What is Direct-to-Consumer (D2C)? How does it affect the retail industry?
D2C is, in its basic form, any sort of retail transaction that occurs directly between the manufacturer and the consumer. This style of business model has started to rise to prominence.
The term D2C was created in 2017. It is defined as, "a company selling directly to consumers, either through its own website or a marketplace platform." This term highlights the trend of squeezing out the middleman that has been happening across all industries. In business models such as this the role of the retailer is replaced with one simple statement:
Sell it yourself.
This is in contrast with the traditional business model where manufacturers would sell through retailers, who then sold to customers. Now, customers can bypass this layer of extra price and deal directly with the manufacturer/producer. A great example of D2C is Tesla Motors who sell their electric cars directly to consumers via the internet.
Another term for D2C is M2M, which stands for 'manufacturer-to-marketer'. This highlights the fact that manufacturers are now engaging marketers directly, rather than the process being done through retailers.
What are the advantages of adopting a direct to consumer business model?
The main advantage is the ability to engage customers directly, meaning it is possible to communicate with them more frequently and offer more targeted communication. This makes it very easy for businesses to engage their target market through the use of social media platforms such as Facebook, Instagram and Twitter. The absence of third-party influencers can also help brands be seen as more genuine.
There are some brands that do not have a strong online presence or customer service. In these cases, the D2C model may not benefit them as much as those with an already established brand. However, even brands with a strong focus on customer service can reap benefits from this model. For example, Warby Parker is a company that has been very successful in this model. Warby Parker is a well-known brand that provides high quality eyewear at a low price, with the added bonus of allowing customers to trial five different frames before purchasing. This trial service sets them apart from competitors and makes buying glasses online an attractive option for the millennial market. Customers were happy to buy their glasses online due to this trial service, which sets them apart from competitors.
What are the disadvantages of adopting a direct to consumer business model?
The disadvantages can be quite varied, but it is essential that all aspects of the business are considered before going down this route.
Firstly, many brands tend to lose a great deal of their equity in this change of business model. With no retailers to help market the product, it becomes increasingly difficult for manufacturers/producers to reach their target audience. Customers are also unlikely to seek out products if they are not aware of them already, meaning businesses may be spending additional money on marketing or advertising services.
Secondly, when customers place their trust in a brand through retailers, they are likely to feel that brands will hold this same value when selling directly. If customers do not feel that the product is worth the price or has less value because it is no longer being sold by a retailer, then there is a greater chance of negative reviews and issues with sales volume.
Lastly, when customers purchase from a retailer, they have the option to return the product if it does not meet their needs. In a D2C business model, customers are purchasing directly from the manufacturer/producer and will have no way of returning or exchanging goods.
How can marketers make use of direct-to-consumer technology?
Generally, there are 2 core benefits when marketers make use of D2C technology. Firstly, it is possible to increase brand engagement through the ability to communicate with customers directly via social media. By allowing customers to see behind the scenes of your business or showing them exclusive offers/promotions you can create a relationship with your clientele that will deliver an increased sense of trust. Trust is essential for any direct to consumer business model, as it can be difficult to sell directly without the help of a retailer.
The ability to provide superior customer service through D2C technology also increases brand engagement and helps develop greater customer loyalty. For example, Warby Parker allows their customers space to trial five different pairs of glasses before making a purchase. This makes it easier for customers to make an informed decision about their future purchases and helps to develop greater brand loyalty. It is extremely important that brands do not overlook the importance of customer service in this business model, as creating a sense of trust and value through superior service will help drive sales and improve brand engagement.
How can marketers overcome customer service challenges in a direct-to-consumer business model?
It is essential for brands operating in this D2C environment to have effective communication strategies. There are 3 key things that must be taken into account when communicating with your customers to ensure that the transition from retailer to manufacturer/producer goes smoothly and that customer service challenges can be overcome.
Firstly, brands must take into account the fact that they lose their retail partners in this business model and therefore need to communicate with customers about new promotions and campaigns directly.
Secondly, it is important for brands to ensure that they are providing a positive experience for consumers through superior customer service (for example, Warby Parker allows trials of 5 different pairs). If you feel like you are doing everything right but customers are still not happy with the product or service they receive, it is important to be transparent and provide reasons for any issues.
Lastly, it is beneficial if brands can create an air of exclusivity when marketing their products. This can be done through social media and influencer marketing, such as how TOMS used Kanye West to market their shoes.
What are the pros and cons of direct-to-consumer technologies?
The main benefit that comes from operating a D2C business model is one of cost efficiency: you do not have to pay retailers so there is no middleman involved in your business model. This can be very beneficial, especially for smaller brands who are starting out and cannot afford to pay large sums of money on advertising campaigns. As previously mentioned, D2C is also more effective when it comes to marketing through social media as you are able to communicate directly with customers through hashtags etc.
On the other hand, selling directly to your customers does not allow you to benefit from a 'level playing field'. For example, when you sell through online retailers such as Amazon, they have an algorithm that starts promoting your products for you. This makes it extremely easy for consumers to find and purchase your items without having to search very hard on the website. In a D2C business model, it can be much harder to gain exposure as you do not have access to the same marketing strategies as other sellers on platforms such as Amazon.
