05 Aug Direct To Consumer (D2C) Business Model for eCommerce and Retail
The eCommerce and Retail industry is currently experiencing a new tactic to the selling and shipping of multi-brand products where suppliers are repositioning themselves as ‘direct-to-customer’ operators without middlemen. In this article, we will analyse in some detail what exactly differentiates these businesses from traditional retail brands. According to IAB UK, close to 97% of the UK online consumers have heard about at least one out of 50 top Direct To Consumer (D2C) companies in the UK market, close to 40% have bought their products and around 10% of people bought products from more than 5 D2C brands.
What is D2C (Direct-To-Consumer) Retail
Direct-to-Consumer (D2C) companies produce and deliver their products directly to customers without the use of retail stores, wholesalers or other brokers. This helps to reduce the price of products for customers and to keep control over manufacturing, warehousing, marketing, sales and distribution of products. The channels of D2C can be not only eCommerce platforms but also in social media (e.g. Facebook or Instagram) and even own retail stores. The key initiative is to avoid the use of resellers and go directly to the end customer.
Why Brands Are Going To Direct To Consumer
eCommerce continues to change every day, but it has also changed the way clients approach shopping in general. As a lifestyle choice, more and more people are opting to shop online instead of the traditional, physical outing. Shopping online has become much easier due to the increasing sophistication of eCommerce solutions. This way, and with the right digital marketing tools, brand owners can reach as many potential customers as they want. These tools ranging from pay per click ads, Facebook and Instagram ads to email newsletters, and search engine optimisation.
With the recent worldwide spread of the Coronavirus, it has become clear that many brands, working traditionally, experienced a significant downturn, many declared bankruptcy, and this not only amongst mass-market brands but also luxury segment brands which have started to announce store closures. This causes problems not only to the brand itself but to the wholesalers too. Businesses that want to survive are being forced to adapt to a reality, where the consumer is turning to on line shopping more readily. And this also will mean that competition between online stores and marketplaces will intensify on a worldwide platform, and it will be more difficult to promote e-shops due to cost escalation of paid-for advertising.
D2C Business Model: Benefits And Challenges
Although there are many benefits of using the D2C business model for brand owners, one of the most important is higher profit margins. Middlemen and resellers need to add their profit margin to the producers’ price and need to consider the cost of maintenance of their high street presence as well as employee salaries, delivery of goods from source supplier and to the warehouses or shops, and many more hidden overheads. This significantly increases the price of the product to the end customer. But if the end customer is willing to pay those initially accepted rates then it’s an attractive proposition to sell direct.
This model offers an enviable and hitherto unseen list of benefits: higher profits, visualisation of product trends, insight from customer feedback, ability to increase customer satisfaction by use of world class, third-party logistics companies, control of production and ability to predict demand. Gathering customer data and re-marketing to the same client requires little incremental cost and extends the lifetime value of clients, and so on.
The main challenges for D2C companies are connected to order management (packaging, returns handling, order fulfilment, warehousing) and distribution. Development and execution of marketing strategy can also be not that easy task and requires a skilled team, money for promotion and patience to get results.
To outstand the competition and become a successful D2C brand, you will need to focus on these main areas:
- Excellent products and their constant improvement
- Diversified digital marketing initiatives
- Orders and customers management automation
- Fast delivery and support
- Customer satisfaction management
Customer Experience And Customer Expectations Management
In recent years, retail customers have started to hold higher expectations. This causes a significant pressure on brands to provide outstanding customer experience and market differentiation. Customers not only want to have products of high quality with affordable prices but they also want to have products tailored for their needs, taking into account their personal circumstances and conditions.
The second very important thing is convenience. People have become accustomed to online shopping due to;- time saving, product choice, work schedule convenience and home delivery. This places huge pressure on brick-and-mortar businesses whose profits are eroded by the previously mentioned overheads, leaving new-style consumers to ponder the ability for on line stores to sometimes offer such low prices. Customers are highly motivated to buy from you;- if they experience exceptional service, if they can find a rich product variety or brand exclusivity, if your packaging shows that you care for quality, if you constantly offer codes and coupons for loyalty, if you have transparent delivery and payment policy, as well as a reassuring returns policy.
By maintaining and developing a good brand-customer relationship, companies invest in their future prosperity. Affordable prices and outstanding services help to achieve repeat sales and increase customer LTV (lifetime value). The D2C business model allows company owners to control the key components of a successful retail and eCommerce business and have a direct influence on how a brand communicates with its clients. Such companies can fully develop the brand story without leaving it in the hands of middlemen, they can drive all marketing activity and thus to determine levels of sales. Awareness of how a brand is accepted by customers, helps to make quicker decisions in the event of market change in order to restore stability.
It’s not an easy decision for a traditional retail business to start utilising a D2C business model, but it is still possible, it just needs thorough analysis and a well-considered action plan. There are many benefits that a business will derive from this direct approach and although your business may already generate strong profits it’s never too late to add one more powerful tool. If you are just starting your business and still haven’t decided which model to use then D2C is one to consider very seriously. If you are seeking information on how we can help you to automate and run an eCommerce and retail business efficiently and smoothly, feel free to contact us.