Decoding the Direct-to-Consumer Business Model – With Pros & Cons

You might have already heard of it, or maybe you’re thinking “what the heck is D2C?” Either way, it’s worth exploring because it’s changing the game for how startup companies sell their products and services.

According to the research ⅓ consumer reports that they bought directly from the manufacturer’s website.

It’s kind of like buying directly from the farmer instead of going to the supermarket.

Let’s talk about something that’s been causing a lot of disruption and excitement in the entrepreneur’s world – Direct-to-Consumer (D2C) model.

So, let’s dive in and see what is all about the Direct to Consumer Business Model with Pros & Cons…

What is a Direct to consumer business model

So, first things first, the abbreviation for D2C is Direct to customer.

Direct to customer business model is a model where the company sells its products directly to its customers instead of relying on wholesale suppliers or retailers.

???? Key Points

  • Direct to customer business model sells its products directly to its customers instead of relying on wholesale suppliers or retailers.
  • D2C cut down the cost of the Middleman.
  • Some D2C brands use Third Party Logistics (3PL).

The main purpose of this business model is to cut down the cost of the middleman or any intermediaries.

D2C comes with both offline and online channels where the manufacturer manages the inventory on its own and delivers the goods directly to the consumer’s doorstep.

The D2C model not only manages the goods but also independently takes efforts to Market, Distribute, and Sell the product to the customer.

???? Stats

78% of D2C brands increased their marketing budget compared to 60 percent of traditional retailers.

Hence, it gives direct control over the business and helps in building a successful brand by delivering a good customer experience.

How D2C Business Model Works – Breaking down

We know that in the D2C model, companies sell their products directly to customers without any middlemen involved.

This means that the company can cut out all the costs and headaches that come with dealing with distributors, wholesalers, and retailers.

Yet, How they could manage is a big question.

D2C companies usually set up their e-commerce websites, where customers can browse and purchase products directly from the company. It is slightly different from the E-Commerce business model.

???? Stats

55% of consumers prefer to buy directly from brands rather than multi-brand retailers

For example – Licious, Wakefit, Mamaearth, Loreal

D2C Business Model

D2C allows companies to have complete control over the customer experience – from the website design to the packaging of the products, everything is in the company’s hands.

One of the primary goals of any business is to attract people through its innovative marketing strategies.

Secondarily, it must have a strong digital presence to drive traffic to its website organically. Without pulling a lot of traffic, a D2C business may be prone to suffer. This scenario can be avoided if the interaction between a brand and its customers is smooth and fine.

These interactions usually take place by various means, they are

  1. Social media campaign
  2. Paid advertising
  3. Content marketing
  4. Email marketing campaigns or
  5. Even on the website. 

Without a doubt, it requires a focus on customer service, transparency, and authenticity.

There are many ways to drive traffic to a website, including Organic search. By the way, it entails a solid understanding of search engine optimization (SEO), which includes optimizing your website and content to rank higher in the SERPs.

Subsequently, you’ll get more traffic, and sales conversion and generates a good return on investment.

However, the D2C model comes with little hassles in order fulfillment and a lack of expertise in logistics and supply chain. To counter this problem, it could manage the supply chain by outsourcing the business processes to Third-party logistics 3PL companies.

Third-party logistics 3PL is service based company that provides long-term assistance to D2C brands with

  • Operational logistics
  • Warehousing
  • Order Fulfillment
  • Delivery

This 3PL reduces the burden on D2C and saves valuable time, which in turn helps the team to concentrate on the primary work like product development, customer service, etc. At the same time, it ensures a faster delivery to the consumer.

The key advantages of contracting the 3PL are

  • Cost saving
  • Quick delivery
  • Scalability
  • Expertise and resources in supply chain management

With the right approaches, it can be a game-changer. The level of control you take on your business allows you to build a stronger brand identity and develop a loyal customer base.

Difference Between D2C vs B2C:

D2C Vs B2C

D2C

D2C sells its own product to the customer without involving any middlemen in its distribution and selling.

Most of the D2C brands market is narrowed down to the niche category where it serves a small group of people in a certain boundary.

While it concentrates on a targeted group of customers, which makes them get connected with the customer more easily.

But, at the same time, the cost to acquire a Customer is very high, because people perceive the brand to be a new one. And customer’s mind compares it to the well-known competitors in the marketplace.

Although, you could have an edge over your Competition if the product is well-designed with optimal pricing strategies.

B2C

B2C operates in different ways where it sells a product from multiple brands under a single name.

It enables many retail brands to sell via a single marketplace like giant companies like Amazon, Flipkart, etc…

Since tons of products are available in one spot, the market will be huge, bringing in more customers and giving it room to expand even more.

It is obvious to say that the above-said companies are disruptive to the industry and economy. Therefore competition would be high in starting a B2C.

As the potential of a business is on a large scale it depends on a lot of intermediaries like wholesalers, retailers, and distributors.

The B2C revenue model is unlike D2C where it gets a low margin of profit, just because the intermediaries bite a part of the share.

Advantages of D2C Business Model

  • Direct control over the marketing, sales, and customer experience lets you have a better understanding of your customer’s journey and tailor the strategies accordingly.
  • High Profit, because the margin that would have gone to the middlemen is now added to the company’s profit.
  • More connection with the customer and access to customer data help to take immediate action on feedback and improve the overall customer experience.
  • Less time-consuming since there is no need to negotiate with intermediaries. This makes it easier for companies to manage their resources and focus on every aspect of their business.
  • Improves product development and design. Moreover, it leads to better product offerings and increased customer satisfaction.

Challenges of D2C Business Model

  • Since the D2C business model eliminates the middlemen involved, the companies need to manage logistics, supply, shipments, delivery support, and payment systems. This requires a lot of human resources.
  • Every process in the distribution chain requires a lot of effort. Companies must create effective marketing campaigns to reach customers and ensure their products are delivered on time. This requires significant investment in infrastructure and technology.
  • Let’s be real, if you want to succeed in the business world, be online. That means creating an e-commerce website to manage your social media accounts to marketing strategies. It demands a serious investment, but you have to spend money to make money, right?

Reader’s Insight

Let us know if we missed out on anything in this article Direct to Consumer Business Model and share your thoughts in the comment section.

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