We are living in a new era. Gone are the days when the sole focus of a manufacturer was to mass-produce products and leave the selling up to retailers. The internet has eliminated the need for middlemen; therefore, it is essential that businesses adapt, and the only way forward is through the direct-to-consumer (D2C) model.
Direct-to-consumer brands typically arise as online stores, since not only is the eCommerce concept a cheaper and easier option to launch, but eight in ten Americans now shop online, giving suppliers the opportunity to serve a global audience. In other words, if businesses don’t adopt this model, they run the risk of losing their customers to brands that have streamlined and simplified the shopping experience. Here’s what you need to know about the D2C revolution.
What Is Direct-to-consumer?
Direct-to-consumer means that manufacturers ship their products directly to their consumers without relying on middlemen or brick-and-mortar stores. D2C brands do not need to rely on traditional retailers for exposure; they can experiment with a variety of distribution models, from shipping straight to the consumer, opening pop-up shops, and partnering with physical retailers. D2C startups have strategically positioned themselves to gain a competitive advantage by rethinking their retail models as well as their products.
Direct-to-consumer marketing puts the control of the buying process back into the hands of the manufacturers. The company is responsible for creating a superior product, marketing it to their target audience, delivering the product or service to their customers and establishing a relationship with them.
How D2C Differs from B2C
Ultimately, the distinction between the direct-to-consumer and traditional business-to-consumer model is a question of fulfillment behind the scenes. The end customer is probably not aware of the steps their product takes on its journey from warehouse to delivery. Now that next-day delivery is arguably the standard in retail as a whole, customers may not even realize how much D2C has disrupted the landscape.
Nevertheless, a D2C and B2C product take two very different routes from checkout to unboxing. The latter will start the journey in a warehouse, possibly owned by the business, where inventory piles high or runs low, according to seasonal demand. That stock could supply a brick-and-mortar store, or be purchased by an intermediary wholesaler to supply their own customer base. Once the product reaches a physical or online store, it might be rebranded (e.g., white label goods) as the store’s own, showcased in a window display, or stacked high alongside a wide range of competitor items. Whatever the variables along the way, at each stage from manufacturer to retailer there is an additional cost to cover and a middleman’s cut to pay. That puts pressure on profitability, and encourages the manufacturer to produce larger volumes at lower cost (and perhaps quality) to maintain the same margins.
In D2C, however, the retailer may not even own the item when the order is placed. That is the model with eCommerce dropshipping, and it allows retailers to order from suppliers as orders come in, rather than having to carry and store inventory in advance. Alternatively, the D2C retailer may store inventory in rented warehouse space, according to demand, allowing them to move stock nearer to the areas with the highest demand and avoid paying for unnecessary storage space. When the customer places an order, the D2C retailer takes care of the fulfillment, from packaging to delivery, straight to the door. With no middlemen or third parties to cover, the D2C can pass on savings to the customer (or use profits to accelerate business growth).
A Brief History of D2C
Although the success of direct-to-consumer marketing and retail is tied to the digital era, it is as old as mail order, going back to the 19th century, and became part of popular culture through brands such as Avon and Tupperware.
How did we reach the point where 40% of consumers have purchased from a direct-to-consumer retailer? Credit for the astonishing rise of D2C must go to brands such as Bonobos, one of the first digital native eCommerce retailers, Warby Parker, Casper and Dollar Shave Club. Between them, they transformed the way we buy pants, glasses, mattresses and razor blades. More importantly, they’ve disrupted the retail landscape to the extent where traditional retailers and big brands have been forced to upgrade their own online service and explore more agile ways of satisfying their customers, from limited releases at pop-up stores to sportswear brands launching customizable versions of their signature items and sponsoring micro-sites to appeal to a more niche crowd.
The Benefits of D2C for the Brand
There are several advantages associated with D2C, and these include the following:
Faster to Market
It typically takes between 18–36 months to market a product the traditional way. With D2C, businesses are no longer bound to the requests of external manufacturers. They can quickly and easily test new products within a specific demographic, collect feedback, and then tailor the product to the needs of the customer before putting it on the market.
