More and more consumer brands are focusing on selling direct-to-consumer in order to cut out the middlemen and maximize their profit margins. Plenty of manufacturers and consumer brands that deal in consumer packaged goods (CPG) are now entering the markets directly instead of relying on middlemen or distributors.
WIth the introduction of multiple channels such as social media for marketing directly to consumers, many companies have begun marketing directly to their consumers. Popular d2c brands like Warby Parker, Dollar Shave Club, and Casper have optimized their supply chains to handle increased demand from consumers instead of solely supplying to retailers.
The rise of ecommerce has played an incredibly important role in how the industry has evolved and the rise of this business model. With the rise of businesses like Amazon, a number of companies have found it easy to ship their goods directly to their consumers.
What is Direct to Consumer (DTC)?
Direct-to-consumer is a business model that relies on selling products directly to consumers through an ecommerce platform. A number of startup businesses and other DTC brands such as Glossier and Bonobos have shown just how effective it can be.
By foregoing the traditional route of selling to wholesalers, DTC allows companies to maximize their profit margins. WIth the rise of ecommerce and third-party logistics providers, a number of businesses have managed to pivot away from traditional manufacturing and instead begun to focus more on expanding their customer base.
The rise of the Internet contributed heavily to the growth of the direct-to-consumer business model. Goods that had to be shipped from far away were now available at the press of a button. Consumers could search through catalogues and place orders online.
As competition increased, businesses began putting more effort into improving customer experience to retain their loyal followers. Dedicated marketing strategies were developed to boost the number of loyal customers, and metrics like customer acquisition and customer retention became increasingly important for consumer companies that wanted to pitch a new product, or simply grow an old one.
Advantages of the Direct-to-Consumer Model
The direct-to-consumer model has its pros and cons, and any company looking to switch to such a model needs to evaluate its needs carefully. Here are the main advantages of moving away from traditional retail in favor of a D2C model.
You Own Customer Data
One of the biggest advantages of switching to this model is that you own all the data about your end customer. This helps companies optimize the customer experience according to the preferences of their customers. From the effects of fluctuations in pricing to user behavior online, your company will own all the data.
This helps in building better customer relationships and foster loyalty. Many d2c companies optimize their marketing efforts to build personalized offerings for their customers. Even commercial behemoths like Walmart, who have hundreds of retail stores and thousands of product lines have now adopted a multichannel marketing approach to capture as much data as possible.
This data would normally be in the hands of middlemen. But, by building direct relationships, companies are able to gain comprehensive insights into their target demographic.
A Rise in Profit Margins
Arguably the biggest benefit of switching to a direct-to-consumer model is that businesses are able to charge lower prices, while still maximizing their profit margins. Manufacturers that sell to middlemen usually do so at a lower rate.
The middleman keeps a cut of the profits and handles distribution, and traditional retailers then tack on a markup, which ultimately increases the price of the product even more. The manufacturer, in most cases, gets the lowest share, despite manufacturing the product itself.
But, by cutting out all third parties, businesses are able to reduce their costs, as they don’t have to worry about making payments to distributors or wholesale businesses. They can charge less, while still maintaining higher profitability.. The additional income can be reinvested into increased marketing efforts or product innovation.
Enhanced Customer Engagement
D2C companies are able to connect with their customers one-on-one through social media or other channels. By listening to their complaints, suggestions, and input, businesses are able to foster customer loyalty.
That’s because such companies have autonomous control over every element of their marketing. This includes branding, promotional campaigns, the overall tone of the company, and its ethos.
By adopting an omnichannel marketing approach, businesses are able to engage customers through multiple avenues. They don’t have to worry about third-party distributors running a campaign that affects their image.
Global brands such as Nike have also slowly begun to shift towards the direct-to-consumer model. Nike is known for its innovative marketing campaigns, and the company is able to produce those by closely evaluating feedback from their end consumer.
By keeping a tight control of their marketing and branding, the company is able to maintain a strong reputation.
Another example is of a shaving company, Harry’s, raised $375.2 million in venture capital, and ended up selling the brand to Big Razor for $1.37 billion. Harry’s followed a D2C business model, and its sale proves how businesses can achieve success by focusing closely on their customers’ needs.
Disadvantages of the Direct-to-Consumer Model
There are also a few disadvantages of the direct-to-consumer model that businesses need to consider.
A rising number of businesses are now moving into the D2C arena. Many of these are vying for the same type of customer, so you can expect many native brands vying for market share. Metrics like the conversion rate become increasingly important as they highlight how a business is performing based on their marketing spend.
Establishing a Supply Chain
If you decide to ship directly to your customer, you will be responsible for managing every aspect of the supply chain. For traditional manufacturers who supply to distributors, this means building a supply chain or outsourcing to a third-party fulfillment company. Here are some of the key elements that you will have to focus on:
- Order taking
- Processing shipments
- Order tracking
- Creating a payment gateway
- Customer support
The Main Elements of the Direct to Consumer Model
There are several key elements of the direct to consumer model that businesses need to understand.
