How to Implement a Direct-To-Consumer Powerful Business Model in 2023Customer experience ·
In recent years, we've witnessed a significant shift in the way businesses operate. The traditional approach of relying on intermediaries, such as wholesalers and retailers, to reach customers is becoming less common. Instead, businesses are embracing direct-to-consumer (D2C) sales models, allowing them to connect directly with customers.
The D2C trend has been growing rapidly, and it's projected to continue to do so. In the United States alone, D2C sales are expected to reach $213 billion by 2023, up from $128 billion in 2021. The reasons for this shift are multifaceted, but one of the main drivers is customer preference. Buyers are increasingly seeking out products directly from manufacturers, attracted by the convenience, cost-effectiveness, and personalized experience that D2C brands offer.
The D2C approach allows businesses to have complete control over the customer experience, from the production of goods to marketing and sales. By cutting out the middleman, businesses can often offer better prices, faster delivery, and more personalized experiences.
In this article, we'll delve into the D2C strategy, exploring what it entails and how businesses can adopt this model to reach new customers and drive growth. We'll cover the benefits of D2C, as well as provide examples of successful D2C brands that have disrupted traditional industries. Whether you're a small business owner looking to expand your reach or a marketer seeking new strategies to reach customers, this article will provide valuable insights into the world of direct-to-consumer sales.
What does direct-to-consumer mean?
It is the sales model where businesses skip the vendors, resellers, and retailers and instead transact directly with the end consumer. In this case, the business completely controls its supply chains and marketing to the eventual customer experience. For instance, a brand can bypass wholesalers and choose to sell its products on its online store, enabling it to interact directly with its target audience. It's a global phenomenon.
A consumer survey in Russia showed that half of the respondents found it cheaper to make purchases from D2C sites compared to other providers. In Mainland China, 4 in every ten online shoppers prefer buying from online stores that connect the customer to the original seller.
However, with only 60% of consumer-goods companies feeling "moderately prepared" to take advantage of such e-commerce growth opportunities instead of using intermediaries, including online marketplaces and distributors, how can they overcome these challenges? We'll go over this, show brands that have already taken the step, as well how your business stands to benefit from D2C models.
What is the difference between business-to-consumer (B2C) and direct-to-consumer (D2C)?
Business-to-consumer (B2C) is a blanket term describing any company that sells its products to the end consumer. On the other hand, D2C refers explicitly to the product manufacturer making the sale to the end consumer. So, a B2C company can be a retailer, an online marketplace, and even a manufacturer taking the D2C route.
It’s common to find brand manufacturers taking two approaches to get their products to the customer: the first by selling them wholesale to B2C retailers, and the second approach where they run their own D2C channels as Nike does with Nike Direct.
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Why go direct to the consumer?
Is D2C worth the time and resources that go into implementing the strategy? Here is how it will impact your business:
Generate deeper consumer insights
When your retail and distribution partners sell your products to the customers, they collect and use the customer data as they see fit. However, when you make the sales yourself, you obtain this data, which you can use to structure your marketing processes.
In today’s world, customers want to be seen as more than just 'basic profiles.' They want businesses to recognize them as individuals and not just another name count in their database – and are more willing to engage with such brands. A Kelton Global direct-to-consumer (DTC) survey covering consumers in the wellness, home, apparel, and electronics niches saw that almost 60% of online shoppers who interact with third-party retailers would go out of their way to buy directly from the original brand itself.
Insights from D2C models enable you to understand the experience of consumers when using your products and observe their subscription history, device choices, payment preferences, etc.
Watch how Netflix collects user data to drive subscriber engagement and retention. It personalizes movie and TV show recommendations based on data on what you've watched previously, how long you spend watching your picks, the device you use, search history, and other customer details.
It is crucial to know when you start a movie and abandon it 15 minutes in. It is a step up from recommendations from traditional TV channels that simply looked at standard information like the category, actors, and directors of programs watched. Collecting behavioral data, financial and demographic data, and analyzing usage patterns puts you in a position to proactively engage and retain customers, upsell, and cross-sell.
Personalize your product range.
It is tied to getting more customer insights since it gives you the data to tailor your products to your different buyer personas. For instance, the glasses and frames D2C company Warby Parker runs a quiz directly on its site to help its customers choose the perfect pair. That, coupled with sending the customer five frames to try on at home, results in the buyer getting the right fit and becoming loyal.
