Why are Businesses Going Direct-to-Consumer?

According to Forbes: "In 2023, D2C Is Out, And The Migration To Wholesale Is In". While the title might raise eyebrows, the article tackles a crucial strategy for business: omnichannel and diversification.

D2c or Direct to consumer popularity is not dying out, especially with brands like Warby Parker and Allbirds showcasing positive growth numbers in Q1 of 2023. But the approach to direct to consumer should be executed in an ecosystem that would balance the business goals across multiple sales channels.

Whether you are thinking of going direct to consumer or looking for new ways to reach customers, this article will help you understand what you need to get your product out there and what platforms you need to support you.

While the direct-to-consumer industry is still relatively new, it is evolving rapidly. Big DTC brands have already taken the leap and we’re anticipating that more manufacturers and brand will enter the market every year. 

What is Direct-to-Consumer (D2C)?

Direct to consumer is a business model in which manufacturers produce and sell products directly to consumers, bypassing the traditional 3rd party system.

The direct-to-consumer model has seen significant growth in recent years, as more and more brands are choosing to cut out the middleman and sell their products directly to consumers online or in physical stores.

Going Direct to Consumer or DTC has many advantages, with competitive pricing being a major benefactor for consumers and building direct customer relationships between manufacturers and customers allowing the DTC brands to control the entire customer experience.

Having a better understanding of what the customers needs, wants and preferences gives dtc brands a competitive advantage as they can implement product changes and improvements much faster than regular retailers.

But going direct to consumer is not easy. It is imperative that you have a D2C-specific strategy in place to be heard and noticed by your target market.

Direct-to-Consumer vs. Wholesale

So, we’ve established that the Direct-to-Consumer business model disrupts the traditional model entirely, with manufacturers “cutting out” the retail middleman and selling straight to the end-consumer.

The advantages of D2C vs Wholesale are the following

1. DTC brands have a direct relationship with their customers.

2. DTC businesses have a better understanding of their customers as they have a first level relationship.

3. Customer data can be used to create better products and hence increase satisfaction and customer loyalty.

4. DTC brands have the freedom to offer experiences that are more closely aligned with their values and mission. 

5. D2C businesses have more control over their inventory and can respond quickly to changes. 

6. D2C businesses can offer a better customer experience by providing more personalized service and attention. 

7. D2C businesses can be more agile and innovative.

8.  brands can scale more quickly and efficiently, since your are controlling all sides of the business. 

9. D2C businesses have the potential to generate higher margins - no sharing profits with retailers or wholesalers. 

10. D2C businesses can better protect the brand identity, since there is more direct control over their marketing and branding.

So clearly embracing a DTC strategy is hugely advantageous for manufacturers as it will allow them to build stronger customer relationships and give them insights into their customer expectations.

Yet, while the rewards of going DTC are obvious: higher revenue for the brands, better customer insights etc... it doesn't come without its own challenges.

Going DTC means large investments into marketing, a different approach to sales and efforts into creating your storefront either offering a platform for online shopping or as physical stores.

Of course, this efforts are not in vein as Astound Commerce found that 59% of consumers prefer to do research directly on the manufacturer’s website, with 55% preferring to make purchases the same way.

But What about wholesale?

If you are thinking of going direct to consumer, then you are probably familiar with wholesale as that is usually the primary business model for most manufacturers.

Wholesale is a great avenue for most manufacturers to get their products to a large audience without large upfront investments. The advantage of working with retail partners rather than going DTC is that manufacturing brands can manage a smaller portfolio of clients and relationships that translate in large orders.

Yet, the main drawback is that the manufacturer is removed from the customer relationship and hence doesn't have access to customer data and customer feedback.

The two business models are obviously targeting different customers and the structure of the business is based on who is the target group. While wholesalers usually have lower customer acquisition costs as they sell in bulk to other businesses, they also have lower margins, since their prices are lower than customer facing retailers.

