What is D2C? Direct-to-Consumer Meaning and Strategies

Vivien Thuri

Direct-to-consumer (D2C) commerce refers to manufacturers who sell directly to their end-customers, cutting out the need for wholesalers, retailers or any other third-parties.

Statistics from 2019 to 2020 show that US consumers increased their spending on ecommerce transactions from $360.1 billion to $431.1 billion.

Projections estimate that online shopping revenue could reach over $560 billion USD by the end of 2025.¹

Before the revolution of the world-wide-web, the success of manufacturers was restricted by retailers - if your product wasn’t found in-store, success was hard to come by.

This article will explore the ins-and-outs of D2C companies.

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Table of content
  • What is direct to consumer (D2C)?
  • Benefits and challenges of D2C
  • Direct to consumer (D2C) examples
  • Direct to consumer (D2C) strategies
  • What is direct to consumer (D2C)?

    Direct to consumer brands are businesses who sell their products directly to consumers.

    The traditional supply chain consists of:

    Manufacturers who sell their products in bulk to -> distributors and/or wholesalers, who in turn sell to -> retailers that sell to -> consumers.

    D2C means that the middle-men are cut out, allowing manufacturers to sell directly to the end-consumers.

    This comes with a host of benefits, alongside some new challenges too.

    With the rise of the internet and the popularity of online shopping, D2C business models are now appearing regularly.


    What is the difference between B2C and D2C?

    The differences between D2C vs B2C are subtle.

    You can think of business-to-consumer (B2C) commerce as the more traditional type of supply chain.

    With business-to-consumer commerce, manufacturers sell their products to retailers, who then sell to the end-consumers.

    Target and Google are examples of B2C businesses. These companies sell the products belonging to many different brands.

    On the other hand, a direct to consumers business cuts out this intermediary step in the chain (the retailer), producing their product and selling it directly to the consumer.

    Warby Parker and MeUndies are go-to examples of D2C businesses.


    Benefits and Challenges of D2C

    woman-using-laptop-selling-online

    Direct to consumer commerce comes with a range of benefits. Here are just a few.

    Benefits of D2C

    Direct transactions, Control over sales and Focus on consumers

    As a D2C business, you have total control over the sales, marketing and distribution process.

    Therefore you have direct transactions and closer relations to consumers.

    This means that a D2C business can collect more customer data and insights, allowing them to adapt their marketing strategy and consumer experience accordingly.

    D2C businesses can fine-tune their marketing campaign to build the exact brand image they want.

    Similarly, this increase in insights allows businesses to better distribute their products to increase sales potential.

    This could lead to increased opportunities for growth and profit.


    Decrease in costs

    D2C e-commerce also comes with the potential of increased profit.

    As a D2C business, you don’t have to distribute a part of your revenue to retailers or distributors.

    You interact directly with the end-consumer, cutting out the costs involved with these third-parties.

    This means you have a greater potential for increased profit, as well as a larger budget to re-invest in your business.

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    Online presence

    Unlike a business reliant on and restricted by third-parties, a D2C business has total control over their brand image.

    For businesses looking to reach international markets, their online presence can be leveraged to achieve this.

    With the help of data analytics tools, D2C businesses can target the audience they want.


    Challenges of D2C

    Despite these benefits, direct to consumer commerce comes with some additional challenges. Here are some to consider.

    Increased responsibility

    Without retailers, D2C businesses are responsible for every step in the supply chain, from manufacturing to warehousing and shipping.

    This means that D2C businesses have to spend more time and energy coordinating their operations, ensuring that every step of the process is accounted for.

    It also means that they have to solve all the problems that come along with the other steps, such as processing returns.

    This increased responsibility means more time and resources will be spent on coordination efforts, rather than outsourcing this job to intermediaries.

    This is why some small business owners opt to work with Amazon, Etsy and other retailers.

    This allows them to take advantage of features like third-party logistics and warehousing, saving them time and effort.


    Online presence

    Building a competitive online presence is a difficult task, requiring expertise and time.

    As a D2C business, your online presence will be your main connection to your customers and is therefore crucial to your success.

    Driving traffic to your website is thus highly important, which itself requires an understanding of Search Engine Optimization (SEO), among other factors.

    On top of this, website design and social media presence are crucial in keeping your potential customers engaged.

    The decision of a D2C business is whether to outsource this task to a website/customer relations management company, or to run it themselves.


    Customer support system

    Building up a reliable customer support system is crucial for any business looking for a competitive edge.

    Dealing with issues such as returns, customer complaints and feedback, as well as creating a fast-responding system, is a time-consuming, work-intensive job.

    For a D2C business, this is an additional responsibility to consider, as it is usually the job of the traditional retailer, not the manufacturer.