Rapid testing and iteration
Retail distributors will not readily stock their shelves with new, untested products. It's not a surprise, given that 85% of new products launched in the US fail, and retailers want to be sure to have inventory they can offload. Those willing to take up the new products may need you to make a more significant financial commitment to protect them from potential losses. With the D2C model, the business can test new products and make modifications and improvements based on consumer feedback.
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How to go direct to the consumer?
Connecting with your consumers is a journey that can be taken in multiple ways. From brands just starting with e-commerce, mom-and-pop stores battling for foot traffic with big-box retailers, to those seeking to scale operations in their brick-and-mortar outlets, grow their market share, and get more personal with their end-consumers, here is how you can go about the process:
D2C distribution methods
Since with D2C, you have absolute control over your marketing, supply chains, and customer experience, methods you can use to get to your consumers include:
1. Direct online sales
It is the most common model businesses adopt, and it can be done through their website or an online marketplace. It's also the model that extracts the most value from the benefits of D2C sales.
2. Partnering with physical retailers
Implementing a direct-to-consumer strategy doesn't mean eliminating conventional third-party retailers. For instance, in August 2020, the direct-to-consumer mattress brand Casper expanded its physical presence by partnering with four furniture and mattress retailers in USA's critical regions across the West, Midwest, and Southwest. The new collaborations with the retailers - Sam’s Club, Ashley HomeStore, Denver Mattress, and Mathis Brothers brought the partnerships to 21 in North America. While the brand owns its stores, working with other essential retailers has enabled it to grow its brick-and-mortar footprint.
3. Using pop-up shops
These are temporary storefront spaces that sell all kinds of merchandise. They can be in traditional brick-and-mortar stores or kiosks; some are done through motorized vehicles. These are the likes of Neighborhood Goods based in Plano, Texas, which features D2C brands like Rothy’s and Buck Mason, as well as the Minneapolis-based Fourpost with its pop-up marketplace in the Mall of America, enabling small brands to find their footing. With this approach, you get to generate more consumer interest since these stores are magnets for people looking to discover and interact with new brands while still avoiding the costs that go into short-term leases.
Handling economics of D2C models
The realized margins must align with your targets for the D2C strategy to be worth it. So, your main priority here is to make the economics of the process work - from the revenue to the cost. Here's how to go about this.
Setting the revenue goals
What role will the D2C channels play when integrating them into your brand operations? Is it to add to your sales or generate consumer insights? Do you want to use D2C to differentiate your brand - or is it a combination of all of the above?
For instance, consider the example of Nike, which partnered with numerous third-party distributors over the years. Unfortunately, this decision led to inconsistent customer experiences and even jeopardized the brand's reputation. It went ahead to launch D2C channels like Nike Direct to engage with its end-consumers for a consistent experience, and by the end of the 2020's fiscal year, D2C sales already accounted for 35% ($12.4 billion) of its global sales.
Businesses can also use the D2C channels to address niche needs amongst their customers. For instance, PepsiCo launched a new webshop offering large items to target the segments of their customers who were bulk buyers - that way, they could have basket sizes that were large enough to justify the shipping costs incurred. This webshop also makes processing those bulk orders easier and avoids mixing operations with its other sales channels. The everyday consumer can skip grocery stores and shop for the brand's foods and beverages through PepsiCo's D2C sites - PantryShop.com and Snacks.com.
Getting the pricing right
When adopting D2C channels, it’s generally expected that the prices of your products will still be similar to retail prices. However, you can still make sales at a premium since the D2C model enables you to offer additional benefits that would be more cumbersome to implement through other strategies - like product personalization and offering exclusive merchandise.
You can keep the costs in check by optimizing each stage of the online buyer journey: prepurchase, delivery, and post-purchase.
Purchase costs are the resources spent on marketing, from PPC ads and social media marketing to outbound customer relationship management (CRM). KPIs you can look into here are the customer acquisition cost (CAC) and the marketing return on investment (MROI).
During delivery, you can offer your customers flexible options, like collecting items at convenience stores or partner retailers, to reduce shipping costs. Brands like the France-based H&M have partnered with the distribution network Mondial Relay, which allows customers to collect their orders at newsstands.
You spend less to lock in existing customers and keep them engaged with new product offerings than acquiring new customers. You can encourage your customers to sign up for your loyalty program by offering them more rewards for more information. That gives you valuable data to send them more targeted offers and recommendations - which incentivizes them more.
