Why are Businesses Going Direct-to-Consumer?

The Direct-to-Consumer - D2C or DTC - strategy is fast becoming a popular route for manufacturers and Consumer Packaged Goods - brands to enter the market directly — instead of through a middle-man. This approach offers many advantages for both the manufacturers and the consumers. 

Key Takeaways

While the direct-to-consumer industry is still relatively new, it is evolving rapidly. Big name brands such as luggage manufacturer Away and office supplies manufacturer Quill have already taken the leap with D2C,DTC and we’re anticipating that more manufacturers and brand will enter the market every year. 

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What is Direct-to-Consumer (D2C)?

Direct to consumer industry is a business model in which manufacturers produce and sell products directly to consumers, bypassing the traditional retail store system. The direct-to-consumer industry has seen significant growth in recent years, as more and more brands are choosing to cut out the middleman and sell their products directly to consumers.

Going D2C or DTC has many advantages, with competitive pricing being a major benefactor for consumers. The direct relationship between manufacturers and customers allows the D2C brands to control the entire customer experience and have a better understanding of their customers needs, wants and preferences which can then help improve their offerings and products. 

But going D2C is not easy. It is imperative that you have a D2C-specific strategy in place to be heard and noticed by your target market.

(Traditional retailer vs Direct-to-Consumer)

Direct-to-Consumer vs. Wholesale

So, we’ve established that the Direct-to-Consumer business model disrupts the traditional model entirely, with manufacturers “cutting out” the retail middleman and selling straight to the end-consumer.

The main advantages of D2C vs Wholeale are the following

1. D2C businesses have a direct relationship with their customers.
2. D2C businesses can use the data they collect to create targeted marketing campaigns that are more likely to convert.
3. D2C businesses can build a brand that is more closely aligned with their values and mission. 
4. D2C businesses have more control over their inventory and can respond quickly to changes. 
5. D2C businesses can offer a better customer experience by providing more personalized service and attention. 
6. D2C businesses can be more agile and innovative.
7. D2C businesses can scale more quickly and efficiently, since your are controlling all sides of the business. 
8. D2C businesses have the potential to generate higher margins - no sharing profits with retailers or wholesalers. 
9. D2C businesses can better protect the brand identity, since there is more direct control over their marketing and branding.

Today’s consumers expect to be able to go directly to the source when researching a variety of products or brands, or when making a purchase from a specific brand. Case in point, Astound Commerce found that 59% of consumers prefer to do research directly on the manufacturer’s website, with 55% preferring to make purchases the same way.

What about wholesale?

The wholesale business model involves selling your products to retailers in bulk. Manufacturers of all kinds have traditionally used this method to sell their stock—which is precisely why most manufacturing companies aren’t D2C by default. 

As we saw earlier, the main difference between these two models is the type of customer they target. Wholesale businesses usually target other businesses, while D2C businesses target consumers. Wholesale businesses usually have lower customer acquisition costs, since they can sell in bulk to other businesses. However, they also have lower margins, since they need to sell at a discount to other businesses. 

If you’re looking to grow quickly, a wholesale model might be best. With a wholesale model, you can sell to many businesses at once. With a D2C model, you’ll need to focus on acquiring customers one at a time.

Things to consider when going D2C

If going D2C sounds more appealing to you, or if you’re looking to leverage the aforementioned “hybrid” model, here are two common pitfalls to watch out for when considering going Direct-to-Consumer:

1.Make sure your company is ready to shift from wholesale to D2C

The first step to making the shift from wholesale to D2C is ensuring that your company is ready for the change. This means having a solid plan in place and ensuring that all of your employees are on board with the transition.

It's also important to make sure that you have the right infrastructure in place to support a D2C business model. This includes things like having a robust eCommerce platform and fulfillment center.

Having a clear understanding of your target customer and what they want from your brand will help you plan the right strategy to reach them where they are.

For companies looking to switch to a D2C model, make sure you invest in training and enabling your employees, evolving your current processes (and developing new ones), and overall ensuring that your company is able to operate efficiently and profitably under the D2C model.

