What is the D2C Business Model? Meaning, Examples, Benefits and Limitations
July 25, 2022
By: Ton Koop
6 min. reading time
As more and more businesses are looking to achieve profitable growth and stay on top of their industries amidst increased competition, the Direct-to-consumer (D2C) eCommerce model is growing rapidly.
According to eMarketer's forecast, D2C eCommerce sales are estimated to reach $151.2 billion in 2022 in the United States alone, up 16.9% from the 2021 sales.
More B2B brands are also embracing the D2C business model and incorporating it into their sales strategy due to its high profitability.
In this article, you will learn what D2C eCommerce is about and why it is gaining more popularity.
What Does Direct-to-Consumer Mean?
Direct-to-Consumer (D2C) marketing is an eCommerce strategy where manufacturers directly control their goods' production, marketing, distribution and sales to their end customers.
In other words, D2C eCommerce simply refers to a model where businesses sell their products directly to their end consumers without needing any third party.
In the traditional retail model, there is a need for intermediaries - distributors, wholesalers, and retailers, before the products get to the consumers. But, the D2C model is disrupting this traditional approach and bridging the gap between manufacturers and the final users of the products.
D2C vs B2C
Business-to-Consumer (B2C) and Direct-to-Consumer (D2C) business models are similar since both involve selling products to end consumers. However, there are subtle differences between the two terms.
D2C marketing focuses on selling products directly to consumers, whereas B2C depends on intermediaries to sell products to their customers.
Another significant distinction between them is that D2C companies produce and sell their products to customers while B2C brands sell products from several manufacturers.
In summary, B2C and D2C have the same target audience - end consumers, but different supply chain or order fulfilment methods.
In B2C, the manufacturer sells to the wholesaler, who in turn sells to the retailer from who the consumer buys. In contrast, consumers buy directly from manufacturers without intermediaries in the D2C model.
7 Benefits of Direct-to-Consumer (D2C) eCommerce
In recent times, there has been a significant change in the world of commerce. More brands are adopting new sales strategies like the D2C business model to maximize profit and retain more customers. And you, like everyone else, are probably wondering why? How does the elimination of intermediaries mean more profit for brands? Let's take a look.
Better control over profit margin
Manufacturers can increase their profit margins and reduce distribution costs by eliminating intermediaries.
Wholesalers, distributors and retailers drive up overhead costs and reduce the profit achieved by brands. They sell to customers at higher prices since everyone in the supply chain will add an extra fee to the selling price to make their gain.
However, with the D2C business model, producers can control all the funds without splitting them with third parties. Since they sell their products to customers directly without needing an intermediary or reseller, they can sell at the same price as the retailers or a bit less and raise their net profit margin.
Direct contact with customers
In D2C marketing, brands can interact directly with their end-users and maintain good business-customer relationships. They can learn more about their needs, behaviours, and how best to serve them. But, when manufacturers sell through middlemen, they miss out on the benefits of using direct relationships with their customers.
Creating an omnichannel experience for your customers refers to selling and marketing your products across multiple channels to provide a unified customer experience, no matter where your customers shop.
For example, your customers can shop for your products via your website, Instagram page or physical store, and the sales experience should be consistent.
Nearly 80% of customers want an omnichannel experience due to the seamless service between communication methods. In fact, companies with the strongest omnichannel strategies retain about 89% of their customers.
As you can deduce from these statistics, many customers want a unified customer experience. And to achieve this, you must stay in touch with your customers in every interaction they make with your brand.
Sadly, this is not possible for manufacturers in the traditional sales model. But, in the D2C model, brands have direct access to their customers and can create an incredible omnichannel experience.
Access to valuable customer insights
Manufacturers can gather data about who is buying their products by having a direct relationship with them. For example, they can learn about their reaction to a product, locations, past purchases, buying preferences, buying habits etc.
With the D2C model, brands can collect relevant information about their customers that can improve the products and further increase brand sales.
Direct control over brand reputations
More brands are adopting the DTC marketing strategy because it gives them absolute control over their reputation, messaging, sales, marketing, and customer services.
The traditional approach of selling products to middlemen leaves little or no room for the manufacturers to influence how their products are sold, marketed or how the retailers relate with the consumers.
The best thing brands can do is to spend so much on advertisements, but if the retailers cannot sell the goods, they will incur huge losses.
In contrast, the D2C eCommerce model allows for a high degree of autonomy in sales and marketing of goods till the items are purchased.
Product testing and development
D2C eCommerce brands enjoy receiving immediate feedback or reviews from their customers and using it to improve their products.
Their research team can regularly ask their customers for their opinions about their products and suggestions on what to improve.
Their production team can, in turn, create new products using feedback from the consumers.
Also, D2C brands can quickly test new products on customers since they can gather enough information on their customers' needs and wants.
Better Opportunities to Innovate
Selling directly to end consumers allows you to offer different selling methods or freebies to your customers. You can offer discounts, bundles, offers, subscription services, flash sales etc., to your customers, which is impossible if they buy from third parties.
What are the Limitations of D2C eCommerce?
Despite the several benefits of the D2C model, there are disadvantages to it. Let's consider a few.
Shipping and logistics
Without the middlemen, D2C companies are now responsible for sorting orders, shipping their products and ensuring that the items are delivered to the correct location on time. This can be overwhelming, especially when competing with big marketplaces like Amazon.
Since the entry barrier into the D2C market is low; more brands are embracing it.
With the increasing number of D2C brands, you should expect increased competition since more businesses will be marketing the same products to the same audience.
Eventually, this puts pressure on brands to build a unique presence and identity to help them acquire or retain more customers.
Also, D2C brands have to compete with retailers who have a good understanding of the retail market and are experienced in selling to customers.
Best D2C Brands to Look Out for
DTC brands bypass retailers and marketplaces and sell their goods directly to consumers through their eCommerce websites. A few of these brands are:
Warby Parker: Before the launch of Warby Parker, people buy eyeglasses at retail shops or optometrist offices. But with the arrival of Warby Parker, people can upload their prescription details on the websites, choose their desired frames, try a few demo pairs from the comfort of their homes and have them delivered for free.
Casper: Casper is a D2C brand that sells mattresses, pillows, bed sheets, etc. They ship mattresses to their customers' doorsteps with opportunities to return if there are complaints.
Dollar Shave Club: Dollar Shave Club started as a monthly subscription service for men where they receive a personalized set of shaved tools - razor, after-shave cosmetics and cream, as often as they want. The items were shipped to them regularly, which helped save the costs and stress of going to retail shops.
Allbirds: Allbirds is a footwear brand known for making everything from shoes to sandals for both men and women. Besides their environmentally friendly practices, Allbirds offers a free 30-day trial on every pair.