The perfect D2C strategy for your brand
While there isn't a fixed rule for the particular path to follow when creating your D2C strategy, some factors cut across the board regardless of your industry. Here’s how you can implement a D2C model for your business:
1. Reengineer your existing processes and systems
Whether you're adding a D2C model to your current system or shifting entirely to a new approach to your marketing, you'll need to restructure your current operations for both your employees and your customers.
For instance, with D2C, you will be handling the consumer's queries, so your employees must be trained on it. There will also need to be logistics that will enable you to get to your customers directly, from the acquisition processes to loyalty programs, since there will be no middlemen for the customers to go through first when they want to engage with you.
2. Harmonize your data collection and assessment
Preferably, you can centralize it under a single platform, such as using a CDP to manage consumer interactions. While the consumers' digital footprints will be left on multiple touchpoints when they interact with your brand (more on these channels next), consolidating these into a unified system will enable you to analyze and plan your engagement with customers throughout the buyer journey. It also helps you maintain a consistent experience. 76% of consumers respond better to personalized marketing messages since they relate to their situations more.
3. Selecting online channels for your D2C model
You have many channels, from your website or mobile app, WhatsApp, and email to social media channels, including Facebook, Instagram, and Twitter. You can use these to develop digital marketing strategies that align with the platform.
On the other hand, you can take measures like opening franchises in different locations for brick-and-mortar businesses. The goal here is to enable your customers to shop for you without any hassle and maintain a consistent experience across the different touchpoints, whether at the product discovery stage or purchase and delivery.
When selecting channels for your D2C strategy, it's crucial to prioritize channels that are "consumer-first." This means choosing channels that your existing and potential customers prefer, rather than simply selecting those that are convenient for your business. By doing so, you can ensure that you are meeting your customers' needs and preferences, which can help drive brand loyalty and increase sales.
In addition to selecting the right channels, it's also important to integrate marketing automation tools that enable personalized communication, such as push notifications and direct SMSs. These tools can help you connect with your consumers on a more individual level and tailor your messaging to their specific interests and behaviors. However, it's essential to maintain consistent messaging across all channels to avoid confusion and maintain a unified brand identity. Inconsistent marketing messages across different channels, which may be led by different teams, can be a common obstacle to D2C e-commerce growth.
4. Create a community around your brand
When you’re up against the competition with substantial marketing budgets, well-oiled production processes, and are already titans in the industry, you'll need to develop an experience that makes your customers feel they are part of something unique. That can be during the customer journey, how you package your products, giving them a personalized post-purchase experience, or even making the customer feel that they are the hero of your story.
Create social trends in line with your brand image, clearly outline the value of each product and interaction with your company, and the marketing campaign to make your customers feel that they are part of the production process. It entrenches their loyalty to your brand, that's not easily shaken. It can be seen in areas like D2C subscriptions which continue holding firm in the face of irregular deliveries and product availability, with 60% of customers in a 2022 US survey feeling that such issues have not impacted their loyalty. Of course, you should clear such hiccups if and when they occur. You can also use humor, gamification, fantasy, and other motivators to tap into their emotions.
Some D2C marketing strategies to incorporate include:
Leverage customer reviews and testimonials
D2C heavily depends on customers spreading the word about their product and testimonials. Stories about how your products have impacted people's lives will appeal to potential customers. It makes them identify with your brand and feel heard. Collect and share the stories in your socials, landing pages, product pages, ads, and other relevant areas.
Unique product offering and customer experience
Setting a lower price than the retailer may help, but don’t limit your scope. With D2C, you can be more flexible and offer your different buyer personas tailored incentives. Many D2C brands are already offering monthly subscriptions - like is the case with Peet’s Coffee Subscription, where the brand uses the service to get customers to directly buy the coffee from the coffee maker instead of the grocery store. Instead of the customer rushing to the grocery store after realizing they've run out of coffee at home, they get an exclusive-feeling monthly delivery from the brand itself. That makes the end-consumer feel close to the actual producer. Also, look into how the items you sell are typically packaged and sold in your industry, and identify ways to improve the experience.
