Direct to Consumer Sales Model:
Is D2C Profitable for Brands?
Rapid digitalization and technological advancements have allowed businesses to reach every corner around the globe. The business models have drastically evolved along with the ever developing cutting edge technological innovations.
The proliferation of online businesses and eCommerce has allowed the business owners to move closer towards their customers. The online model of the businesses have enabled the manufacturers and brands to reach the end customer directly.
Direct to Consumer is a rapidly growing business model in the last few years due to a number of reasons. Millennials that grew up during the massive phase of digitalization and internet revolution own a major chunk in the online retail market. Also, they are highly influenced by the D2C businesses. We have prepared an answer for you to the question of what companies are in the consumer services field.
According to one report, the value of the US D2C market is expected to reach $175 billion by 2023. Considering such a massive growth potential, brands are heading towards it at a great pace.
To canvas a clear picture of the D2C market in 2022, I have provided a complete overview of Direct to Customer Sales in this article.
What is Direct to Consumer Marketing?
Direct-to-Consumer, also known as D2C, market has been thriving in the last few years. Simply putting, D2C allows the brands and manufacturers to push their products directly towards the consumer. It reduces the number of middlemen along the supply chain through a transparent business model.
Unlike, traditional retail market, the D2C market nullifies the need for middlemen such as wholesalers, distributors, retailers. This allows the manufacturers and owners to take full control of their brand right from the production to marketing and sales.
This also nullifies any doubts regarding the legitimacy of the products and allows the customers to make a purchase with surety. Also, cuts down the order processing cost by removing the middlemen profits and thus allows the brands to sell products at reasonable rates.
D2C sales create an intimate relationship between the manufacturer and the end consumer that can benefit the brand in a long run. Brands can directly connect with the consumers, understand their needs, and improve the products.
Why Millennials are So Into D2C
Millennials witnessed the massive internet revolution and are considered to be a major part of the buying segment. They are hyper-influenced by the technology and therefore become the primary target for the D2C brands.
According to one report by Statista, in 2020, Millennials were the most penetrated online shoppers in the U.S. with a penetration rate of 86.2%. Unlike the Gen X or Z, they do not show completely offline or online. They prefer a hybrid shopping method for comparing the prices, brands, and make a purchase after researching the product across online and offline platforms.
Technology has greatly influenced the mindsets of the millennials. They are the generations that scrutinise everything before making a purchase. Low cost, authenticity, shopping convenience, are some of the factors that appeal the millennials.
Impact of Covid-19 on the D2C Model
The Corona virus has drastically changed the way things worked around the world and the retail market is no exception. During the intense phase of the Covid-19 virus spread, people were restricted to shop offline to avoid physical contacts.
Such restrictions and lockdowns around the world forced customers to shop online that further supported the brands to launch their own online stores. This was the phase in the eCommerce industry that witnessed a massive upsurge in the D2C sales.
According to the available data, brands witnessed a booming 94% increase in their D2C revenue during the last quarter of 2020 as compared to that of last year. It was a golden opportunity for the businesses and brands to connect directly with their customers and build a customer base.
Current Trends of D2C - Why Will 2022 Be the Year of Direct-To-Consumer?
The Direct to Consumer retail market thrived under the shadow of the Covid-19 pandemic and has continued its momentum since then. The D2C eCommerce market is currently soaring and is further expected to maintain a double-digit growth rate in 2022.
More and more brands are getting involved in the D2C market with each day passing. Furthermore, along with the leading brands, the startups are focusing on the D2C market rather than the traditional retail market to enter into a more transparent and clear business.
Simply putting, Direct to Consumer is everything the modern shopper wants. The D2C market is still in its initial phase of growth and is not fully saturated. Some of the market leaders such as Amazon, Walmart have already started spreading their businesses through the D2C business model during the 2021.
Considering the past trends and the impact of the Covid-19 pandemic on the Millennials and other generations, the D2C shopping hype is expected to continue in 2022 as well.
Leading D2C brands such as Mamaearth are currently adapting to novel marketing tactics such as influencer marketing to leverage their D2C sales and improve branding. Moreover, Leveraging sales through social media such as using Instagram Feed on online stores is also one such effective marketing tactic used by brands.
We can clearly anticipate more and more brands and startups joining the D2C market segment with a massive success rate for a number of reasons.
The online D2C brands may also move towards reaching the customers physically after the pandemic. The number of offline D2C outlets is expected to rise with the relief from the offline shopping restrictions due to the ongoing pandemic.
Advantages of D2C
Direct to Consumer creates a win-win situation for the brands and the customers because of the plethora of advantages. Listed below are few of the advantages of D2C that every business owner must look for in 2022.
More Profits
One of the biggest advantages of D2C sales for the brands is the removal of the middlemen in the supply chain. This cuts down the profit margins shared by the distributors, wholesalers, and retailers. Also, it leads to a more efficient market demand-supply management.
Customised Shopping
Customised shopping experience can improve the customer experience and can lead to improved conversion rates. By connecting directly with the consumers, the brands can provide customised shopping experience to the end consumers by studying their buying pattern and past purchases.
Customer Data
Data is considered to be one of the most valuable digital assets and is going to be a new currency that will fuel most of the businesses. Using the D2C retail option, brands can gather customer data, analyse it to get better insights and make clever business decisions.
Enhance Brand Loyalty
Brands can stay in direct touch with the end consumers using the D2C model of business. This can enable the brands to maintain better relations with the customers and understand their needs. Over time, this can lead to improved customer trust and loyalty towards the brand.
Customers Prefer It
One of the biggest reasons for the businesses to switch to the D2C business model is the customers. The customers want to purchase products directly from the brands rather than buying from third-party retailers. However, it is not always true in all businesses.
Disadvantages of D2C
Businesses that are planning to switch to the D2C model must also get a clear picture of the challenges they will be facing while switching to a new business model. The D2C business model also comes with some disadvantages as well.
Conversions
Getting conversions in the D2C model can sometimes be hard for the businesses. The D2C model requires the brands’ own marketing efforts to reach potential customers and convert them.
Fierce Competition
More and more brands are currently heading towards the D2C business model and targeting the same customer base. As a result there is fierce competition for the new brands out there and it may require utmost resources and efforts to succeed in the D2C business model.
Complex Order Fulfilment
Getting full control over your business through D2C can be a great idea. However, managing the whole supply chain and fulfilling the order can be a complex task for the brands. In B2C models, the businesses are fully responsible for the order fulfilment right from the order placement to delivery, which may require extra efforts.
Also poor supply chain management and order fulfilment rate can negatively impact the overall brand’s reputation and customer satisfaction.
Conclusion
In a nutshell, the D2C business model is here to stay for a long time and millennials love it. Thepandemic has boosted the craze for D2C brands amongst the buyers and is expected to grow further in the upcoming years. It can improve the branding with a plethora of additional benefits for the business owners.
However, it is not suited for types of businesses. One must clearly analyse the advantages and the consequences before implementing it in their businesses. 2022 is going to be a massive opportunity for the businesses to shift to D2C and adapt to the market trends to get the most out of their business.
Author: Shivbhadrasinh Gohil
Shivbhadrasinh Gohil is the Wizard of Light Bulb Moments at Meetanshi. He is a Digital Marketer and has been optimizing Magento stores and Instagram Feed for Magento 2 since 2010. When not working, you can find him reading books or spending time with his daughter & son.