Direct to Consumer: Everything You Need to Know

Direct to Consumer: Everything You Need to Know

Direct-to-consumer is what happens when brands choose to sell directly to their customers instead of going through a middleman.

More consumers are switching to online shopping.

This means there’s a rising demand for brands to interact directly with them.

Consumers have been requesting more personalization and true connections with businesses over the past two years, and there is no shortage of options thanks to the intense competition.

Consumer brands must increasingly focus on producing outstanding, customer-driven experiences. Welcome to the birth of the direct-to-consumer methodology.

Car Dealer, Auto Sales, Automobile, Direct to Consumer

What is Direct to Consumer?

In direct-to-consumer (DTC) marketing, businesses deal directly with potential clients. It removes the need to partner with major retail brands and brick-and-mortar stores, as well as middlemen.

DTC brands maintain their own product inventories and are in charge of the product’s sorting, packaging, and shipping when a customer makes a purchase.

They can deliver the goods themselves without depending on outside parties.

This gives them the authority to deal directly with clients and control the entire fulfillment process.

In order to shorten the purchasing cycle and give devoted clients a smoother experience, the DTC model eliminates numerous steps:

  • Normal wholesale/retail model: Manufacturer > Wholesaler > Distributor > Retailer > Consumer
  • DTC model: Manufacturer > Advertising/Website > Customer

Top DTC firms like Warby Parker, Dollar Shave Club, Allbirds, and Glossier are challenging the conventional beauty and fashion industries with their own personalities and customer-first philosophies.

The DTC retail model was developed for a technology-savvy consumer.

The model strengthens ties and relationships with customers and puts them in a better position to understand who is buying their goods and why.

The competition between these smaller, more niche firms and traditional retailers like JCPenney and Unilever is now fierce, but things are beginning to change.

In reality, the DTC model is being adopted by up to 57% of manufacturers, and it is now the e-commerce sector with the highest growth.

Direct to Consumer 1

 

 

Why is the direct-to-consumer model so popular?

The phenomenon of DTC is not new.

Clothing companies saw a chance to eliminate the middleman in the 1920s and began to launch their own DTC stores.

One of the first brands to focus solely on selling one product online was Bonobos in 2007. But due to two key aspects, the idea has become increasingly popular in recent years:

1. Consumer expectations have changed

There are more demands than ever.

Retailers must either provide excellent client experiences or risk being overtaken by a wave of new rivals.

Customers increasingly want to support brands that share their values and they want more customization and human relationships.

Selling through big-box retailers that provide a wide variety of goods from numerous manufacturers makes this challenging.

For instance, a customer may decide to buy eyeglasses from Warby Parker rather than Sears because they identify more with Warby Parker’s goal than with that of a well-known department store that carries goods from other firms with numerous different values and ethics.

2. Online sales have increased

75 percent of US consumers have altered their buying routines as a result of the epidemic, favoring an online-first strategy.

Retail partnerships are useless if customers aren’t going into stores.

It’s simple to understand why DTC retailers have taken a different route when you consider that it’s challenging to stand out when your products are surrounded by hundreds of comparable products from different brands.

Even established brands that have historically relied on wholesalers and physical locations for distribution are embracing the DTC model.

Pepsi, for instance, has DTC offshoots called Pantry Shop and Snacks.com.

Due to understandably fewer orders from retail customers during the epidemic, established brands like Pepsi are switching to the DTC approach.

To put it into perspective, only 15% of Nike’s 2010 income came from DTC sales. However, this number increased to 35% in 2020 and is projected to reach 60% by 2025.

Hans Boodt, Mannequin, Shop, Display, Direct to Consumer

 

How does the Direct to Consumer model work?

The business model follows through on what it promises to do: sell directly to customers.

Customers visit your website or another digital platform, buy a product through your store, and receive it directly from you (no middlemen).

The brand has complete control over the fulfillment process, which is conducted between the brand and the client.

Most DTC brands are digitally native and adopt an omnichannel strategy to develop distinctive consumer experiences.

This is not to imply that DTC brands cannot have physical locations, but rather that the focus in-store is on customer involvement and experience rather than revenue.