More Control Over Reputation, Brand, and Product
Direct-to-consumer allows the manufacturer to take full control of all stages of product and brand development. In a traditional relationship, the retailer deals with the end-consumer marketing, and the manufacturer handles operations such as product design and packaging. The D2C model provides a distinct and streamlined brand identity that provides a superior customer experience.
Better Customer Engagement
Businesses can cultivate and control relationships with their customers that surpass traditional retail channels. This gives them access to key customer information at every touchpoint, from geography, demographics, and psychographics to social profiles and email addresses. Direct-to-consumer also allows businesses to develop an accurate picture of their target audience so they can better serve their personal needs.
The Benefits of D2C for the Customer
Consumers and businesses alike are benefiting from D2C; some of the main benefits include:
Instead of customers having to travel from store to store, consumers now have the opportunity to click from website to website and compare products. They can read reviews to find out what other buyers are saying about the product and compare prices, which enables them to make intelligent buying decisions on the spot.
In today’s busy society, people no longer have the time to spend all day shopping. Time is the only resource that rivals money, and because of this fact, shoppers often state that they shop online because their time is more important than money.
Delivery choices are important to customers; for example, Amazon will deliver to any address you provide as long as the invoice address matches the cardholder’s details. Therefore, customers can have their products delivered to their place of employment, a relative’s house, or any location most convenient to them.
The Limitations of D2C
Selling online and building a viable D2C brand are not the same thing. While eCommerce sales penetration into the U.S. doubled during the pandemic to around 35%, only a quarter of businesses have gone on to grow into large-scale enterprises. What are the challenges?
For a start, driving traffic to an eCommerce site from scratch can be expensive and requires significant skills and resources to set up cross-platform payments, order processing, marketing, and fulfillment. Traditional B2C retailers can launch new products at speed, absorb the cost of those that don’t capture the imagination, and deploy a ready-made supply chain. D2C brands, by contrast, must design the car and build the road.
Those D2C brands that do overcome the initial challenges often struggle to scale up. There simply aren’t the resources to stretch across product development, marketing, sales, and logistics. Perhaps it’s no surprise that Dollar Shave Club was subsequently acquired by Unilever and Bonobos was acquired by Walmart.
Building a D2C Brand
Despite the many advantages of D2C, it takes focused effort and determination to accomplish. It’s essential that you have a specific strategy in place to get the attention of your target market. Here are some tips to get you started:
A Business Plan
What market are you trying to penetrate? A business plan will give you a deeper insight into your target market so that you can develop the most effective strategies for your business.
Customer Relationship Management (CRM) Data
Understanding your customers is one of the keys to success for any business. You will need to find a CRM tool that is capable of finding useful customer information and interpreting it in a way that will most benefit your company.
Handling transactions well is essential to developing a strong relationship with customers. Your shipping and delivery style provide the customer with insight into your level of commitment to them. A study by Accenture found that two-thirds of customers have chosen a different retailer based on delivery options and returns process.
Your Brand Comes First
A strong understanding of the market potential assists in defining your brand’s purpose. For your brand to flourish, it must establish its value. In other words, why is a customer going to choose your brand over another? For example, I would never choose a Samsung smartphone over an Apple smartphone because, among other factors, I find Apple phones easier to use. Despite knowing I am going to spend a bit more money, I would rather pay the extra for peace of mind. What are the defining features of your brand, and how are they superior to your competitors?
Innovation is the Secret to Success
Today’s consumers are not like yesterday’s. They know what they want; they are very particular about it, and if they can’t get it from you, they will go elsewhere. Therefore, you must offer your customers a unique experience that will keep them coming back for more.