What trends are influencing direct-to-consumer brands today?
There are many trends that influence this growing industry – each of them have their own benefits and challenges.
> Subscription services. If you are a consumer who enjoys having products delivered to your door on a frequent basis, this is the perfect business model for you. Customers are able to receive their favourite brands, foods or beauty products through monthly deliveries which means that they never have to worry about running out of stock again!
> Customisation. In a world where individualism is celebrated, consumers want products that fit their own identity and lifestyle. This is why businesses such as Nike and Warby Parker have been on the rise recently – customers can purchase unique items tailored to their personal tastes, which often results in brand engagement and loyalty.
> Omnichannel. Many businesses are recognising the importance of having an online presence to reach a wider audience, but also ensuring that they have physical stores to allow customers to experience their products in person. This concept allows for cross-platform engagement which results in higher conversion rates and brand loyalty.
How can you be successful in direct-to-consumer business?
If you are thinking of entering the D2C market, there are several factors which will play a role in your success.
Firstly, I would recommend ensuring that you have an effective marketing strategy for reaching consumers through social media platforms. It is also crucial to understand why customers buy your product and what needs it satisfies – knowing these details and understanding the gap in the market is half the battle!
Secondly, you need to be aware of your brand identity and make sure it aligns with your consumer – if your product does not meet their expectations, they will stop buying from you. This also goes for having a strong brand voice which matches how consumers perceive your business.
Finally, you should have strong merchandising skills. This means having a great understanding of what consumers are looking for and how to provide it for them. You also need to be able to quickly adapt your business model if something does not work as expected. When I first launched my t-shirts back in 2013, I had very little success and had to learn from my mistakes in order to improve.
How can direct-to-consumer brands prepare for the holiday season? Do you have any tips or advice?
The most important thing for D2C brands is to engage with customers and not just sell to them! During the holiday season, consumers are looking for experiences and not just items – which means that you must have a strong social media presence and a unique selling proposition.
> For example, one of my favourite D2C brands is Dia&Co – an online personal stylist which allows customers to receive clothing tailored to their body type and lifestyle via monthly deliveries. They understand that consumers will be receiving more gifts this festive season, so they are encouraging their customers to host "clothing swaps" with friends. Dia&Co offers each user $20 credit to send items which they do not want to others – on top of this, the company will also donate clothes that are unwanted back into the community!
> Another great example is Bombas – they have created a unique selling proposition by donating socks to the homeless for every pair which is purchased. This holiday season, they are encouraging customers to purchase items from their "Give Back" range which will then be donated straight away. These brands have developed strong, engaging relationships with consumers and this will result in more loyalty and sales during the festive period.
Making direct-to-consumer businesses work and imperatives for the future
I think one of the key needs is for brands to embrace technology and utilise automation as much as possible. D2C brands are often smaller than traditional companies, so they need to find new ways of making their business scalable.
I would recommend looking into platforms such as Shopify, Big Commerce or Woocommerce – these tools are designed for smaller businesses to easily set up e-commerce stores via the internet. They also have automation features which can be customised - you can even integrate your brand with Instagram! This means that you will only need to do things once and then your store will be able to operate on autopilot.
There are also tools which can help brands analyse customer behaviour via social media posts or online purchases - these can identify trends which you were not aware of, allowing you to target consumers more effectively. By integrating all of your systems, you will save time and money in the long run.
I would also recommend finding a top-notch developer who can give advice on how to make your website more suitable for mobile devices, as this is now the most popular channel of purchase!
It's easy for companies to focus on one channel (such as social media or email marketing) but you should be looking at the entire picture. If you have a poorly designed or coded store, for example, it will be harder to generate revenue from your website - so optimising this channel is critical.
The most important skills that a small business owner should have:
The first thing would be to have a strong customer focus. D2C brands usually operate with a lean team, so you must be able to solve any issues which might arise on your own. This is one of the most important skills for small business owners.
Secondly, I would recommend having an attention to detail – companies are often exposed very quickly and it can be difficult to change perceptions if you have made a bad first impression.
In terms of building your brand, it is important to understand the landscape and follow new trends which emerge. You should also ensure that you are constantly refining your business model - do not rest on your laurels! Lastly, I would suggest being very focused on the long term health of the company. D2C brands often expend cash quickly before turning a profit, so you need to think about how long your runway is and what needs to be done in order to maximise survival.
Biggest mistakes that D2C businesses make
One mistake which many companies make is not having enough data or analytics - without this, it can be difficult to improve conversion rates or sell more online. You need to know how much you are selling, where the traffic is coming from and what your customers are looking at on your website. This will allow you to make smarter decisions which result in higher sales.
Other important things to know about D2C business
It is important to remember that an e-commerce store isn't just a website - there are many other aspects which come together in order to create a digital brand. You should consider creating an app for your customers and take advantage of available tools such as notification bars and chatbots. There are so many options out there which you can utilise to engage with your customers - you just need to find the right one for you!
You should also look into personalisation and automation features. For example, if someone is viewing a certain type of product, they might be interested in others which are not displayed on your website - this can be achieved by using marketing solutions such as dynamic re-marketing. It is also important to think about your customer service - brands know that they need to provide quick responses to customers' questions in order to build trust, so you should do the same!