Think about the Dollar Shave Club, which sells razors, and Warby Parker, which sells spectacles, as examples of DTC firms with clearly defined target markets and constrained product offerings.

The concept is based on fostering customer relationships and developing experiences that prioritize the needs of the client and demonstrate a thorough comprehension of their problems.

Discounts, loyalty plans, customer reviews, and user-generated content are all tools that many businesses use to build an audience and keep clients over the long term.

Ecommerce, Online, Marketing, Technology, Direct to Consumer

 

What are the advantages of the DTC model?

One out of every seven dollars spent on e-commerce this year, according to retail expert Andrew Lipsman, will go to DTC sales. By the end of 2024, he projects it will have increased by approximately another $100 billion, totaling $212.9 billion.

When possible, nearly 60% of online buyers say they will go out of their way to buy directly from a brand rather than from a third-party store.

Why is there a movement in favor of DTC brands? Here are the advantages of the DTC marketing model.

1. Compete with big brands

While some traditional retail brands can blend in, DTC brands stand out.

DTC brands are liberated from merchants’ interpretations of their goods, allowing them to be more inventive and express their own beliefs.

Sixty-six percent of consumers claim that it is simpler to understand the principles of various brands.

DTCs have a significant advantage in this situation because 70% of consumers prefer to shop with companies whose values align with their own.

Each D2C brand faces the difficulty of persuading consumers that it provides something they can’t get anywhere else.

Saatva co-founder and chief strategy officer Ricky Joshi believe that differentiating oneself from the competition requires removing the “glitz and glitter” that typically surrounds DTC businesses in favor of “sticking to the value proposition and the philosophy of the firm as it started.”

DTC brands aren’t restricted to what retailers consider to be hot commodities, so they can provide clients with a comprehensive variety of products.

Giving customers more options might be a crucial factor in attracting them to your DTC website.

2. You control the distribution channel

Products from traditional shops must be shipped to a wholesaler, who then delivers them to the final customer.

Your supply chain’s length increases your vulnerability to problems. Everybody behind you in line has delays because of one roadblock.

DTC retailers expose their supply chain to less risk.

That’s critical now more than ever with COVID-19 wrecking havoc on supply chains around the world.

Think about the Molson Coors Beverage Company. Traditional distribution methods for the business were hampered by the outbreak. Through its online store, it adopted DTC and had an 188% month-over-month increase in sales.

3. Instant customer feedback

When you sell directly to customers, you are monitoring the entire client journey, from beginning to end.

You’ll gain knowledge that would have been lost if those things were offered through conventional retail channels, such as why (and how) they’re buying.

Take Molson Coors as an example. It made several adjustments based on data it had gathered after changing its operation to offer DTC online. That comprised:

  • Meeting consumer demand for a larger selection of items
  • optimizing the website’s appearance for mobile, as half of all store visits were made on mobile devices.
  • A/B testing landing pages and creative messaging to determine which received the best response from the target audience

You’ll build and iterate faster if you have this insight into the user’s experience with your product.

Without having to fight each merchant for access to client data, you’ll be aware of the challenges and needs from customers.

4. You can personalize customer experience

Online buyers report that 61 percent of brands offer a more personalized experience.

DTC brands excel at giving clients individualized experiences because they are not constrained by big-box shops.

42% of companies intend to provide personalized product suggestions to their clients in 2022 using tools including quizzes, unique mobile apps, and first- or third-party behavioral data.

DTC brands can also use subscription services to tailor the client experience. These also increase consumer loyalty and provide DTCs with recurrent revenue.

For instance, Fabletics, a retailer of sports wear, provides a VIP membership program with exclusive benefits.

The brand offers unique discounts, free shipping, and a selected selection to subscribers each month.

With this level of personalisation, shopping is less stressful and more pleasurable.

5. Boost margins without increasing price

Direct-to-consumer businesses are exempt from having to reduce their profit margins. No wholesaler, retailer, or marketplace is claiming a reasonable portion of the retail price of a product.

DTC brands can cut back on expenses. They don’t always have to pay exorbitant rent for expensive physical retail spaces to spur expansion.

DTC brands decide to sell their items through their owned channels at a lower price due to the extra profitability built into each item.