    Lack of physical presence

    Without an in-store retail, customers are usually unable to test the product before buying.

    This can be a challenge for D2C businesses, depending on the market they’re entering.

    That being said, there are cases of D2C companies who’ve managed to have an offline, physical presence too.

    An example is that of Warby Parker, who send their customers 5 types of eyeglasses to try on free of charge, thereby allowing for a physical element in their online shopping experience.²


    Direct to consumer (D2C) examples

    man-and-woman-with-boxes-and-laptop

    There are many examples of direct to consumer success stories.

    Here are just two direct to consumer examples to learn from.

    Warby Parker

    The go-to example for D2C success stories is Warby Parker.

    They identified two gaps in the eyeglasses market - that being affordability and the option for online purchases.

    This gave their business a unique-selling point, giving them a competitive edge over retailers: convenience and price-competitiveness.

    From here, they leveraged a social media campaign, encouraging customers to share their experiences with their products, via a unique branded hashtag.

    The lesson drawn from Warby Parker for D2C businesses is that of giving the consumer a reason to choose your business over simply going to the retailer, as well as the strength of creating brand awareness via social media platforms.


    MeUndies

    MeUndies is a D2C company that took the underwear market by storm.

    Their unique-selling point is the level of personalization they offer their customers.

    Matching underwear, adapting designs to customer feedback and a personalized subscription service delivering underwear to your door on a monthly basis made MeUndies a D2C success story.

    MeUndies is an example where a D2C didn’t focus solely on price-competitiveness, but equally on quality and product personalization, fostering brand loyalty.

    This being said, for all the success stories of direct to consumer brands, there are also stories of failure.

    Here is an example of a D2C company that didn’t hit the mark.


    Brandless

    The company Brandless came about to offer high quality yet affordable grocery and consumer goods.

    They coined the term ‘Brand Tax’ to refer to the high prices added by popular brands on to products, and instead sold all their goods at the price of $3.

    Quality and affordability was the brand image they attempted to craft.

    The problem they faced as a D2C business was that they didn’t actually specialize or offer anything unique - they weren’t price competitive across all products, nor was their quality consistently high.

    Therefore, their brand image - an affordable, high quality alternative - didn’t match the customer experience.


    Direct to consumer (D2C) strategies

    women-using-laptop-ideation

    These strategies can apply to e-commerce businesses in general, but are of crucial importance for D2C businesses looking to up their game.

    1. Understand your customer

    The first step for your D2C strategy is understanding your customer.

    Utilizing data collection tools such as cookies, databases and customer surveys allows for segmentation, enabling you to target a specific audience.

    Understanding your target audience is a key step, as many firms operate on the assumption of what their target audience is like, rather than how they really are.


    2. Marketing

    The next step of your D2C strategy is crafting the brand image you want and making it known through social media and online platforms.

    This is where understanding your customer becomes crucial.

    Knowing what platforms your target audience uses, as well as understanding their relationship to your product, is key in leveraging a successful D2C marketing campaign.

    On top of this, transparency and creating the feeling that the customer can communicate directly with your business is key in fostering a secure customer-company relationship.

    Price-competitiveness is not the only consideration for D2C companies.


    3. Interactivity

    Directing traffic to your website is only half of the battle - the other part is keeping your customers engaged.

    Creating an engaging website through the use of engaging activities, a navigational design and loyalty schemes, among many other features, is key for your success as a D2C business.

    As most D2C companies only have an online presence, without a physical store, your website is the lifeline of your business.

    The reduced costs associated with cutting out the middlemen of the supply chain means that as a D2C business, you have a higher budget to dedicate to marketing and website design.

    Similarly, E-word-of-mouth endorsement by high-ranking influencers is another strategy for boosting your online presence.


    4. Content

    On the subject of influencers, adapting your content to the specific platform is crucial for your business’s image.

    Working closely with influencers can help you reach your target audience, as they tend to be aware of the latest trends. This can help awareness of your brand enormously.


    5. Use helpful tools and services

    Given your higher marketing budget as a D2C company, utilizing tools and services is crucial for your success.

    Tools such as Wise’s import duty or VAT rate calculator, for example, are great for businesses working on an international scale.

    Other tools, such as data analytics, are key for targeting your audience and growing your online presence.

    Choosing the correct ecommerce platform is also an important consideration - depending on the audiences and countries you’re trying to reach, you need to ensure that your ecommerce platform is supported in these regions.

    A foreign currency account is also necessary for D2C companies looking to go international, in order to optimize finances.

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    If you’re looking to improve your D2C strategy, Wise can support you with helpful business tools.

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    Sources:

    1. Statista - Retail e-commerce revenue in the United States from 2017 to 2025
    2. Warby Parker - Home try on

    All sources checked 30 December 2021


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