August 11, 2022
E-commerce is founded on the idea that commerce doesn’t have to be face-to-face – that businesses don’t necessarily need a physical middleman to market their products to consumers.
In a way, D2C is the next logical step in that process.
D2C stands for direct-to-consumer, which is a model of service where a company handles distribution, as well as production. D2C lets you be the agent that handles getting products and services to consumers, instead of relying on an outside source.
Lots of e-commerce businesses have jumped on the opportunity to cut out the middleman yet again with D2C, but how do you know if your business would benefit from this model? What are the pros and cons of changing the way you manage distribution?
We’ll compare D2C to the traditional B2C model, discuss some of the advantages, tell you about businesses that have found success through D2C, and also cover some disadvantages that this model brings.
First, let’s cover the model that D2C can be compared to: B2C, or business-to-consumer.
B2C shouldn’t be too unfamiliar to you because it’s the traditional sales model that many think of when starting a business. In this model, a manufacturing company sells its products to consumers through an intermediary – this can be a retail facility, a wholesaler, or any other distribution network that takes charge of getting the product to customers.
This model means that there’s a long supply chain, with multiple agents at every step. Managing inventory, warehousing, and delivery involves outsourcing different steps of the process to different intermediaries, so the production company has limited control over how, where, and how fast a product is moving.
D2C offers the company a comparatively large degree of control. This model requires the manufacturer to handle all the steps that are traditionally outsourced to other companies, so storage, movement, and delivery all fall to the manufacturer.
This means that the manufacturer has a lot of control over the process, but that also entails a lot of responsibility. In a D2C model, the manufacturer needs to be ready to deal with supply chain issues, customer concerns, and other challenges in getting products from Point A to Point B.
This broad description isn’t enough to compare the two, so let’s talk about the 5 main reasons why you might consider D2C, along with some success stories.
1. Higher profit margins
We all hear the phrase “cut out the middleman” and immediately know that it means less time and money lost between steps. Well, cutting out the middleman is exactly what D2C is all about.
With intermediaries removed from the sales chain, there are no costs involved in maintaining an outsourced distribution network. Because everything is kept in-house, you have control over how storage, sales, and delivery take place.
You also choose how much to spend on each step of the delivery process, meaning that you can take your company’s specific circumstances and business model into account when making decisions, instead of relying on an outsourced expert to give you a one size fits all solution.
Example: Harry’s is an e-commerce subscription service selling high-quality razors at a low price point by cutting out the middleman. Because retailer prices are what keep razor costs high, D2C is the only business model that could let this idea be financially viable.
2. Flexible supply chain
If you’ve ever worried about the costs, challenges, and stress involved with making supply chain changes while working with outsourced distribution, D2C might be especially intriguing for you. Because the supply chain model is under your control, you can implement changes to your model as you see fit.
This means that the entire process is highly adaptable, compared to the traditional B2C model. If you receive market information that suggests a change in strategy would be beneficial, you can make those changes in real-time, instead of waiting on agreements from the other players in the supply chain.
Example: Blue Apron uses the subscription model but allows consumers to choose what kinds of meals they want. Blue Apron can use this data to quickly make changes to the meals if needed or decide which meals to discontinue.
3. More brand control
If your business relies on middlemen to get products to the consumer, then there’s a huge window of time when you have little to no control over how your brand is coming across. Because another point of the supply chain is handling part of the consumer’s experience, there’s no guarantee that the experience will reflect the kind of message you want for your brand.
A manufacturer using D2C has complete control over how their products are presented to the consumer. They can decide what information to include, what images to use, what page design will work best for their products, how the products are packaged, and more.
Example: The vitamin supplier Ritual makes trustworthiness a huge part of its brand: it reminds customers of its transparency by using see-through packaging for its products. Ritual can maintain this brand value because it controls its distribution.
4. Increased access to consumer data
If you use a third-party website to sell your products, you might not know how much customer data you’re missing out on. Managing your sales and product pages means that you can break down who’s spending what kind of time on your website, and in what way.
An intermediary website operator might not share this kind of information, which has the potential to have a huge impact on your profits. Understanding how consumers are interacting with product pages lets you strategise changes. You can gain a clearer understanding of how to adapt your pages to your consumer’s interests, as well as which products aren’t getting the traction you’re looking for.
Example: Stitch Fix’s clothing subscription service is built around customer information. Quizzes, surveys, and data collection build the backbone of Stitch Fix’s highly successful model, which provides customised clothing based on the consumer’s style.
5. Strong consumer relationships
This model keeps you in touch with your consumers every step of the way. Your team will be in charge of handling orders, questions, reviews, complaints, and more. Yes, this has the potential to be more stressful in the short term, but the long-term benefits far outweigh the momentary discomfort.
Every interaction you have with a customer has the potential to tell you about how you can improve your business model. These messages become invaluable sources of information that can help you make the best decisions for your consumer base. Additionally, creating a consumer base that’s excited enough to promote through word-of-mouth means free advertising.
Example: Glossier produces cosmetics and skin care products and has found enormous success in creating a consumer base that’s eager to promote its products. Making their brand the centre of a community through micro-level promotions has allowed them to establish a strong foundation.
There’s no perfect solution to the challenges of e-commerce – there are just different strategies, and some will work better for your business than others.
The clearest drawback for D2C is the increased amount of responsibility a business has over the distribution process. If your company has traditionally given this task to an intermediary, the change from instructing an outside agent to managing payments, returns, customer support, warehousing, and shipment can be intense.
Any business looking to use the D2C model should understand that it’ll be a long process of adapting to this model – making the change too suddenly could do real damage to your business, so it’s well worth the time to do it well.
There’s also the challenge that self-marketing and self-promotion through SEO are relatively new, compared to the traditional marketing used by retailers and wholesalers. Although D2C allows you to directly target your consumer, you need to have a clear understanding of who that consumer is, and how they’re most likely to find you, if you want to benefit from that directness.
Making the change to a D2C model can change the game for an e-commerce business that wants to save money, have direct relationships with consumers, and control its distribution at every step along the way.
However, making this change isn’t something you can do on a whim. You need to have a clear understanding of the hurdles that come with D2C, as well as the increased need for targeting customers through online channels.
Like all e-commerce strategies, it’s a great choice for anyone willing to put in the effort needed to get the rewards.
If you think D2C would be a good fit for your business but you aren’t sure how to get started making this switch, the best thing you can do is ask the experts.
ITQ Digital has the experience to ensure that your e-commerce business is built to succeed. We can help you set up an online presence that optimises your D2C model, helping you to achieve your business goals.
Get in touch with us to book a free e-commerce clinic to discuss your D2C options.
