E-commerce trends
What is the D2C (Direct to Consumer) model?
Ana Martinez
January 15, 2024
The digital revolution has undeniably transformed the way we consume. The arrival of e-commerce, combined with the rise of social media, has indeed brought brands closer to their customers. A direct link is perfectly illustrated in the new business model of Direct to Consumer (or D2C).
In an increasingly saturated landscape, consumer choice is no longer guided solely by the quality of an item or the prices charged by sellers.
Storytelling and the ability to segment and personalise products make the difference today. The D2C model offers companies a different way to interact with their target and sell without the hassle of intermediaries.
As all industries embrace this model, your brand may question its relevance. This is an opportunity for us to zoom in on the particularities of the D2C business model, its advantages, and the challenges it can pose.
But also to present you with the best practices to start your transition smoothly!
1. What does Direct to Consumer (D2C) mean?
Traditionally, the supply chain has involved several links, from the manufacturer to the wholesaler/distributor, ending with the retailer and its customers.
However, each step to moving from one actor to the next often involves lengthy negotiations, additional costs and delays. The main drawback of this sourcing model is the need for more agility for brands, for whom each new launch implies a lot of waiting and frustration.
The Direct to Consumer strategy breaks these chains and eliminates the middleman. Companies following it control every step, from manufacturing to distribution, and can sell their products directly to their end consumers.
By eliminating the middleman, brands that choose D2C gain greater freedom.
They also benefit from a better knowledge of their customers base and the ability to adapt their offer to their (constantly changing) needs. D2C companies also can create a customised customer journey and experience. An effective way to differentiate themselves from traditional brands is by trying to beat them at their own game rather than by positioning themselves in proximity to their customers.
1.1 Direct to Consumer: a new wind blowing from the United States to Europe
The trend of Direct to Consumer brands comes straight from the United States. The first to make a name for themselves in this niche emerged a few years ago, particularly in the fashion sector. Examples include the eyewear manufacturer Warby Parker, Bonobos and Everlane for clothing, and The Honest Company for beauty.
The model is even beginning to tempt several brands, many of which try to reappropriate it.
Last July, for example, Unilever paid $1 billion to buy the subscription-based razor brand Dollar Shave Club.
Walmart has acquired the Modcloth brand and is preparing to acquire Bonobos.
And let's not forget Adidas, which plans to generate 50% of its sales in D2C by 2025.
Some companies even fully pivoted to being D2C as part of their sales strategy, like Loop Earplugs for example.
According to a study by Club CMO and Epsilon-Conversant, 80% of major retail brands believe that new D2C companies impact their business. These newcomers are even forcing them to change their marketing strategy significantly...
By 2022, 13% of brands in Europe were D2C brands.
Fashion was one of the first markets to adopt it, with brands such as Gymshark and Sézane. Jewellery (Gemmyo, Edenly), leather goods (Dymant), optics (Jimmy Fairly and Polette) and bedding (Tediber) followed closely. Not to mention cosmetics brands (such as Baija, Horace or e.l.f.) that have become leaders in recent years.
2. What are the advantages of the Direct to Consumer model?
This wave of new brands, but especially the reorganisation of the big names in retail to integrate the D2C model, indicates that the latter has many advantages for e-commerce brands.
2.1 Fewer intermediaries, more margin
Eliminating the players that stand between you and your customers allows you to regain control of your profit margin. By cutting out the middleman between the factory and its customers, Made.com has reported savings of about 70%.
That's good news for your loyal customers since you won't have to inflate the price of your products to make a profit. But also for your brand, because the fees or commissions you used to reserve for your partners can now be reinvested in your growth strategy. For example, the optimisation of your website, your presence on social networks, or the R&D on your products.
2.2 More direct communication with your customers
Intermediaries don't just cut your margins; they can also blur communication between your brand and its customers.
When you depend on other companies to sell your product, you miss a lot of data that could be invaluable to your brand's development. Data has become one of the most valuable digital native brand assets. For example, LePantalon's omnichannel approach stimulates continuous innovation and allows it to launch new collections faster.
Unlike brands that go through traditional retailers to sell their products and who only have information from their inventory, you can test your offer. But also to make your prices evolve or to suggest complementary products to the checkout.
Data such as the shopping cart abandonment rate or the churn rate of your e-commerce site will also allow you to better understand your customers' journey.
