Direct-to-Consumer Sales Models Give Companies More Control and Better Margins

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The rise of ecommerce has also helped produce an entirely new sales model: direct-to-consumer.

Before the internet became ubiquitous, most manufacturers relied on third-party retailers and marketplaces such as Walmart to get their products in the hands of consumers. After ecommerce took off, however, direct-to-consumer and the option to sell directly to customers became a norm.

Spurred by the pandemic, DTC sales were expected to surpass $150 billion in 2022, an increase of 16.9% year-over-year.

Pure DTC companies that completely remove wholesalers are carving out niches and reaching maturity. Subscription service models and ecommerce sites are often preferred over retail models and brick-and-mortar stores.

It’s a sales model that encourages brand loyalty, retention of the target audience, is growing and here to stay.

Best Examples of Direct-to-Consumer Brands

Direct-to-consumer companies are stretching across most industries and product types, bypassing in-store retail. Each has a very specific need for the end customer they are attempting to fill. Here are some D2C brands on BigCommerce:

Burrow.

Burrow sells modern furniture. Products are designed to be modular, making them utilitarian and fit for most spaces. By removing retail partners, they’re also able to provide quality products without luxury pricing.

Solo Stove.

Solo Stove appeals to the outdoors type with fire pits, camp stoves and even pizza ovens that reduce smoke and are easy to transport. They burn efficiently and are easy to maintain.

Method.

Method produces cleaning products, for both personal and home use. They have a focus on sustainability and push the ideas of refills to reduce waste.

Jennifer Taylor Home

Jennifer Taylor Home sells high-quality furniture that is primarily made by hand. They have an accessible design aesthetic that fits into most homes.

Bulk Nutrients

Bulk Nutrients sells supplements and other dietary aids. The Australian company sells products for every stage of a fitness journey.

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Using DTC to Boost Online Business

There are definite risks to embracing DTC, but the benefits may very well outweigh them.

For ecommerce companies and online retailers with a quality product line, you’re placing a large burden on your marketing strategy and online shopping experience, but if it pays off, your business will take off.

Higher margins.

Removing wholesalers and retail partners means that all profit goes to you. There’s no profit split with partners, meaning that every product sold is a full reinvestment back into the company.

Better market opportunities.

Higher margins can also be passed on to customers in the form of reduced prices. This can make you more competitive in the market, especially useful for growth companies. There’s also the option for dynamic pricing to quickly react to shifting market conditions.

More control over the customer experience.

DTC is in complete control of the customer journey, which can’t be said of traditional retail partnerships. You are able to control how customers interact with your company, on whatever channel you’re selling through.

You’ll have greater flexibility in targeted marketing and to provide superior customer service. More direct customer feedback can also help you improve the customer experience, allowing you to respond more quickly to trends, changes in shopper demand or shifting consumer behavior. Physical stores can struggle here.

Owning customer data.

DTC retail creates one-on-one relationships with customers, including their data. Properly optimize and leverage data to help transform your decision-making, as well as reduce guess work and provide clarity.

That’s more difficult to do with a retail middleman. DTC also opens direct lines of communication for things like better targeted email marketing and better understanding of their interests through demographic research.

DTC Challenges to Keep in Mind

While DTC does have advantages, it also comes with unique challenges. These should be kept in mind when determining the best approach for your company.

Competition.

The popularity of DTC models in recent years means that more and more businesses are pivoting at least somewhat to it. Many — if not most — consumer brands have at least some sort of DTC option, making for a crowded market for less established companies.

Shipping and fulfillment.

Logistics are hard and are a key component of an online store’s customer experience. You can have quality products, but if you have no good option to get them in the hands of customers, you’re not maximizing value.

Many DTC brands use third-party logistics and supply chain providers or even dropshippers to solve this, although it comes with a cost.

Customer service.

Creating one-on-one relationships with consumers means that you have to nurture those relationships as well. Taking on customer support by yourself can be a major challenge and could result in poor service. Partnering with an external vendor may be the best course of action for smaller companies.

Payment processing.

Ecommerce companies are acutely aware of the challenges of dealing with payments. Dealing with sensitive customer data introduces new burdens, so many companies work with Software-as-a-Service vendors like BigCommerce or Shopify for their solution.

Tips for Growing Your DTC Business

DTC is a growth model — but only if you’re smart about how to grow.

Successful DTC ecommerce brands are adept at recognizing how effective digital marketing can be and how to best leverage it.

Collaborate with influencers.

YouTubers, TikTokers, Instagrammers and other stars of social media are the new preferred digital channels to reach new audiences. Working with influential names in your product space is a quick and effective way to get your messaging in front of (sometimes) millions of new customers.

In many ways, it’s no different than any other media buy, you’re just bypassing the middleman, which makes sense for direct-to-consumer models.

Utilize referral marketing.

Loyal customers can be your best evangelists. Why not reward them by spreading the word about your products? An effective referral program does just this by rewarding customers for telling others about your products. It’s a fairly easy way to build a word-of-mouth campaign.

Offer multiple shipping and payment options.

Don’t make customers react to your limited options during checkout, give them the opportunity to pay for and receive products how they want.

For shipping, offer everything from express shipping to standard — and possibly with a free option. This includes transparency when shipping across borders.

Payments should include all common options, like credit cards or ACH payments, and include foreign currencies.

Gather and incorporate customer feedback and reviews.

Transparent feedback and reviews on ecommerce platforms build social currency. Including them on product pages — even negative ones — provides transparency around products and shows real-life experiences with what you’re selling.

Negative reviews should be addressed for added context, but even those can help set realistic customer expectations.

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The Final Word

Direct-to-consumer business models carry risks, but if a company works out, their ceiling is higher than if working solely through retail partners.

Even when working with retailers and wholesalers, a company should have a DTC component as an added channel. Not having a DTC strategy is a missed opportunity.

FAQ About Direct-to-Consumer (DTC)

What’s the difference between DTC and B2C?

B2C stands for business-to-consumer and refers to products sold by a business to end users. DTC stands for direct to consumer and occurs when a company sells its own products to end consumers.

The key distinction between the two is B2C may sell other brands beyond their own products, such as Amazon or traditional department stores.

How fast is DTC growing?

Quickly, beyond most markets. From 2021 to 2022, DTC sales were expected to surpass $150 billion, a 15.9% increase year over year. Everything from consumer packaged goods (CPG) to fashion are showing significant growth.

How does wholesale ecommerce work with DTC?

As legacy brands such as Nike have proven, they can work in concert with each other, although it helps if the customer experiences are somewhat differentiated. Working with wholesalers and distributors adds omnichannel sales, but can conflict with existing DTC options.

When launching new products, companies, including digitally native brands and even startups, should be mindful of market confusion and customer relationships when leveraging both options.

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