, especially given the direct-customer relationships D2C can provide. This broader set of opportunities can be leveraged through own-product innovation, white labelling, or even third party products (3P) and marketplaces.
D2C eCommerce vs Traditional Retail
When a producer/manufacturer sells its products directly to consumers from a website/webstore, that approach is called D2C eCommerce. This business model is completely different from the traditional retail one, where a product is produced from Manufacturer it goes to > wholesaler then to > distributor and to > retailer > after all this finally to the customer.
The traditional D2C were used to rely on consumer networks; some brands like Amway, Tupperware had mastered this business model. But now brands are taking a digital approach toward D2C with webstore for selling and the use of social media to reach the target consumer.
Benefits of D2C E-commerce
Control over brand.
A manufacturer has little to no control over how their products are sold by retailers. A D2C eCommerce business model gives producers control over their marketing & sales efforts, and the company is directly in contact with the end consumer. The company can control the complete customer experience.
Gain higher margins
Manufacturers can have higher margins by removing the middlemen from the picture. The middleman or the retailer selling their (Manufacturer’s) product means the manufacturer only earns profit on the markup from a gross sale. D2C enables brands to sell products at the same price as retailers and earn higher profit margins.
Opportunities for innovation in product category
Usually, most retailers follow a set of standards while selling. They often keep themselves away from selling products that are new and have no track record. The producers are then restricted to what the retailers demand selling. Direct to consumer model benefits the manufacturer to experiment with new products at a smaller scale, test with selected demographics, and gain valuable feedback from customers. In this way, manufacturers can produce what the end customer wants.
Build customer loyalty
The D2C enables more opportunities for building a direct connection with the customer. Unlike traditional retailers and eCommerce platforms. To boost customer loyalty, a reward system can be set up for customers who like to buy frequently or better deals & exchange bonuses can be offered to the customers.
Freedom to expand market opportunities.
Globalization has taken over, and manufacturers are no more restricted by borders while selling D2C. Now in this day and age, it is much easier to target newer markets and reach the right customer.
D2C eCommerce has made its way to reach the right customers. D2C will soon become a new normal in the eCommerce industry. Companies choosing and adopting D2C is beneficial from an operational & financial point of view.