D2C: The Ultimate Guide for Brands in 2023
D2C: The Ultimate Guide for Brands in 2023
Ten years ago D2C startups shook up retail and eCommerce by creating a new kind of customer experience. Many of these D2C brands addressed specific customer needs and pain points with niche products, caring customer service and digital communications.
If your brand is considering the D2C route, here’s everything you need to know.
What is D2C (Direct to Consumer)?
Direct to consumer, also known as D2C and DTC, is a business model which allows companies to sell and ship their products directly to buyers.
These brands don’t rely on traditional marketplaces and retail sites to make sales or gain exposure. This means they can cut down on costs and maintain full control over the making, marketing and distribution of their products.
Early adopters of the model successfully experimented with distribution, online-only sales and social media marketing. Now, brands that use traditional retailers and other sales channels to distribute their goods are also utilizing the D2C approach.
Examples of brands using the D2C model
D2C brands specialize in everything from glasses and mattresses, through to beauty products and cookware.
Brands that exclusively use the D2C model include Warby Parker, Casper, Dollar Shave Club, Away and Everlane. Then there’s established brands like Quill, Pepsi, Nike and P&G that have expanded their sales channels to include D2C stores.
Let’s take a closer look at a couple of examples of successful direct to consumer stores.
A few years ago, P&G bought over Native, which is a direct to consumer deodorant brand made with all-natural ingredients. While the brand’s D2C store continues to make sales, the product is now available on other channels like Amazon, Walmart and Target. Since the takeover, its growth has rapidly continued.
BarkBox is a monthly subscription box that contains surprise dog toys and treats. It now serves more than 2.3 million active subscribers each month and is largely successful thanks to its product personalization. This type of product offering is well suited to the direct to consumer model, and by offering personalized products, stores like these enable brands to connect with and learn about their customers. This enables them to approach customers with highly customized deals that aim to generate repeat purchases and cross merchandising opportunities, which maximizes customer lifetime value.
Casper became the first venture backed D2C company to launch an IPO, back in 2020. And while the IPO wasn’t necessarily a success, for the company to take itself to this level is a testament to the progress they have made. Primarily a D2C company, Casper has also begun to sell its mattresses on other retail sites and online marketplaces. This is an excellent option for direct to consumer brands that want to open up more channels and widen their customer base. This can be easily achieved with a Where to Buy solution.
A D2C brand that did perform well upon becoming publicly traded is fashion retailer Allbirds. The brand, which is known for its eco-friendly footwear, was valued at over $4 billion after the stock price surged during its IPO. The brand has performed well ever since and a massive 89% of its revenue still comes directly from online sales.
Allbirds is a great example of a brand that has built up a solid following thanks to its combination of innovative products and strong values.
Glossier sells high quality, chemical-free cosmetics. But its biggest selling point comes from its ethos, which dictates that its products are developed by listening to its community of customers – rather than through boardroom brainstorms.
The brand creates products that consumers request and puts a lot of energy into encouraging feedback and conversation. This also means it has a fun and customer-centric ethos. With almost three million followers on Instagram, the brand took social media by storm nearly ten years ago and has performed strongly ever since. Now, it is slowly expanding its sales channels to power its continued growth.
Traditional retailers vs D2C
Traditionally, brands would send their products to a wholesaler. They would then go to different retailers before finally reaching the end consumer. However, the D2C model cuts out all the middlemen. Instead of selling their products in bulk, brands sell individual items directly to the end-user.
Moving from bulk sales to a D2C model requires significant time, investment and a solid marketing campaign, but brands can make more money on each sale. It also addresses some of the pain points brands can face when working with retailers.
Under the traditional model, retailers like Argos, Tesco or Walmart typically sell products made by lots of different brands and manufacturers. So, whether they’re shopping in store or online, consumers are presented with a selection of product options.
A competing product may even be more visible, while special promotions or in-store advertising could also drive consumers into the hands of a competitor. Brands have no control over this.
On top of this, they don’t have any control over the customer experience, their in-store branding or the product knowledge of retail staff. But the D2C model puts brands in the driver’s seat.
However, it’s worth noting that many benefits come with stocking products with traditional retailers. For example, it provides access to more consumers, builds brand exposure and can drive impulse purchases.
D2C marketing and millennials
Millennials have been the driving force behind the success of D2C businesses. They often prefer to shop online, so the fact that many D2C brands are only available through eCommerce channels isn’t a barrier. In fact, it’s probably more convenient for them.
Millennials value convenience, great customer experience and affordability. They also place a lot of importance on choosing brands that fit with their personal beliefs and ideals. In fact, according to research, almost 83% of millennials in the US want a brand’s values to match their own when purchasing a product. This is much higher than other age groups.
That’s why many millennials are fans of Casper, which is big on making donations to needy causes, and Native, which is all about selling vegan and cruelty-free products.
D2C brands are able to meet all of their needs without charging a fortune. That’s why millennials are so quick to ditch traditional retailers in favour of D2C brands.
