A direct-to-consumer (D2C) strategy offers a powerful way to gain complete control over your supply chain – from manufacturing and sourcing to marketing, sales, and distribution.
But to take advantage of this unique business model, you need to know how it works.
Join us for a deep dive into the pros and cons of D2C for businesses. We’ll look at the D2C method and how it compares with business-to-consumer (B2C) models, plus investigate a few famous examples of successful D2C companies.
What is D2C?
D2C, also called DTC, stands for direct-to-consumer which refers to a business model or sales strategy wherein a company sells products and services directly to its customers, rather than through a third-party retailer. D2C brands retain full control over branding, pricing, fulfilment, and the overall customer experience.
In traditional retail models, items may go through several stages before reaching the end consumer. By rejecting this approach, a D2C business can build a closer relationship with its customers while bypassing wholesalers, distributors, and brick-and-mortar retail stores.
The emergence of ecommerce has enabled the growth of the D2C sector.
Businesses now largely operate through online platforms, leveraging ecommerce websites, mobile apps, and social media channels to make sales.
According to Statista data, 64% of consumers worldwide regularly made purchases directly from brands in 2022. As these trends continue to scale, there’s never been a better time to consider a D2C sales strategy for your business.
B2C vs D2C: What’s the difference?
D2C and B2C are business models that describe how companies interact with their end customers. While both D2C and B2C sell to individual consumers, the key difference lies in the distribution and sales channels.
D2C specifically refers to a model where companies sell directly to consumers, without third-party involvement. Whereas B2C encompasses a broader range of businesses that sell to consumers, whether through direct or indirect channels.
Still confused? Here’s a summary:
- D2C companies sell their products or services directly to individual consumers, with no third party involved in the sales process.
- B2C companies also sell to individual consumers but may have intermediaries in their supply chain, such as wholesalers or distributors, who play a role in getting the products to the end consumer.
B2C simply means any business model or strategy that involves selling products to individual consumers. D2C can therefore be considered a sub-type of the B2C category.
Benefits of the D2C model
The D2C model empowers companies to have full control over the customer experience and product information. It also enables them to collect valuable customer data for personalised marketing and product development, providing a unique opportunity to create a distinctive brand identity and build strong customer loyalty.
Here are 10 key benefits of the D2C model:
- Brand experience: D2C brands have full control over how their products are presented and marketed. This allows for a consistent brand image and messaging, which in turn helps improve brand recognition and customer loyalty.
- Customer relationship: D2C companies have direct access to customer feedback, preferences, and purchasing behaviour. This data enables them to personalise offerings, improve products, and enhance the overall customer experience.
- Profit margins: By bypassing intermediaries, D2C brands can retain a larger portion of the revenue generated from each sale. This can lead to higher profit margins compared to traditional retail models.
- Market trends: D2C brands have the flexibility to adapt quickly to changing market trends, introduce new products, and adjust pricing strategies without the need for approvals from external parties.
- Decision making: D2C companies have access to detailed data and analytics. This information can be used to make informed business decisions, from product development to marketing strategies.
- Product offerings: D2C brands can tailor their products to meet specific customer needs and preferences. This level of customisation can lead to higher customer satisfaction and loyalty.
- Pricing: The leading reason consumers shop directly with brands is because of better pricing. D2C brands have the freedom to set their own pricing strategies without being bound by traditional retail markups. They can experiment with pricing models to find what works best for their target audience.
- Enhanced customer experience: With direct control over the entire customer journey, D2C brands can provide a seamless and personalised experience from browsing to purchase to post-sales support.
- Go-to-market: D2C brands can bring products to market more quickly since they do not have to go through the lengthy process of negotiating with third parties or waiting for shelf space in retail stores.
- Inventory management: Direct access to real-time sales data allows D2C brands to manage their inventory more efficiently, reducing the risk of overstocking or stockouts.
Lastly, D2C brands have the flexibility to experiment with new products and marketing strategies. They can also shape their own pricing models as they're not bound by the constraints of traditional retail markup.
D2C offers many advantages for businesses. But there are a few downsides to consider, too.
Let’s look at some of those now.
Risks of selling D2C
Despite the benefits of a D2C sales strategy, it requires a bit more effort than some of the alternatives.
For starters, you won’t be able to rely on the retail and distribution expertise of third-party providers. That means more work for your team – and more skills that require learning.
Here are 7 challenges and risks of selling D2C:
- Competition: The D2C space can be highly competitive with numerous brands vying for consumer attention. Standing out in a crowded market requires a well-defined value proposition and effective marketing strategies. In industries with low barriers to entry, the market may become oversaturated with D2C brands. This can lead to price wars and decreased profitability.
- Acquisition costs: Acquiring new customers in the D2C space can be expensive. Gaining consumer trust can be challenging for new or lesser-known D2C brands, as consumers may be more inclined to trust established, well-known brands. Companies may need to invest heavily in marketing, advertising, and customer acquisition efforts, which can impact profitability.
- Limited exposure offline: Without a presence in physical retail stores, D2C brands can miss out on a portion of the market that prefers to shop in brick-and-mortar locations. This can limit brand exposure to certain demographics.