D2C and the Customer Experience
To succeed, D2C companies must utilize customer information, starting with first-party information gathered directly from their audience to create a seamless and personalized customer experience. First-party data includes the following:
- Social profiles and email addresses in CRMs
- Demographics and geographic location data
- Behavioral information from website analytics
- Cross-platform data
- Customer support information
Additional data sources are second- and third-party data, which are collected through partners and purchased from data aggregators. First-, second- and third-party data combined generate a complete picture of each customer. After all this information has been collected and turned into a profile, companies can use those profiles for sophisticated target marketing.
How to Measure Success
Before you can even think about measuring your success, you need to define your goals. Outside of increasing your profit margins, what do you hope to achieve through the direct-to-consumer model? It is advised that you use the SMART goal formula and ask yourself how you plan on measuring each goal to ensure that you are achieving them. Measuring your goals is where key performance indicators come in handy.
Key performance indicators (KPIs) measure the values that highlight how a company is achieving key business objectives. It is essential that companies do not blindly adopt industry-recognized KPIs because each company is different, and what worked for one might not work for you. You must develop a clear, succinct and relevant strategy that details how you intend to achieve your end goal. Key performance indicators to consider measuring include the following:
- Keywords: What keywords are your customers and potential customers using to find your products?
- Exit pages: By measuring exit pages, you gain insight into the pages on your website that are failing to achieve your business objectives.
- New vs. returning visitor traffic: Measuring which customers are new or returning will give you insight into the most effective marketing channels for new customers.
- Device: Which devices do customers use most often to interact with your brand?
What Does a D2C Campaign Look Like?
Away is a luxury suitcase brand founded by Jen Rubio and Steph Korey. The company officially launched in February 2016 and generated more than $12 million in sales within its first year and in less than three years, generated $125 million in revenue! What’s their secret?
Direct-to-consumer sales played a huge part in their success. They started by looking into how they could tackle the price/quality conundrum that is so prevalent in the luggage industry. They determined that the reason luxury brand suitcases had such a high price tag was due to distribution and markup retailer costs. Their solution was to create superior luggage inspired by the customer experience, cut out the middleman and sell directly to the consumer. Their D2C strategy allowed them to offer their products at prices their target customers were willing to pay without sacrificing quality to make a profit. They now had a direct line of communication with their customers, which allowed them to continue making improvements to their products based on customer opinions.
Direct-to-Consumer Marketing Strategies
There are many to connect with consumers, but doing so requires a high-level game plan to ensure you maximize your potential. Below are some tried-and-true strategies for success.
Facebook, Instagram, Google, and other digital platforms offer opportunities for brands to deliver hyper-targeted advertisements and disseminate their message directly to those who’d be interested in their products. While this approach requires continuous testing and analytical know-how, if you deploy a digital advertising strategy correctly, you can produce low-cost, high-impact conversions.
Search Engine Optimization (SEO)
Google is the most powerful tool on the internet. When a potential customer doesn’t know exactly what they’re looking for, they will type a keyword into the search bar. The sites that Google’s algorithm deems most relevant and useful will show right at the top of the first page. That matters. Statistics show that 25% of customers will invariably click on the first result.
Facebook, Instagram, TikTok, and Twitter have quickly become some of the most effective marketing tools of the 21st century. Social media revolutionizes the way brands and customers interact. It provides a low-cost way for brands to engage and connect with the people who buy and use their products. Social media-driven engagement drives direct consumer sales and helps build brand loyalty.
Research shows that the average American checks their phone 96 times a day (double that for 18 to 24 year olds), making mobile a perfect medium for email marketing. But it’s not just Gen Z reaching repeatedly for their phone. The majority of people use email daily and will check their emails while working, traveling, and eating. Email marketing provides a reliable form of communication between customer and brand. It is a cost-effective solution to contact your customers in a location they visit often — their inbox.
Adding influencers from YouTube, Instagram, or TikTok to your marketing campaigns gets your products in front of multitudes of potential customers. Ninety percent of marketers state that it is more effective than any other marketing channel. Influencers are called influencers because they have a loyal following and the ability to influence them. The difference between influencer marketing and traditional marketing is that the audience is receiving first-hand information about a product from someone they trust. If they say the product is worth buying, you instantly gain new customers. Influencers leave your link in the description box on their page for a period of time, meaning those who want to buy from you can do so.