Choosing between wholesale or DTC model doesn't have to be polarizing. Both models can work together and given the economic situation lately, it would be beneficial for brand to pursue an omnichannel sales strategy. 

Things to consider when going D2C

If you are getting your feet into DTC consumer, or if you’re looking to leverage the aforementioned “hybrid” model, here are two common pitfalls to watch out for when considering going Direct-to-Consumer:

1.Make sure your company is ready to shift from wholesale to D2C

The first step to making the shift from wholesale to D2C is ensuring that your company is ready for the change. This means having a solid plan in place and ensuring that all of your employees are on board with the transition.

It's also important to make sure that you have the right infrastructure in place to support a D2C business model. This includes things like having a robust eCommerce platform and fulfillment center.

Having a clear understanding of your target customer and what they want from your brand will help you plan the right strategy to reach them where they are.

For companies looking to switch to a D2C model, make sure you invest in training and enabling your employees, evolving your current processes (and developing new ones), and overall ensuring that your company is able to operate efficiently and profitably under the D2C model.

2.Prepare your partners

The fact that you’re selling D2C essentially makes you a competitor to your retail partners who are selling your products. As we just talked about, when given the choice between purchasing your products through a retailer or directly from you, the customer will more than likely choose the latter.

While you don’t want to steal business from your retail partners, you also don’t want to see your products collecting dust on your retail partners’ shelves, either.

Rather than completely severing ties with your retailers, dig deeper into your partnership to figure out a profitable way to move forward. This may involve selling only specific items D2C, or delivering wholesale shipments of high-performing products to specific retailers; or, it might involve having your partner retailers take a more active role in promoting your products.

Whatever the case may be, look for a way that both you and your partner companies can both win out.

Is Direct to consumer here to stay, or a passing fad?

So far, we’ve talked a good amount about the level of investment that going D2C entails, which leads us to a few questions:

• Will consumers continue to flock to D2C companies as they have in recent years?

• Will retail companies evolve and regain their footing?

• As some retailers do evolve, can manufacturers continue to operate D2C or, at the very least, using a hybrid approach?

All in all, the main question is: Is going D2C actually worth it for your company in the long run?

Direct to Consumer marketing strategy and success stories

Look, there’s no denying that D2C companies are in the limelight right now. Between the success experienced by companies like Warby Parker, Everlane, Allbirds ; it seems like everywhere you turn, a new D2C company is popping up. Even Disney went DTC with its streaming services resulting in robust earnings. 

The reason D2C companies have experienced such success in recent years is that they’re better able to cater to the evolving needs of today’s customer—such as providing more personalized and authentic service. 

Everlane has disrupted the fashion industry by:

• Transparency on practices and supply c. hain

• Offering a superior product at a fraction of the cost. 

• A bet on high quality basics for every wardrobe  

Warby Parker has disrupted the prescription glasses and sunglasses industry by:

• "Try it before you buy it" philosophy 

• Offering a unique price for all its glasses 

• Building a loyal customers following among millennials

Allbirds has disrupted the footwear industry by listening to people and learning from customer feedback - so they created a shoe that supports new lifestyles such as long work hours and the blur between leisure and work. 

• A shoe that transition from work, to lunch, to travel and even light workout. 

• Focus on sustainability and nature

• Voted world's most comfortable shoe

This desire, on the consumer’s part, for more personalized and authentic engagements with the brands they do business with definitely isn’t a fad that is going to fade away soon enough. 

The reality is, customer experience is becoming more and more important as time goes on — to the point that it will soon overtake price and product as the key factor that differentiates your brand from another.

So, it really isn’t a question of whether or not D2C as a business model will fall “out of style”; it’s more a question of whether or not your company can continue to use the D2C approach effectively and profitably well into the future.

Here’s the main point:

"Your company can thrive using the D2C model now, tomorrow, and ten years from now — as long as you use the model to optimize the service you provide your customers and the processes that allow you to do so.”

Is the DTC model for everyone?

