September 23, 2020
Direct to Consumer Business Model, retail business, retail business model, business model, shopping cart

What is Direct to Consumer Business Model in Retail Business?

The rise of digital has encouraged brands to focus more on customer communications. Gone are the days when manufacturers had no idea who their customers were. They relied on middle entities like distributors and wholesalers, who were the flag bearer of their brand.

But with data being the standalone currency of business, brands have shifted their focus to customers. Companies are now communicating more with their customers and focusing on improving their experience.

This has led to the rise of the direct-to-consumer (D2C) business model. Here’s a quick guide to what is direct to the consumer model and how your business can benefit from it.

Direct to Customer business model: An overview

So, what does direct to consumer mean? Here’s direct to consumer definition. Direct to Customer, or D2C, is a low barrier-to-entry eCommerce selling strategy that allows CPG brands and manufacturers to sell directly to the customer.

D2C vs. traditional sales

A traditional supply chain includes the following participants:

Supplier – Production – Distribution – Customer/Consumer

In this model, the final product goes to wholesalers, distributors, and retailers before reaching the end customer. Thus, it often involves lengthy negotiations, and the product takes more time to reach the user.

As the direct to consumer definition suggests, the D2C model allows companies to cut out the middleman and let customers directly shop online from them. This allows manufacturers to provide products to their customers at the actual manufacturing prices. Besides, it also allows businesses to get feedback quickly and work towards improving customer experience.

Typical characteristics of a D2C business model

Since you know what is direct to consumer, let’s take a look at its features. Most direct to customer business models share the following characteristics.

  • They enter a low barrier-to-entry industry.
  • They are passionate about their customers.
  • They are capital flexible. If required, they can lease and rent their operations.
  • They prioritize customer experience and understand the need to communicate with their
  • They don’t have any middle party involved and ship directly to their customers.
  • They have more pricing flexibility compared to legacy retailers.
  • They focus a lot on digital branding and marketing.

Benefits of implementing a D2C business model

From cutting the middleman to maximizing profits, there are a bunch of reasons why you should consider taking your brand directly to your customers. Now that you know what does direct to consumer mean, let’s take a look at the benefits of using a direct-to-customer approach for your business.

No need for the middleman

When you reach directly to your customers, you eliminate any distributors or retailers standing between you and your customers. Therefore, you can get rid of entities that are cutting down your profit.

Let’s say your business sells custom t-shirts. You follow the traditional business approach, so your product goes to a wholesaler, then to a retailer, and then finally to your customer. You’ll need to sell your products to the wholesaler for a price low enough that they can resell to the retailer for a profit.

Then, the retailer will further increase the price to take their share of the profit. Thus, you’re earning less, but your customers are paying more – it’s not a fair deal for any of the two parties.

In the direct to customer business model, all such middle entities are eliminated, so you can sell your products directly to your customers.

Better connect with your customer

When you rely on other parties to sell your products, you’re missing out on crucial customer data that could be valuable to your brand. Besides, data is the fuel for businesses in this digital world. When you sell your products using the direct to consumer retail model, you get a chance to interact with them in person. You can collect their emails, ask them questions, get their feedback, and send customized offers.

Sell globally

When you rely on a middleman, taking your business international can be difficult. You have to move your inventory and deal with local distributors and retailers. In the direct to customer business model, you can set up a website and sell your products anywhere in the world. But of course, you’ll need to have international shipping capabilities. Desertcart is an excellent example of having international shipping capacity and selling globally.

Control the story of your brand

When you rely on third-party distributors for selling your products, you give them the control of your brand. The experience your brand provides will depend on how the local retailers treat your customers. If your customers don’t get an optimum experience, they might never shop from you again. In the direct to consumer retail model, you have complete control over your brand story, and you can tailor it as per your customer data.

Be everywhere

When you follow the traditional supply chain model, your brand will be dependent on a few large outlets. Not only will it limit your reach, but it will bind you in agreements and limited price flexibility. When you sell directly, you can deploy multi-channel marketing and reach people across the globe.

Are there any disadvantages to the D2C model?

The direct to consumer retail model gives you more control over your brand and customers. However, it can lead to a few challenges, as well. These include:

Reduction of distribution channels: When you use the direct to customer business model, you’re limited to selling online only. And if you want to sell offline, you’ll need to set up your own store, which can be quite expensive. In the traditional sales model, you can rely on a few popular retail stores to sell your products.

Increased internal workload: Running a business requires more than just making a product. You need to promote and sell it. Besides, selling includes further responsibilities, like taking orders, processing payments, and fulfilling orders. All of this can increase the workload of your in-house team.

Increased fulfillment costs: When you sell directly to your customers, you’ll need to bear the expense of delivering the products. In addition, there are costs associated with order-taking, credit-card processing, shipping expenses, and more. Therefore, the D2C model can lead to increased operational costs.

Final thoughts

Direct-to-customer selling has a plethora of potential business benefits. But it has its own challenges. It requires a significant shift in strategy, and you might face increased costs and workload in the initial stages.

So, if you’re looking to adopt the D2C model, don’t just understand the direct to consumer definition. Be sure to survey the current market landscape, focus on simplicity, prioritize customer service, and find a CRM you love.

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