Wondering about jumping onto the direct-to-consumer bandwagon?
Well, you aren’t alone!
Almost every new brand and many existing brick-and-mortar businesses have taken a dip into direct-to-consumer waters. D2C market continues to grow and has had double-digit growth for a number of years. It is expected to grow by 19.2% as per pre-COVID projections which means this number will be much higher given the disruption that global supply chains had to go through in these troubled times.
While direct-to-consumer is the future but most of the brands aren’t ready to take this on yet, in this article, we’ll navigate through what is D2C, why brands are investing heavily in D2C, how can leverage this model to boost your sales and increase profits.
For starters, let's first get the definition out of the way.
What does direct to consumer mean?
Direct-to-consumer means selling your products direct to your customers through your digital channels without any middlemen like third-party retailers, wholesalers, or franchises.
In traditional supply chains, each handshake between various parties adds a mark-up to the cost which is eventually borne by the customers when they pick up the end product. With D2C, the brands eliminate any overheads and do not incur these costs, thereby directly transferring the benefit to the customers by selling the same product at a fraction of the cost and at the same time keeping healthy margins.
The Pandemic effect!
This isn’t new but recently, the COVID-19 pandemic has put it onto steroids.
Some numbers at a glance:
In 2020, Adidas's third of sales came from direct-to-consumer eCommerce channels.
The consumer packaged goods (CPG) category saw an increase from 3% pre-COVID sales to 15% post-COVID sales.
BCG predicts that the food and beverages categories alone will see 70% sales growth in the eCommerce/D2C segment through 2022.
The permanent shift towards online sales continues to drive growth, nearly 14% of US total retail sales are estimated to come from eCommerce channels by 2021.
Right from a piece of a protein bar to your favorite wine to fully prepared healthy meals, D2C has permeated across almost every segment and the sun is going to shine even brighter in the coming years.
While the COVID19 pandemic has accelerated the direct-to-consumer shift, the brands have been repositioning to this model well before the pandemic.
Why are brands going direct-to-consumer?
Aside from the hype, let’s look at why do you need to go direct to your consumers.
1. Reducing foot traffic
The foot traffic continues to fall across all retail outlets, many physical stores had to shut their doors in recent years and the pandemic has only accelerated their exit.
2. The surge in eCommerce Sales
More customers are now buying through eCommerce channels than ever before, the growth is shifting from brick-and-mortar physical channels to digital and data-driven channels.
3. Supply Chain economics
Traditional Supply chains have been struggling and the brands have been facing severe profit pressures. More and more brands are now tapping into leased/rented supply chains that have low entry barriers and offer greater flexibility. Thousands of brands have been benefitting through this by selling their own branded goods through their digital channels without any middlemen.
4. The emergence of Digitally Native brands
Today’s customers, especially the millennials aren’t afraid of trying new brands that are digitally native. These brands have carved a niche for themselves and have disrupted traditional businesses in many ways. The growth is now shifting to innovation-led smaller D2C & boutique brands that rely on agile supply chains with minimal to no upfront investments.
5. Want Amazing digital experiences
The buy/sell experience is no longer limited to picking up items from a retail store, instead, it has now permanently changed into a variable and personalized experience. In the current data-driven economy, the customer spends significant time researching a product before buying it and is more inclined towards the brands which forge an intimate relationship with them. The customer is now demanding digitally native before, during, and post-sales experience irrespective of any channel. Brands that own customer relationships have much more leverage to increase customer lifetime value.
Common traits of a successful D2C business
While going direct may seem like an obvious choice but not all businesses are set up appropriately to be successful, the growth in this space has come from smaller and boutique brands which are now being followed by big brands too.
Have low entry retail barriers and offer specialized product lines
They are agile with a flexible operating model mostly relying on leased infrastructure
They’re digitally native, are amazing storytellers, run excellent marketing campaigns
They are customer obsessed, have an intimate relationship with their customers, and delight customers are their #1 priority
They are data-driven with analytics driving their day-to-day actions
Invest in technology – these brands use advanced marketing automation, big data, customer analytics, and AI/ML-based tooling.
Advantages of the D2C model
Lower overhead = better margins
Selling products directly to a customer you don’t have to foot the bill for maintaining physical stores, minimum to no operating expenses, less manpower. This means such businesses can operate on very narrow overheads and can sell the same product at a cheaper cost to the customers.
At the same time, you aren’t passing any money to the third-party retailers and can still keep healthy margins that would otherwise go to the third parties in the chain.
Direct customer connection = loyal customers
In this digital era, a direct and intimate relationship with a customer is a must-have without which the brand is almost impossible for the brands to survive. With D2C brands can have direct control over customer relationships which is very difficult in a proxy retail scenario. Whether through digital stores, social channels or in-store experiences the brand has the opportunity to demonstrate an amazing customer experience throughout the lifetime of the customer increasing in brand value and customer loyalty.
Omnipresence = go anywhere: Local, Regional, Global
With D2C you can go directly into any market be it local, regional, or global at no extra cost. You no longer need to build relationships to grow business in different markets.
Data-driven decision = act at a speed
By selling direct, forging an intimate relationship with customers' brand gets deep insights into their customer behavior, where they are, and what they are looking for. By eliminating the third parties, brands have direct access to this data which can be leveraged to market to the customers in the most effective way and it is utilized to build future products and reposition the brand to their advantage.
Is D2C a panacea?
While D2C is a massive growth engine but it’s not the panacea and a large number of D2C brands have struggled and are no longer scaling at the speed they were 5 years ago. At the same time, the traditional players have entered into the D2C segment by themselves or through acquisitions.
D2C is here to stay and will continue to grow but the brands need to move beyond just the DTC mindset. Today’s D2C brands have been adjusting to standing out by blending with some sort of physical exposure to the customers as they see lower churn rates and repeat customers than their online-only counterparts. Also, they are now taking control of their supply chains and distribution by vertically integrating.
D2C: 2021 and beyond!
D2C is here to stay, it has enjoyed double-digit growth in recent years and this trend will continue to grow stronger year on year. With the rise of D2C and diminishing profits of larger brands, they will continue to increase D2C presence. Even, large marketplaces like Amazon have been trying to aggressively pitch D2C brands to come and sell on Amazon. Walmart, for instance, has already made inroads into this space by acquiring digital-native brands like Bonobos.com, Jet.com, and Modcloth.
To summarize, D2C is already here, we are rooted, battle-tested, and are only going to go north with some tweaking as the technology and the industry evolves. This may very well become the default way through which companies will get their products to their customers.
How can Originscale help?
Originscale is a Next-generation AI-powered Direct-to-consumer digital commerce platform helping businesses simplify, transform and scale. With our data-driven approach, we go beyond the surface and automate every aspect of your value chain by focusing on your number one asset i.e. customer.
Talk to us now to explore, how we can help you efficiently run your operations, provide end-to-end traceability, increase margins, reduce CAC, and retain more customers.