What is D2C? Why is the D2C business model happening right now? What advantage does it give over B2B and other models? Why should you adapt to a D2C business model?
Earlier, Businesses (especially B2C) used to run through distributors. However, Businesses operate pretty differently today. The producers also take up the role of the distributor.
On par with this evolution, D2C has evolved to a new kind of model where brands produce, pack, distribute and ship their products without even having to share their profits. This is the new age of D2C and let's dive deep into it!
Table of contents
- What is D2C: Definition
- What is the difference between D2C and B2B business models?
- What are the benefits of the D2C business model?
- Control over margins
- Gaining access to targeted data
- A higher degree of product range customization
- Maximizing your profits
- Ensure your company is 100% ready to transition from wholesale to D2C
- Prepare your partners
- Order fulfillment
- Competing with retailers
- Target an everyday item and make it affordable
- Develop a subscription-based model
- Offer easy, no-fee returns
- Make use of celebrity influencers
- Incentivize your customers
- Start or join a community
- Make use of ads
So, what is D2C: Definition
D2C's direct abbreviation is direct-to-consumer. D2C allows a company to produce a given product, pack it and distribute it among its channels in the convenience of its facility without having to split margins.
The channels through which the business operates can be an e-commerce platform, social media platform, or even a retail store.
D2C business model works in almost any given industry. As a result, the D2C marketing strategy is being adopted by many manufacturers and CPG brands to enter the market without a third entity.
D2C vs B2B : What is the difference
A D2C e-commerce model works by producers selling their products directly to consumers from their online store without the need of a third entity. A more conventional B2B business model goes from the producer's hands to a wholesaler who buys the products in bulk and then to a distributor who sells through various channels to retailers. The retailer finally reaches out to the consumer.
The D2C e-commerce model literally cuts short the entire process. Research has also shown to back up that about 55% of customers choose to shop directly from the manufacturer than from retail shops.
The traditional B2B wholesale business model deals with purchases in bulk, so for a manufacturer to adapt to a D2C business, they'd have to start selling products individually, which can be a bit challenging for them.
The D2C vs B2B differences and benefits are vastly different.
What are the benefits of the D2C business model?
The benefits of D2C rely on the type of domain you are functioning in. However, the following concepts remain the same for everyone:
1. Control over margins
D2C gives you higher control levels over your marketing, which ultimately increases your overall profit margins. With D2C, you won't have to cut your profit margins to sustain a complicated business module. All you have to do is to build an online platform for your brand and sell your products through it. Having a significant social media presence is an added advantage. An active Instagram profile can draw in 'N' number of traffic by acquiring new consumers.
2. Gaining access to targeted data
In other business modules, the middle entity doesn't usually share valuable information that they collect about customers. The D2C model, however, gives you the chance to collect relevant data about consumers and keep it for yourself. The D2C business model gives you all the control over your distribution and production process. This also includes accumulating an enormous scale of data about your customers. Try creating a heatmap of your website, and this will help you to observe your company and notice areas where you need to put in extra work.
3. A higher degree of product range customization
Having a classified file of data about your customers allows you to offer a better range of customization for your customers. More data about the preferences and tendencies of your customers will enable you to customize a product that can connect to its best with the audience. Make your product as personalized as possible. Taking in feedbacks and allowing the customer to customize a product is a sure shot way to gain more traction and thrive well in your domain.
4. Maximizing your profit
This is probably the best benefit of D2C. D2C helps you to cut out the middle entity involved in your selling process. When you're the only one solely responsible for producing, selling, distributing, and promoting your product, you have the ultimate control over all your funds. Nevertheless, D2C allows you to hold more money in your pocket at the end of the day, which ultimately translates to better product testing.
Possible challenges that D2C companies can face
Here are a few common pitfalls to watch out for when adapting to direct-to-consumer:
1. Ensure your company is 100% ready to transition from wholesale to D2C
For companies looking to transition to a D2C business model, you will have to invest some quality time in training and allow your employees to adapt to the new system while evolving from your current business module. This is also to make sure that your company is able to function at its best and be profitable with the D2C business model. As a business owner, you also have to have a clear vision and idea of the reason behind your transition from your previous business module to D2C.