Legacy Brands Need D2C Too
Legacy brands must adopt D2C. There are some companies that refuse to join the revolution. They worked tirelessly for many years to build their brand and customer base, and are comfortable with their current way of operating.
One company that clung to comfort and paid the price was Blockbuster. Once market leaders in video rentals, the organization failed to adapt to online rentals, which resulted in their ultimate demise in 2013. The bottom line is that legacy brands can’t rely on their reputation and equity they have built. Even though those are valuable assets, they’re not enough. Consumers were once loyal to the Blockbuster brand, but as soon as they found something more convenient, they jumped ship — don’t let this be your story.
Here are some tips on how you can leverage the direct-to-consumer phenomenon.
Develop an Amazon Presence
To say that Amazon had a good pandemic is something of an understatement. eCommerce sales overall leapt by 93% in the early months of the pandemic, allowing Amazon to increase its share of the eCommerce market to 40.4% by 2021. That’s not just market share, it’s market domination. With that in mind, retailers should be wary of trying to compete with Amazon Marketplace and should focus instead on taking up the invitation to sell on the platform as an Amazon partner. Ultimately, the goal is to place products where consumers are searching. Based on the evidence, that place is unmistakably Amazon.
Amazon Advertising Options
Slightly behind Google and Facebook, Amazon is now the third-largest advertising platform in the world, and it is continuing to grow. It is also important to mention that within the Amazon ecosystem, it provides transparency with the transaction process. It also provides brands with better insight into consumer behavior and the way brands impact that behavior.
Are there Downsides to D2C?
The majority of large corporations have already entered the direct-to-consumer arena, and as the eCommerce industry continues to dominate the retail industry, smaller companies are asking whether they should join the party. We have already looked at the benefits of D2C. Here are some of the negatives you may want to consider before making the transition:
- Costly conversions: the bigger direct-to-consumer brands can absorb the cost of offering free trials, knowing that many subscribers will cancel at the end of the trial period. For smaller companies, however, there is little room in the budget for activity that does not deliver conversions.
- Supply chain issues: The D2C brand Glossier found it difficult to keep their products in stock. Direct-to-consumer brands can face challenges when it comes to managing their supply chain.
- Requires expertise in many areas: As a small company on a tight budget, do you have the funds available to invest in hiring people to teach you or handle things like shipping logistics and other processes associated with direct-to-consumer selling?
When Not to Go Direct-to-Consumer
Despite the growing trend and the power behind D2C, it is essential that you do not embark on this journey without proper preparation. D2C isn’t an overnight success strategy; it’s going to take an extensive amount of time and effort. The problem with D2C is that if you get it wrong, it can be impossible to recover. Whether you are a new or existing company, you must invest in training to ensure that your company is able to operate profitably and efficiently using the D2C model.
It’s also important that you have a clear reason to switch to D2C. Additionally, you must be prepared to communicate this reason to your team and partners. Transparency is key.
The most important aspect of the direct-to-consumer model is the customer experience. Interactions should be highly personal and, when done in a meaningful and genuine way, can have a lasting impact. Today, millennials are choosing brands based on cause and values, and if they don’t like what you stand for, they will move on to the next merchant. Therefore, it is imperative that your brand is built on strong principles that resonate with your core audience. The good news is that you now have access to your core audience in a way that wasn’t possible before, making it easier to cater to their needs.
The direct-to-consumer revolution is shaking the foundation of the retail industry. As digital advancements make it easier to deliver totally new experiences and eliminate the middlemen, customers are going to continue to demand that traditional brands provide them with the same experiences as D2C brands. The organizations that are willing to adapt, innovate, and provide a superior experience and smarter ways to buy will ultimately win the race.
Looking for more guidance around how to market your business? Schedule your free consultation with one of Hawke Media’s digital marketing experts today.