Piggybacking off of the idea that going D2C is a hot new trend, it’s also worth noting that many established companies that have long operated in the traditional manner are jumping on the D2C bandwagon, so to speak.

For example, in 2017 Gillette introduced a brand new on-demand shaving supply service in response to the massive success experienced by Harry’s and Dollar Shave Club.

(Going back a bit further, Dollar Shave Club was actually purchased by Unilever in 2016 for $1 billion — an example of a big brand going D2C by simply merging with an established D2C company.)

But, as we alluded to in the last section, it shouldn’t be a question of whether just any big brand company should start using the DTC model. While going direct to consumer certainly may work for some big brands, others might not experience the same level of success in making the switch.

Before making the jump, big brands need to answer the following questions:

1. Does your company have the means to implement a hybrid business model and ensure both sides of the business run effectively and efficiently?

2. Does your company have a profitable and mutually-beneficial agreement with your retail partners, as well as a plan for how to put the agreement into action?

3. Is the company prepared to take full control and ownership of their customer experience?

4. Again, going D2C isn’t some “magic bullet” that will automatically spur any business to greatness. In fact, implementing the D2C model without really knowing what that all entails is a sure recipe for disaster.

But, as long as you know exactly what you intend to provide your customers—and you’ve determined that using the D2C model is the best way to give it to them—then you should start planning to make the shift as soon as you possibly can.

DTC brands business model

Doing DTC means you need to increase you presence both online and offline. Choosing the platform to host your online store is crucial to ensure that you deliver the experience your customers' expect. 

There are several ways to go: 

DTC marketplaces

While this avenue will still cut into the profits of going DTC as most marketplaces will charge between 10 - 35% commission for DTC sales. Placing your products in a marketplace can be a cost effective way to test the market and gather customers feedback. 

Marketplaces offer DTC brands a wide audience and reach without having to spend a large budget to acquire new customers. The brands on the platform will also benefit from the marketing efforts of the marketplace which will give them more exposure and visibility. 

Another advantage of marketplaces is that it offers customers a more complete their online shopping experience with different products and services and may be encouraged by incentives such as free shipping on multi-items orders. 

DTC eCommerce and online retail 

Building your own eCommerce website gives you control over your image, your customer experience and your customers' data. This is probably the most costly approach but could also be the more rewarding especially if you have the team to support it and the right marketing strategy to promote it. 

Choosing a platform to build your online presence and have your online shop can be quite the journey that's why we can up with a list to help you navigate the world of eCommerce platforms. - Check it out here. 

The main things to keep in mind is to choose a platform that allows your marketing and eCommerce teams to manage it and be confident in taking ownership of the platform. It should be forward and innovative in its approach so that you don't have to replatform when things change or evolve. 

D2C brand building and growth

A great example to use when talking about building a DTC brand is Glossier. 

Before taking the leap to going DTC, Glossier's founder Emily Weiss was running a blog called Into the gloss. This platform allowed her to build a strong community that was rallying behind one strong statement which was that the beauty industry is confusing and that no matter how much money you had, you still did not find the best skin care routine. 

Through her blog, Emily Weiss gathered so much insights into the beauty industry and what women where really looking for and decided to build a brand that would address those frustrations and expectations. 

Glossier is the essence of what we could call the millennial brand with a cult following that is the result of the brand truly listening to its customers and taking all their feedback to create more products or launch new colors/shades. 

Glossier has also built a customer journey that is coherent through out all its touchpoints from the color of its products to the design of their retail stores and the uniform of their sales assistants. 

So what is next after the success? Glossier has announced that they are launching in 2023 their first ever partner agreement with Sephora - embracing the omnichannel strategy in sales. 

Direct to consumer sales strategy

Before we close this article, we want to highlight that going DTC doesn't have to be your only sales strategy. Maximizing the sales channels will help you expand your reach and grow your brand's recognition. 

The best business strategist should find the right balance between all channels: online, offline, wholesale, DTC to yield the best profit gains.