2. Prepare your partners
When you're selling through the D2C business module, you become a competitor to your retail partners who are and were selling your products in their retail stores. You have to realize that, when given an option to choose between buying your products through a retailer or from you directly, the customer is most likely to go with the latter one. Now, this is a tricky situation for you as you don't want to over-shadow your business from your retail partners, but at the same time, you don't want your products to be sitting idle on your retail partners' shelves. Rather than cutting downtimes with your retailers, figure out a way in which this partnership can be profitable. For example, you could sell a specific set of items alone on D2C or deliver wholesale shipments of products that are performing well to definite retailers; or you could even ask your partner retailers to help you promote your product in any way possible.
3. Order fulfillment
D2C companies formed off-late often find it challenging to cope with order fulfillment issues. A manufacturer has to go through the hassle of partnering with a shipment firm to ship their products, and they also have to compete with big-time online retailers who have next-day shipping options.
4. Competing with retailers
With the D2C e-commerce strategy at hand, the biggest challenge for manufacturers is to learn how to communicate and sell their products to consumers. Retailers who used to sell it for manufacturers have prior experience selling to consumers and have a good rapport with the consumers and the buying community. So, as a D2C entity, you have to go through a learning curve to find your meter with your consumers.
Here are a few ways for you to get started with D2C
To make your mark in your domain, you need to stand out right from the very moment you transition to a D2C brand. Here are a few ways to help you get started:
1. Target an everyday item and make it affordable
Before you even have plans of launching a D2C brand, have a purpose for setting foot in the market in the first place. Target an essential everyday product that people use and try to take advantage of that market. Even if it is already exploited by a few giants, try to set foot into it and see how you can add value to it by making it better by either giving a similar product for a more affordable price or by even just by trying to add one extra feature or element with it.
2. Develop a subscription-based model
Try offering your customers a subscription package in which they can opt out at any time. Giving your customers a subscription model helps them save their time, effort, and money to its best. And it also helps you as a producer to achieve a better customer retention rate. The consistent revenue along with high customer retention leads to rapid exponential growth.
3. Offer easy, no-fee returns
If you're starting new, having a free return policy can assure your consumers with trust and give them the confidence to purchase from your forum. Almost every D2C brand operates and interacts with its consumers through its online portal, and there are specific consumers who tend to hesitate to purchase from unfamiliar brands. Therefore, having a no-fee return policy helps a long way.
4. Make use of celebrity influencers
Not all your retailers who help promote your product can help promote like celebrity entrepreneurs. Making use of celebrity influencers to help promote your product might cost you some, but it surely does help you get a great deal of reach as social media influencers.Try reaching out to Instagram influencers and celebrities who can promote your product in any way possible. This can give you a broader reach to a broader range of audiences.
5. Incentivize your customers
Try incentivizing your customers by encouraging those customers who referred your product to get their friends, family, and more people, in general, to sign up. The more people your customers refer to, the more rewards they could get. The incentive-driven scheme always works and is proven to be powerful. Referrals can account for thousands of sign-ups. So, try your luck at it.
6. Start or join a community
Start or join a community related to your domain. This could be on LinkedIn, Reddit, or any other social forum. Once you form a community and meet and converse with the people in your domain, you can promote and get your product to stand on a different stratosphere. You can even get some help and collaborate with your fellow peers. Never underestimate the power of a social community. It can get your name across different channels in no time.
7. Make use of Ads
Almost a billion people are Instagram users; adding on to that, there are more than 25 million business profiles operating on Instagram. Take advantage of Instagram's paid advertising formats.
Youtube is another platform that you can take leverage of. According to an insight by Global Media, about 60% of people choose to watch a video rather than read via text.
Furthermore, videos tend to stick in people's minds than textual ads. About 50% of viewers attest that videos tend to hold on to their memory better than a textual ad.
There is a number of options to take advantage of; in terms of YouTube ads, there are skippable ads that give you the chance to skip the ad after the 5-second mark, there are non-skippable ads that time less than 30 seconds, or there are bumper ads that are short, non-skippable and time up to 6 seconds.
Adding on to that, YouTube allows you to control your spending and will enable you to stick to a budget. Keep in mind that you target people who do not use a premium Youtube account, a large population.
D2C is a relatively new kind of business module in the market. However, several businesses have adapted to it and benefited to unimaginable levels, which acts as proof that it can be highly successful if done the right way. Try implementing some of the steps we have suggested and see how it fits within your business module. This will help you to understand your business better.
If you're considering transitioning to a D2C brand, sure, there is a lot of work to do. There will be a tonne of effort required, from setting up your distribution channels to working on your social media presence. But, if you have an existing running business model or plan of starting one, then maybe you can step up your game and see how D2C's benefits turn out for you? Good luck!