D2C: The Ultimate Guide for Brands in 2021
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 and P&G that have expanded their sales channels to include the D2C channel.
Let’s take a closer look at a couple of examples of successful direct to consumer stores.
In 2017, 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 three million customers 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, which maximized customer lifetime value.
Casper became the first venture backed D2C company to 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 option for direct to consumer brands to give them the option to open up more channels. This can be easily achieved with a Where to Buy solution.
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 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 by Forrester, almost 70% of millennials in the US carefully consider a brand’s values 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.
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.
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.
This information won’t just benefit your D2C sales, but it can help improve your overall strategy.
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, and it’s important to prioritise customer needs. It’s vital to consider if you are competitive with the marketplace.
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 and many more D2C businesses are starting to falter.
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.
Finding a strategy to keep these to a minimum is crucial as you are likely to have a thin margin to protect.
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 packaging, free samples, D2C discounts, carbon offsets, exceptional customer service and a generous returns window.
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 mens’ 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, nearly 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 have the option of buying the 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.
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.
Although it’s tougher to become a breakthrough success, the popularity of the D2C model will continue to grow.
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 journey 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.