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Benefits and drawbacks of a direct-to-consumer business model
Why should your business embrace the D2C strategy, and what risks are involved? Here is a breakdown of this:
How do you stand to benefit
1. Realize higher margins
With retail partners, distributors, and wholesalers out of the line, you don't have to split profits. All the revenue from the sales made through D2C strategies is channeled back into the business. Higher margins also increase your competitiveness by giving you one thing that every business owner craves: pricing power. Adjusting your product prices and remaining profitable makes you more competitive, winning back market share from your rivals and allowing you to adapt to changing market conditions.
2. Control over customer experience
From how the consumers interact with your brand to the channels you sell through - it's all in your hands, as opposed to when you're relying on traditional retail partnerships. 37% of shoppers expect a more engaging experience on the manufacturer's website compared to a retailer's. That puts you in a position to respond faster to social trends and shifting consumer behavior.
3. You own the customer data
Direct relationships with your customers give you access to their data - which you can then use to guide your brand's decision-making process. Intermediaries can collect this data, but they are not likely to share it with you. That changes when you control the entire sales funnel and buyer's journey. Open lines of communication, from social channels to emails and messaging platforms, also make it easier to define buyer personas and develop targeted marketing campaigns.
However, the D2C model does have its unique challenges, and they should be considered when setting up the strategy that will work for your business.
Challenges of D2C models
With more businesses incorporating these models into their sales strategies in one way or another, it results in a crowded market. Add that to retailers responding to changing dynamics by aggressively looking for more partnerships with alternative brands to stock up their inventory. Regardless of the niche, less established brands will have their work cut out for them to solidify their footprint and hive off more market share.
2. Shipping logistics
Order fulfillment and the logistics involved in getting the products into the hands of the end consumer will be dependent on the business itself - meaning extra operational costs to set up the required systems. It is not an aspect that can be trifled with since it will be vital to the customer experience. Businesses with quality products can be crippled by poor delivery systems - which is why D2C brands still opt for third-party supply chain providers and even drop shippers to handle this part of the process.
3. Providing customer support
Step 1: Create one-on-one relationships with your customers.
Step 2: Nurture the relationships.
D2C models mean that you will be taking on the customer support yourself - and the responsibility to grow relationships with the consumer to retain their loyalty. Any compromise here that results in poor service will turn off the customers.
4. Handling payments
Processing payments yourself means you will be responsible for handling sensitive customer data. You must also provide multiple payment options, including standard credit cards and ACH payments, and incorporate foreign currencies for your international customers. As a workaround for the D2C, companies can turn to Software-as-a-Service vendors with ready solutions, like BigCommerce or Shopify.
Examples of successful D2C brands
In addition to brands like Nike, Casper, and Peet's Coffee that we've mentioned above, here are more that have taken the D2C approach to grow their businesses:
SandCloud - It sells sand-resistant and quick-drying towels, which are a favorite for beachgoers. It uses its D2C website to tell stories of its launch and growth journey, from when it was featured on the Shark Tank show to how the company uses its proceeds to protect Marine Life - including donating 10% of the profits it makes.
Quip - The business provides oral products for families, from electric brushes to dental gum. It also has subscription plans through its D2C platform, where buyers can customize their refill packs, which are editable at any moment, and complete with a lifetime warranty.
Brooklinen - It slashed product prices by cutting out the intermediaries, and they also don't have storefronts or sell through department stores. All sales are made direct-to-consumer from their website to achieve its "luxury bedding at non-luxury prices" goal, with five-star sheets starting at just $99. It makes it easier for the average consumer to access products like classic percale sheets, cozy cashmere sets, and luxe sateen sheets at a fraction of the cost.
The best tool to quickly implement a D2C strategy
Take back control over your points of sale, price structures, marketing efforts, and complaint redressing by adopting a D2C model for your business. Even when you already have partnerships with retailers and wholesalers, skipping out on a D2C channel would be a missed opportunity.
Layerise is an all-in-one solution that enables businesses to connect directly with their customers and provide personalized customer journeys tailored to each individual consumer. With Layerise, you don't have to worry about the overhead and technical aspects of D2C marketing, as the platform integrates with Product Information Management (PIM) systems and Customer Relationship Management (CRM) providers, allowing you to focus on building relationships with your customers.
Not only that, but Layerise also ensures that your business remains compliant with GDPR and CCPA regulations, ensuring the security of your business and customer data. Additionally, the platform provides valuable insights into your customers through behavior analysis tools and features to measure product performance. Book a demo with Layerise today and take the first step in your D2C journey.
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