The main justification for selecting a D2C brand over a conventional store was cost savings.

Nearly 50% claimed they buy directly to save money on goods (48%). Quick and free shipping came right after.

What are the disadvantages of the DTC model?

  1. It’s all up to you: You must create your own audience through your own channels; you do not have access to the audiences that major online retailers and retail sites have already gathered.
  2. Elevated risk: Additional risks including liability and cyber hazards are typically taken on by third parties.
  3. Complex supplier chains: You are in charge of everything, including manufacturing, shipping, and distribution, which may be both a blessing and a curse.
  4. Potential price hikes: To advertise your products, you might need to buy hardware, software, and advertising, which can mount up and have an impact on your revenue.

Ecommerce, Online, Shopping, Marketing, Direct to Consumer

How to start direct to consumer selling

It’s crucial to think about if DTC selling is the best strategy for your brand before you begin.

Before you commit to starting your DTC plan, take into account these five points.

1. Reputation is everything

While there are advantages to selling directly to customers, businesses must understand that reputation is essential.

Traditional businesses enjoy the luxury of having big-box shops and marketplaces handle customer purchasing experiences.

Gerry’s creator Paul Wyber emphasizes that DTC firms must guarantee that their customers enjoy the finest possible shopping experience from beginning to end.

Since your brand reputation is on the line throughout the entire process, this includes checking that the website and all products the customer receives in the mail are free of errors.

2. Don’t depend on an existing audience

There is no denying that Amazon is a powerful e-commerce force.

You’re losing out on 63% of consumers who start their product searches on Amazon if you decide against selling your goods through its marketplace.

You might still be able to sell some products through traditional retail or wholesale channels, but to make up for it, you’ll need to make significant investments in your own channels.

As a result, 41% of DTC brands want to raise their expenditure in sponsored and organic search.

Direct-to-consumer brands must spend big on digital platforms to compete for Amazon customers’ attention.

3. Cut ties with retailers

There are gray areas when deciding between wholesale and direct-to-consumer marketing tactics.

Some stores combine the two.

The drawback of this is that when a company transitions to DTC, wholesale and retail customers complain.

Heinz is an example: Many wholesalers were allegedly alarmed by the 2020 Heinz to Home DTC strategy; one said that the bundles’ reduced prices undercut retailers.

Then, Heinz released a statement to manage the worries of its retail partners:

We are providing them with free delivery and expedited shipping. We also understand that certain people may find it difficult to access our brands if they are weak and socially isolated. Since it is very difficult for us to identify this group, anyone can shop online, but there are additional costs for packaging and shipping.”

4. Fulfillment costs

DTC needs last-mile deliveries that are one-offs rather than mass distribution.

You’ll have to decide whether to handle online order fulfillment yourself or jointly with retailers. If you’re experimenting with DTC, the latter choice is frequently the best.

DTC companies should take into account:

  • Outsourcing shipping and logistics to third parties
  • Creating and sourcing B2C packaging
  • Shipping costs and whether you offer it for free
  • How to accept returns

Returns are a major issue for DTC companies who only sell digitally.

Retail product returns in the United States totaled $761 billion in 2021, a significant rise from the $428 billion reported the year before.

Online stores typically have greater return rates than their physical store counterparts.

DTC organizations may need to combine a returns-management system with their inventory management system, third-party logistics partner, or ERP to effectively handle them.

5. DTC cost considerations

The price of selling to customers varies depending on the DTC structure.

DTC businesses must take into account how global scalability affects ownership costs and the human capital required to conduct DTC operations.

You’ll need to take into account the following charges as your DTC brand expands:

  • Selecting an on-premises versus cloud-based platform
  • Hiring fresh personnel
  • Selecting a platform for commerce
  • Increasing the capacity
  • Adaptable checkouts

Conclusion

Direct to consumer marketing model emerged as a result of shifting consumer preferences and the rise of online shopping.

The concept allows businesses an opportunity to interact with consumers directly and learn more about who is buying their products so they can design a customized customer journey that is specific to each shopper.

DTC enables businesses to regain control, forging lasting bonds with customers and developing distinctive brands with distinct personalities.

Leave a Comment

Your email address will not be published. Required fields are marked *