Direct to Consumer Marketing
Direct to consumer marketing generally involves targeted campaigns to increase brand loyalty and to attract new customers. The primary focus on D2C marketing lies on building a brand identity across multiple channels and maintaining a consistent approach.
For instance, brands can market their products across social media channels such as Instagram, Twitter, and Facebook. They can also use video marketing on platforms like Twitter and Facebook. Influencer marketing is also becoming quite popular, helping brands promote their goods in specific regions.
It’s also considerably more affordable, especially on rising platforms like TikTok. For example, a brand could target customers in New York by collaborating with an influencer who is popular in the city.
With direct to consumer marketing, brands have to focus on creating and aligning their message across all platforms. This way, when a customer stumbles across your advertisements online or on a small billboard, they will instantly recognize the brand.
To achieve this, businesses rely heavily on collecting and analyzing data about their target market. It allows them to tailor their message to a specific target audience. By analyzing customer data, businesses are able to come up with marketing campaigns that touch on specific pain points and provide solutions. Ultimately, such campaigns yield better results than generic ones.
Direct to Consumer Advertising
Direct to consumer advertising primarily focuses on marketing efforts that target a company’s end consumer instead of a distributor. Businesses must use an omnichannel marketing approach to advertise using either print or digital media.
Advertising primarily involves the use of TV, radio, social, and various other forms of media. Arguably the most common form of direct to consumer advertising is of medicinal services and pharmaceutical products.
For instance, a number of pharmaceutical companies market their medicines directly to the consumer. If a customer has a prescription, they can get the medicine by themselves. As a result, many DTC campaigns by pharmaceutical businesses are focused on initiating a discussion between the doctor and the patient.
There are three main types of DTC advertising:
- Help-seeking ads: these ads provide information about specific medical conditions, and recommend patients to seek medical assistance from a doctor. Such ads do not specify any product.
- Product claims: These ads highlight a specific product, its effectiveness, and any side effects. This is the most prevalent form of DTC advertising in the pharmaceutical industry.
- Reminder ads: Such ads simply talk about specific products, but do not make any claims.
Direct to consumer advertising must be planned carefully, as it could expose the company to liability in case unfounded claims are made.
Direct to Consumer Website Examples
There are a number of popular brands that have completely changed the D2C landscape. Here are some popular direct to consumer website examples.
The Dollar Shave Club
The Dollar Shave Club sells razors and other personal hygiene goods. They launched their ecommerce brand with a small video, and it immediately went viral. The Dollar Shave Club offered a subscription package for individuals who had to replenish their shaving supplies every month.
Their website is a fantastic example of how the business managed to excite visitors about a simple thing as razors. They also took a very streamlined approach to advertising, focusing heavily on their male demographic instead of reaching out to tech publications.
Warby Parker is an eyeglass manufacturer, and their website is a prime example of D2C advertising done right. The company also took a different approach to sales than other brands: they ship multiple pairs to their customers to try on. Once you like a pair, you can send the others back to their store.
Their landing page is incredibly clean and minimalistic, showcasing several eyeglasses and allowing you to visit the store in one click.
Casper sells mattresses, and the company knows how to do it really well. They understand that most buyers get overwhelmed with the plethora of options available to them: hard, soft, semi-soft, gel, foam, spring, etc.
Instead, the company removes choice altogether, offering a single perfect-for-all option. This move automatically differentiates Casper from traditional mattress sellers. They also work closely with influencers in order to promote their products.
Direct to Consumer Business Model
As more and more people are able to access the Internet, the direct to consumer business model has become an excellent choice for most businesses. Businesses that had to traditionally rely on distributors and wholesalers to move their goods around can now create their own supply chains, or partner with third-party logistics companies to ship their inventory.
This allows them to ship goods straight to their customers. However, the direct to consumer business model also increases responsibility and spending for the business. Your company will be responsible for managing every step of the sales process, from the moment a customer places an order till the time it’s delivered.
Going direct obviously has its advantages, as it allows you to optimize and improve the customer journey and experience across the platform, but it also has a few downsides. Businesses will be responsible for designing marketing campaigns and working on producing goods or services that their customers demand.
They also have to closely evaluate the metrics on their ecommerce platform to determine how customers engage with their products. Important metrics like the shopping cart abandonment rate must be tracked to determine why customers choose not to buy.
The Bottom Line
As proven by a number of top brands, the direct to business consumer model can be incredibly profitable when done right. One of the biggest benefits of adopting a direct to consumer business model is that it allows businesses to become more agile. They can listen to feedback and adopt accordingly instead of having to worry about convincing distributors and other third-parties.
If done right, a direct to consumer business model could result in a windfall of revenue for your business.