Is direct-to-consumer (D2C) just another buzzword, or should you open your own D2C channel?
In the blog below we’ll discuss the benefits and disadvantages of going D2C, so you can make a well-informed business decision.
For the last fourteen months, we’ve discussed going D2C with C-suite management teams - and the same questions and misconceptions always pop up, despite the industry:
- What does D2C even mean to us? How can we provide value to our real customers?
- How can we even set up such operations and deliver directly to our customers? Isn’t it way too complex and costly to set it up?
- Won’t we need a big investment and many resources? How will we even measure ROI?
- Won’t we enter a pricing war with our retailers and jeopardize our relationship with our distributors?
- Sounds like a massive IT/ERP project, won’t this take up too much of our valuable time that we could invest elsewhere?
Spoiler alert: these are mostly misconceptions that can be solved through opening a pivot D2C store.
But the most important question is value. What value will D2C bring you?
The answer: unlimited.
The value of a D2C store is unlimited.
Let me explain how.
Pros of a D2C business model
- Higher profit margins
- You get full control over your product, brand, marketing, and reputation
- Access to your customer data
- Future proof, quicker to adapt and innovate
- Opens up new opportunities
- In tune with how consumers are behaving
- Increased brand loyalty and engagement
Your brand, your terms
First, it's important to note where you're standing now.
Right now, life is good. You have your order placements through your retailers, distributors like Amazon, eBay, and others. You don’t have to deal with exchanges, returns, or difficult customers. That’s something your retailers do - in exchange for a healthy fee: 10-15% cut from wholesale distributors and 15-40% from retailers.
In other words: you produce quality products - and your retailers reach the masses.
Sounds like a great partnership right? So what is the problem here?
You lose control and become more and more dependent.
With the flip of a switch - you’re no longer on page 1 of Amazon or eBay. You have to abide by their laws to reach your customers.
Sure you’ll have control over your product right up to the moment your product ships out. The way it's delivered and with what customer experience - you have no control over. (let alone an algorithm change on your retailers' site which causes you to land on page 10).
Your sales are fully dependent on your retailers. And any good risk analyst will tell you: spread your risk.
If you have a million-dollar: would you bet all your money on just one horse?
No.
Let’s sketch a hypothetical situation:
You have a great cruelty-free vegan skincare line and can reach the masses through a retailer. That said retailer has a great 2-3 day delivery policy, but isn’t using environment-friendly packaging nor do they take good care of the people who work there or handle complaints very well. But your target audience, those who are interested in cruelty-free products, really do care about the environment and the people who work there.
What happens?
Your reputation gets hurt. Brand loyalty diminishes and the new kid on the block - you know, the one who disrupts the market and can fill their brand promise as they have a D2C channel - gets your customers.
When you don’t stay closely connected with your customer, you lose out. You lose control over your high-quality product that you've produced so carefully. When you can only access your customers through others, you forget what is of value to them. This brings us to our next point: data
Access to your customer data
Having access to the data of your retailers is good. Collecting your own customer data? Game-changer.
When you open your own D2C channel you get the golden opportunity to collect and analyze your customer’s data. These insights are extremely valuable. You find out what works - under which conditions - what doesn’t, and what needs to be improved. Heck, you might even uncover new target audiences or even global markets that you never knew you had!
The insights provided by the data is limitless. In fact, you could share your insights with your retailers and distributors too.
Quicker to innovate and adapt
Going D2C means improving your business agility and ability to innovate, anticipate and react to the changing market. When you go D2C, you directly deal with your customer which means you'll be closer to your customer needs, wants and searches.
You will no longer be dependent on your retailer to route your way to a certain market.
The added bonus? You’ll have the perfect environment to test new ideas. With your D2C channel you can ask for feedback, run an A/B test, and so much more. The collected data will help you prove and support certain hypotheses. It will even give you the ability to adapt and innovate, without having to wait to get "approval" from your retailers.
Open up new opportunities
Always had that crazy idea of starting a fun or handy subscription box? Try out new exclusive products? What about bundling certain products together? Or what about launching in a new country?
By opening a D2C store you don’t just directly sell to your customers, you decide how you want to sell. You won’t need to convince your retailer - you can do whatever you want, whenever you want, wherever you want. Whether you like to work with local retailers or launch in a new country. You can freely experiment with new releases and test them with a certain segment and gain their feedback. That way you can optimize personalization strategies and increase your customer lifetime value.
This makes scaling up your D2C business model so much easier. You are not restricted in the traditional sense. You can reach customers all over the world.
Closely connected to your customer
Research shows that 55% of consumers prefer to do business with the manufacturer directly and 59% of consumers prefer to do research directly on the manufacturer’s site.
Nowadays, consumers want and expect to be able to directly go to the source. Whether they have questions, complaints, or suggestions - your D2C business can offer what no retailer can offer. In-depth knowledge, convenience, and exceptional customer service - all hallmarks of a great D2C model.
The downside of going D2C
So what are the cons of going D2C?
- Increased liability
- Every day becomes more complex
- Need expert team to pull it off
Increased liability
Having complete control of your brand definitely has its perks, but it also its downsides. For one, it means you become fully responsible. Think of: GDPR, returns, finding the right shipping partner, cybersecurity, managing PR, and much more.
Need a team of experts
Besides increased liability, you also will notice that going D2C requires more manpower. You’ll be in charge of more aspects than ever before: shipments, transports, customer care, returns. This means you will the right experts to guide you through starting your very own store.
Every day becomes more complex
Like mentioned earlier, running your own D2C business does mean you'll need to deal with aspects that you're unfamiliar with. Think of difficult customers, marketing, shipping partners, PR etc. This could make your day-to-day business more complex.
Should I open a D2C store or switch fully to D2C?
Every business is different. Every industry has legacies, practices, and experiences that have resulted in how business is run and developed. While some companies can switch to a D2C model, others are better off opening a D2C store that won’t interfere with their current partners, retailers, or distributors - and that’s where we roll in.
We help run a D2C pivot store, without having to cut ties with your retailers or distributors. You can simply run a “D2C pivot store”. Where you can test your D2C potential outside your current systems and shipping partners.
Now I can hear you say:
“Wouldn’t that upset our retailers? Won’t we become competitors and enter a pricing war for our own products”
The answer is simple: no.
That’s the beauty of running a D2C pivot store. It gives you the ability to test and offer customers exclusive products, new bundles to test new business models out, without intervening with your current relations. By establishing a new concept, you're not competing for the same space. You're adding value. Not just for you, but your D2C insights can be shared with your retailers too.
LEARN MORE:
- What is Direct to Consumer and why is it the next big thing in eCommerce?
- Should we enter the D2C market?
- Shopify vs Magento: Which platform suits your business?
Ready to talk to an E-commerce expert about your D2C opportunities?
MISTY PATHUIS, CONTENT CREATOR, WOOLMAN OY