The Complete Guide To D2C (Direct-to-Consumer) eCommerce
D2C, or Direct-To-Consumer, is a model where a company that manufactures products at its own facility also packages and sells them directly to the customer through its own channels, channels like an e-commerce store, social media handles, and physical stores.
Why Do Brands Adopt D2C?
1. It allows brands to deliver a unique experience, which supports growth
2. To collect valuable data and feedback
Because D2C brands have a direct connection with their end-users, they now have access to vital data that can help them create a customer data platform to improve products and services. Without middlemen, D2C brands eliminate the chance of feedback being Chinese whispers and get valuable information straight from the users of their products.
Good data platform can help with:
1.Consumer preferences – what products customers like and what they don’t like, what products will sell better as bundles, what pricing models are favored, and so on.
2.Upsells/Cross-Sells – D2C brands can upsell and cross-sell products in their inventory directly through their channels and base these promotions on customer data. Here are more ways to increase your average order value and customer lifetime value.
3.Feedback and product improvement – Through feedback, brands can improve their products and services to better serve customers.
3. It fosters loyalty and retention
Nurturing brand loyalty is extremely valuable. It costs five times more to acquire a new customer than it does to retain an old one and the success rate of selling to an existing loyal customer is 60-70%, while the success rate of selling products to a newly acquired customer is just 5-20%. (Source)
4. Better profitability Avenues
Is Direct to Consumer (D2C) a Good Fit for Your Business?
1. Is there an opportunity for D2C?
a. Existing customer base – What is the current market like? Does your product (or products) have an existing customer base, either created through a retailer or generated through premarketing? When you go D2C, will there be demand from day one, or will you have to generate awareness first?
c. Other modes of promoting – Is there scope for promoting the brand and products in other ways? For example, adding inserts in shipments to give buyers discount codes or upsell/cross-sell information
2. Are the costs viable?
a. 3PL Warehouse vs. In House Logistics – Will you manage order fulfillment inhouse or through a 3rd party logistics provider (3PL)?
b. Warehouse vs. Distribution center – A warehouse is used to store products; a distribution center stores products and offers additional value-added services like packaging, loading, tagging, and so on. A distribution center, basically, performs all the processes needed to fulfill an order
c. Earning potential – You already know the cost of goods sold, or how much you spend to manufacture each unit of the product. Once you plan out marketing and logistics, you will also know the costs for operations. The question now is if the D2C model is sustainable for your brand.
- Average order value
- Average items per order
- Average shipping cost
d. Alternatives to improve profitability
Subscriptions – Can you create a subscription model that customers will accept? Subscriptions are great to nurture loyalty and retention and also create a continuous earning stream.
Bundles – Can you bundle products and create different pricing plans to include all ranges of customers – those who want to buy single products and pay a lesser amount per transaction and also those who are willing to pay higher amounts per transaction for high-value products or bundled products
3. The hurdles to implementing D2C (Direct to Consumer eCommerce)
a. Retail partner objections – When you move to the D2C model, you become a direct competitor for retailers selling similar products. Are you going to face backlash from retailers currently selling your products or similar products? Will you be able to weather the competition and position your brand as unique from theirs?
b. Different product offerings/bundles – As you become a direct competitor to retailers, will their product offerings, pricing plans, or product bundles take business away from you? It’s a prudent approach to research your competition and pit their services against your own. For you to survive as a D2C brand, you will have to deliver better pricing deals than the competition.
c. Can you differentiate your brand from the competition – You will need a USP to differentiate your brand from the competition. While not every product or service can be unique, you can introduce a distinction in other areas like operations, pricing, or support.