- Supply chain: Managing the entire supply chain, from manufacturing to distribution, can be complex and resource-intensive. This includes inventory management, quality control, and logistics, all of which require careful attention.
- Digital channels: Relying heavily on ecommerce platforms for sales can be risky as it leaves businesses vulnerable to changes in online algorithms, policies, fees, or disruptions in the digital landscape. Managing multiple sales channels requires a strong ecommerce software stack and staff to manage it.
- Retention: While D2C brands have direct access to customers, they also bear the responsibility of attracting and retaining them. Competition for customer loyalty can be fierce and maintaining a strong relationship requires ongoing effort.
- Returns and service demands: Handling customer returns and providing high-quality customer service can be resource-intensive. D2C brands must be prepared to address customer concerns promptly and effectively.
Navigating the risks of D2C requires careful planning, a clear understanding of the market, and a commitment to delivering exceptional value and customer experiences.
Before you venture into the world of direct-to-consumer sales, make sure you’ve identified the biggest challenges you’ll face and how you will get around them.
How does the D2C business model work?
“Disrupted supply chains, idle inventory and evolving health restrictions forced retailers and manufacturers to radically rethink their business models and revenue streams. It catalysed rapid digitisation and digital adoption.”
The D2C business model can be applied to many areas of a company’s operations.
We can break D2C down into five main functions:
- Manufacturing
- Sales
- Marketing
- Fulfilment
- Ecommerce
Let’s explore how D2C works in each of these settings.
D2C manufacturing
D2C manufacturing is where the business that produces products is the one selling them directly to consumers. By analysing customer feedback and market trends, D2C manufacturers can make improvements to existing products and add new ones to their product portfolio.
This offers unique advantages for manufacturers, as it allows them to gather data from customers and use it to make informed decisions around product development and marketing.
The D2C business model is especially useful for manufacturers that provide bespoke services.
80% of consumers want personalisation from retailers. By dealing with them directly, D2C manufacturers can better assess their requirements and be sure they’re delivering the best service for each customer.
D2C sales
To establish a presence for your D2C business, you can set up an ecommerce platform, website, or online store. This serves as the primary sales channel for reaching consumers.
Rather than leave sales up to the third-party retailer, D2C brands can manage the sales process themselves. This means you’ll deal directly with the consumer, observing the buying behaviours and having full control over the steps taken to buy a product.
Post-sales support will provide ongoing customer service for inquiries, issues, and returns. This direct line of communication helps address customer concerns promptly – and gives the brand a healthy reputation.
D2C marketing
A strong brand identity is vital for D2C businesses. And more importantly, attracting visitors to your D2C store. Because D2C stores don’t have retailers promoting goods on their behalf, marketing is an essential element of any D2C strategy.
D2C brands must engage directly with their customers through various online channels like social media, email marketing, live chat, and customer support. While this means more work for the company, these kinds of interactions foster stronger customer relationships.
D2C ordering and fulfilment
For order placement and processing, customers visit a D2C brand’s website or online store. Here they can browse products and place orders directly through the platform. The company processes payments through its chosen payment gateway, ensuring secure and smooth transactions.
Order fulfilment and logistics are also handled by the business, which includes picking, packing, and shipping the products to customers' addresses. Some D2C brands handle this in-house, while others may partner with third-party logistics providers.
D2C ecommerce
To sell products without an intermediary, D2C ecommerce provides a practical solution.
You can create a digital sales channel – or several – that customers can purchase goods from directly. Sales data from your store can be synchronised with inventory management, order fulfilment, and production with software integrations for a streamlined business model.
D2C brands can also collect valuable customer data and feedback through an ecommerce store. This can deliver insights into preferences, behaviour, and areas for improvement that can influence your decision making.
D2C examples: 3 successful direct-to-consumer brands
One of the best ways to understand how direct-to-consumer works is to look at some of the brands already out there doing their thing.
Here are some real D2C examples from three successful companies.
1. Warby Parker
Warby Parker was a game-changer in the eyewear market.
Before they were established in 2010, 80% of high-end eyewear was designed and manufactured by a single company: Luxottica. But they only sold B2B.
But Warby Parker broke into the market with an initiative whereby customers could select five frames from their D2C ecommerce site, try them on, and return the ones they don’t want.
Warby Parker sourced their own raw materials to design their own frames, removed the cost of retail displays and storage, and bypassed licensing fees from Luxottica to offer more competitive pricing for customers.
2. AWAY
AWAY is another D2C business that was founded by the people who established Warby Parker.
Their niche market is premium luggage and travel accessories. Their products are sold through their D2C ecommerce store as well as several physical stores.
The team behind these two brands found a rinse-and-repeat formula for success through D2C, and can enjoy full control over both companies thanks to the flexibility the D2C business model provides.
3. Nike
Traditionally a company that used retailers to sell its products to consumers, over the last few years Nike has been making the move to the D2C model.
And it’s working.
In 2010, D2C was only 15% of Nike’s total revenue. This year, Nike Direct (Nike’s D2C sales platform) was responsible for 43.7% of total brand revenue.
Adidas, JBL, Phillips, and Dyson are just a few names looking to follow in their footsteps.