2.3 A personalised offer, therefore more impactful
Another advantage of the Direct to Consumer model is your ability to understand and interpret your customer data. This data allows you to tailor their shopping experience (online and offline). It is also an opportunity to evolve your product line to better match your market's expectations.
You can better understand their needs by multiplying the contact points with your personas on different digital channels (like social networks, via your website, etc.). And thus, personalise your offer to make it even more desirable. This is even more crucial for a young brand that wants to enter an ultra-competitive sector (like fashion or beauty).
The D2C allows one to adopt a personalised approach and differentiate oneself on criteria other than price or brand loyalty.
Take the example of Bar à Boucle, which interacts with its customers through networks and workshops and via a diagnostic tool on its website, which allows it to target their needs very precisely to offer highly personalised products. This data is then used to develop the brand's offer and grow their email lists.
2.4 More agile and resilient to market disruptions
The pandemic has profoundly transformed purchasing behaviour. It has disrupted supply routes, forcing brands to rapidly adapt their strategies. Because they are not directly dependent on intermediaries, companies that have opted for the Direct to Consumer model are more responsive. They are also better able to evolve.
In a Catch-Up episode of the podcast Le Panier, the brand Merci Handy mentioned that it needed only three months to restock its products before the pandemic. This delay has been doubled, due to the lack of available transportation means, pushing the restocking time to 6 months.
Inventory management is now a massive issue for e-commerce!
Look at how the men's shaver stock has been completely transformed in less than ten years. We have gone from the hegemony of a brand like Gilette, which held more than 70% of the market share, to the advent of newcomers like Dollar Shave Club or Harrys.
Faced with positioning challenges and the ultra-fast emergence of values that brands are being asked to align themselves with environment concerns, and social justice, agility is becoming not a competitive advantage but a necessity!
3. The challenges of direct selling
However, the Direct to Consumer model is not a guaranteed path to success. Before adopting it or transitioning to greater independence from your intermediaries, it is crucial to understand the potential costs, especially the risks involved.
We recommend that you consider, among other things.
- The complexity of positioning. Without resellers to support your distribution, you will have to work harder to make your brand stand out! You must make sure your target audience discovers your offer on the channels (via advertising or content creation on social networks). Thus, if brands that have opted for D2C perform well in sales and customer loyalty, they generally need help to gain awareness.
- Complex management. It is up to you to control everything, from producing your items to the branding of their packaging, including their storage and delivery. To manage a D2C business, you must invest in the right resources, especially logistics. This is a prerequisite to match the service retailers offer to their customers.
4. How to launch your D2C brand or transition to the Direct to Consumer model?
Launching your brand using the Direct to Consumer model has its challenges. But none is unachievable, especially if you lay the proper foundation!
Here are our tips for successfully using this model:
4.1 Work on the storytelling of your brand
A common thread in many D2C brand success stories is the strength of their storytelling. And their ability to attract and retain their target audience by embodying this story in the person of their founder.
Whether in fashion (with Pauline Torres and her brand Pauème) or in beauty (through Justine Hutteau, the founder of Respire), the link between a successful D2C and its customers is even more vital when a real person mediates it. This is an excellent way to answer the "why" of the brand's existence, which is crucial in the context of saturation.
The founder embodies his mission and justifies the creation and relevance of his brand humanly and emotionally.
4.2 Start with a limited selection of items
A limited product line allows you to test your distribution model before scaling. With a suitable distribution model and a reliable, fast way to get products to your customers, you will be able to get your brand off the ground.
So rather than blowing your product budget by developing a wide variety of products, focus on a few essential items. Then, ensure you can effectively get them into your Consumer's hands before diversifying.
4.3 Packaging and delivery: two essential elements of the customer experience
The survival of your Direct to Consumer brand depends on more than just the quality of your product or your ability to segment your offering.
As a reminder, 72% of consumers say that fast delivery is the most critical factor when shopping in online stores.
A considerable part of your customers' satisfaction depends on your ability to manage your stocks and your delivery speed (especially in the last mile). But also the branding and the quality of your packaging.
They expect to receive their product as soon as possible, to be able to track it from your warehouse to their address and to open a package branded with your brand name.
The post-purchase experience is the key to building customer loyalty!
You must pay attention to your logistics partner to meet their demands and ensure that they recommend your company. Bigblue helps you take it to the next level with unbeatable shipping rates and a 5-star carrier network.
Dazzle your customers with faster-than-lightning delivery and an unforgettable unboxing experience!
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