Why do brands build D2C stores?
The major success seen by D2C startups has inspired traditional brands to add this model to their own business strategies. The power, oversight and insight that comes with selling directly to consumers provide plenty of incentive for them to do this.
Full control over branding
With D2C sales, there is no barrier between brands and the end consumer. This gives you back full control over your content and communications.
Every image can be displayed exactly as described in your brand guidelines and each product description can feature an on-brand tone of voice.
You don’t have to follow the rules of a third-party retailer, so you’re free to experiment and innovate in any way you want. Your D2C platform is the best place to A/B test and try out new content and designs to set the standard for other platforms. Once you know what works for your brand, you can then use a content compliance tool to make sure your content is consistent across any other channels you have a presence on.
The ability to build relationships directly with consumers
A unique advantage of D2C marketing is the ability to build authentic, one-on-one relationships with customers.
Brands can build up retention through loyalty programmes, email campaigns and personalised communications. They can also test out exclusive promotions and products on this dedicated audience.
Some brands have even gone as far as to collaborate on new product lines with their direct customers. All this makes it easier for brands to grow sales, build loyalty and create brand advocates – without spending a fortune on third-party advertising.
This direct connection also allows brands to personalise the customer experience more than they ever could in a third-party store. Warby Parker and Glossier, for example, have created quizzes to help shoppers choose their perfect products.
The ability to learn from these relationships
Dealing directly with customers allows brands to collect in-house data about their behaviour. This is something that isn’t possible when you sell your products exclusively through third-party retailers.
This information can be used to understand customer needs, purchase patterns and the consumer journey. This, in turn, allows brands to personalize their messaging, create better D2C marketing campaigns and create effective paths to conversion. They can also build targeted audiences and use granular geographic data to improve their ad placements.
This information won’t just benefit your D2C sales, but it can help improve your overall eCommerce marketing strategy. With access to real-time consumer insights, brands are sure to make better business decisions all round.
In a competitive landscape, having a D2C presence and being less reliant on eCommerce giants like Amazon can protect your brand. Your sales and visibility will be less dependent on paid advertising investment and the whims of algorithms.
This is great for future proofing your brand but, in the short term, it also allows for immediate share gain. Jumping on the D2C bandwagon also gives brands an opportunity to capture more of this fast-growing online market.
Plus, you’ll save on marketplace fees, while also enjoying higher profit margins.
Brands have complete control over what is presented to customers on their D2C store. This means shoppers won’t see any competitor content or listings, but it also means that brands can carefully curate online catalogs and create upselling and cross-selling opportunities.
Kits, product bundles, 3-for-2 offers and even subscriptions are all great ways to generate more sales for your business.
What are the challenges of the direct to consumer model?
Clearly, the direct to consumer model offers a lot of worthwhile benefits. But, as the D2C space gets more crowded, the challenges are beginning to stack up too.
After a while, the D2C model can actually begin to hinder growth. There are only so many people you can reach without using other third-party sales channels.
49% of shoppers start their online search for products by going to Amazon. Then, there are lots of consumers who simply prefer retailer sites over D2C stores. Trust, familiarity, loyalty programmes and physical locations can all play a part here.
So expanding beyond D2C channels is key to gaining visibility, winning the digital shelf and scaling your business. That’s why you’ll find leading D2C brands like Birchbox, Happy Socks and Harry’s in retail stores.
An increasingly competitive environment
eCommerce is a competitive landscape, so it’s important to prioritise customer needs and ensure you can offer something that will make them choose your store over marketplaces like Amazon.
Further, due to the huge success of early adopters, competition has increased across many niches within the D2C space. Looking at cookware, for example, D2C brands like Made In, Misen, Caraway, Our Place, Equal Parts and others are all targeting a similar audience with premium pots and pans.
As a result, social media advertising costs have been driven up, which caused many D2C businesses to falter. However, the Covid-19 pandemic helped counteract this issue by accelerating D2C growth.
Costs can quickly accumulate
Keeping costs down is key to running a successful D2C channel. The cost required to manage your fulfillment, as well as maintaining and optimizing your website, can quickly accumulate.
Then there’s storage, packing, returns and customer service to think about. Without the support of resellers, D2C stores have to work harder to establish their brands too.
Finding a strategy to keep costs to a minimum is crucial as you are likely to have a thin margin to protect. However, because of the growth of D2C stores, more affordable options for the industry are becoming available all the time.
The impact on any existing channels
For established brands, setting up a D2C channel can disrupt existing sales channels and cause all sorts of issues. Brands may worry about upsetting long-term partners, such as retailers. Some team members may be unhappy to see sales on these other channels decline too.
Questions can arise over which channels are prioritised when stock is running low or when it comes to pricing. So be sure to strategically make these decisions in advance.
Tips for building a direct to consumer store
By providing great service, addressing niche needs and building connections, D2C brands have won over customers. To find future success, brands simply need to remain focused on the needs of consumers and continuously evolve.