How to take your business Direct-to-Consumer: The ultimate guide

Strategies, insights, and tips on how to start and scale a Direct-to-Consumer business.

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2.Prepare your partners

The fact that you’re selling D2C essentially makes you a competitor to your retail partners who are selling your products. As we just talked about, when given the choice between purchasing your products through a retailer or directly from you, the customer will more than likely choose the latter.

While you don’t want to steal business from your retail partners, you also don’t want to see your products collecting dust on your retail partners’ shelves, either.

Rather than completely severing ties with your retailers, dig deeper into your partnership to figure out a profitable way to move forward. This may involve selling only specific items D2C, or delivering wholesale shipments of high-performing products to specific retailers; or, it might involve having your partner retailers take a more active role in promoting your products.

Whatever the case may be, look for a way that both you and your partner companies can both win out.

Is D2C here to stay, or a passing fad?

So far, we’ve talked a good amount about the level of investment that going D2C entails, which leads us to a few questions:

• Will consumers continue to flock to D2C companies as they have in recent years?
• Will retail companies evolve and regain their footing?
• As some retailers do evolve, can manufacturers continue to operate D2C or, at the very least, using a hybrid approach?

All in all, the main question is:

Is going D2C actually worth it for your company in the long run?

Look, there’s no denying that D2C companies are in the limelight right now. Between the success experienced by companies like Warby Parker, Casper and Away; it seems like everywhere you turn, a new D2C company is popping up.

The reason D2C companies have experienced such success in recent years is that they’re better able to cater to the evolving needs of today’s customer—such as providing more personalized and authentic service.

Casper has disrupted the mattress industry by:

• Competing on price and quality. 
• Offering a superior product at a fraction of the cost of traditional mattresses. 
• Having an innovative marketing strategy

Warby Parker has disrupted the prescription glasses and sunglasses industry by:

• "Try it before you buy it" philosophy 
• Offering a unique price for all its glasses 
• Building a loyal following among millennials

This desire, on the consumer’s part, for more personalized and authentic engagements with the brands they do business with definitely isn’t a fad that is going to fade away soon enough. The reality is, customer experience is becoming more and more important as time goes on — to the point that it will soon overtake price and product as the key factor that differentiates your brand from another.

So, it really isn’t a question of whether or not D2C as a business model will fall “out of style”; it’s more a question of whether or not your company can continue to use the D2C approach effectively and profitably well into the future.

Here’s the main point:

"Your company can thrive using the D2C model now, tomorrow, and ten years from now — as long as you use the model to optimize the service you provide your customers and the processes that allow you to do so.”

Should big manufacturers sell directly to consumers?

Piggybacking off of the idea that going D2C is a hot new trend, it’s also worth noting that many established companies that have long operated in the traditional manner are jumping on the D2C bandwagon, so to speak.

For example, in 2017 Gillette introduced a brand new on-demand shaving supply service in response to the massive success experienced by Harry’s and Dollar Shave Club.

(Going back a bit further, Dollar Shave Club was actually purchased by Unilever in 2016 for $1 billion — an example of a big brand going D2C by simply merging with an established D2C company.)

But, as we alluded to in the last section, it shouldn’t be a question of whether just any big brand company should start using the D2C model. While going D2C certainly may work for some big brands, others might not experience the same level of success in making the switch.

Before making the jump, big brands need to answer the following questions:

1. Does your company have the means to implement a hybrid business model and ensure both sides of the business run effectively and efficiently?
2. Does your company have a profitable and mutually-beneficial agreement with your retail partners, as well as a plan for how to put the agreement into action?
3. Is the company prepared to take full control and ownership of their customer experience?

4. Again, going D2C isn’t some “magic bullet” that will automatically spur any business to greatness. In fact, implementing the D2C model without really knowing what that all entails is a sure recipe for disaster.

But, as long as you know exactly what you intend to provide your customers—and you’ve determined that using the D2C model is the best way to give it to them—then you should start planning to make the shift as soon as you possibly can.

 

How to take your business Direct-to-Consumer: The ultimate guide

Strategies, insights, and tips on how to start and scale a Direct-to-Consumer business.

DOWNLOAD NOW