Here’s how to do this:
1. Meet evolving expectations
So consider offering same-day shipping or overnight delivery, as well as other perks like useful eCommerce packaging, free samples, D2C discounts, carbon offsets, exceptional customer service and a generous returns window. Children’s clothing brand Monday’s Child, for example, wows customers with boxes which can also be reused as dollhouses.
Rather than catching up with expectations, brands should also anticipate future needs. For example, they might look at incorporating voice user interfaces, shoppable videos or VR features into their store.
Proactively pleasing your customers will help maximize loyalty-based eCommerce KPIs, like customer retention rate and lifetime value. This is key for D2C success.
2. Provide a powerful USP
The Dollar Shave Club made waves by making razors much more affordable, while The Honest Company specialised in ethical household products.
In order to convince consumers to leave Amazon and visit their D2C store, brands must offer something different. Powerful USPs could include exclusive SKUs, priority access to new products, convenient subscription packages, lower prices, great discounts or a one-of-a-kind community.
3. Focus on customer pain points
Your first D2C marketing campaign should focus on customer pain points.
Simply take your USP and highlight the pain point it addresses. For example, D2C brand Bonobos is all about making men’s pants that fit just right. When it first launched, its D2C marketing campaigns featured messages like ‘Your search for the perfect fit ends here’.
The brand used its small budget to focus on pain points, like the time-consuming task of shopping for trousers. Now, 15 years later, Bonobos is still going strong and has even opened some physical retail stores.
4. Optimise your D2C store with a blended approach
For brands that are moving online for the first time, it can be difficult to decide between D2C and eTail platforms. But, if possible, you should take advantage of both.
As eCommerce becomes increasingly competitive, consumers have all the power. So even if you have a USP that will bring people to your store, it’s still a good idea to provide multiple conversion options.
You can enable visitors on your website to buy a product from their preferred retailers using Where to Buy technology. They will see where your products are in-stock across retailers and can click through to their favourite platform to convert. This will improve the customer experience, boost trust in your brand and drive conversions. Where to Buy technology also enables you to track their journey to an extraordinary level of detail.
5. Be sure to fully commit to D2C
According to management consultant McKinsey, commitment from company leaders is key to achieving D2C success.
So be sure to prioritise your D2C channels when making decisions. If you water down your store’s promotions or limit product offerings to please third-party retail partners, this can hurt your direct sales. So be sure to strategise a way to make your D2C store attractive and get every department head on board with the plan.
6. Hire the right talent
Establishing D2C channels requires disruptive actions, innovative thinking and data-driven decision making. When an established brand plans to introduce D2C channels, it’s a good idea to hire fresh faces as your in-house team is unlikely to have much experience in this area.
Implementing a comprehensive D2C strategy will usually require a shift in goals, responsibilities and work culture. Its success also relies on integrated sales, marketing and tech efforts, so it is essential to get your whole team on board with the idea of implementing D2C eCommerce.
7. Put in place solid retention strategies
Because D2C eCommerce provides brands with direct access to past customers, it makes sense to focus on retention strategies. It costs much less to retain a customer than to acquire a new one. And according to research by Bain & Company, increasing customer retention rates by just 5% can increase profits by 25-95%.
Building up a base of loyal customers is central to the success of D2C businesses. That’s why they often offer product subscriptions, impressive loyalty programs and one-of-a-kind communities.
The future of D2C
D2C isn’t going anywhere, but finding success using the model is becoming more difficult.
As we already pointed out, the market has become flooded and the cost of online advertising has risen considerably. This makes it more difficult for D2C businesses to flourish.
Many D2C companies also find that selling products exclusively through their own online channels limits growth. That’s why many D2C companies are partnering with retailers, opening their own brick-and-mortar stores and listing their products on Amazon. This diversified D2C model is the way forward.
For the foreseeable future, established brands will also continue to add D2C platforms to their omnichannel approach. This will allow them to increase their margins and nurture loyal customers. But it will also empower them to closely study their target audience for the overall benefit of their brand.
Many Fortune 500 companies now sell products directly to their customers. Nike, for example, saw its D2C platforms account for more than a third of all sales during the pandemic. And it expects this figure to increase to 50% by 2026.
The shift toward D2C can now be seen across all industries and has even spread to FMCG brands. PepsiCo recently launched two D2C sites, while another D2C brand successfully carved out a niche by offering eco-conscious toilet paper. This shows that the D2C model can even work for products with the lowest of margins.
Although it’s tougher to become a breakthrough success, the popularity of the D2C model will continue to grow thanks to changing consumer habits.
Getting the D2C business model right isn’t always easy. But many major brands are adding this approach to their sales strategies in order to increase conversions and take advantage of the benefits that come from direct customer communications. Whether your brand chooses to sell via a retailer or your DTC store, we can help you optimize your customer’s path to purchase. Contact us to learn more about how we can help your brand drive eCommerce conversions, get in-depth insights and provide a better consumer experience.