Proof of Concept: What It is and How to Do It Right
Before developing an idea into a product, there’s a crucial step that every business must take: executing a successful proof of concept. Learn more.
The rise of direct-to-consumer (D2C) brands has led to a rise in new product ideas and brand concepts, and this is driving a growing market of third-party companies and platforms offering specialized solutions for the D2Cs’ entrepreneurial needs.
Many D2Cs are building thriving businesses entirely out of third-party platforms. Others choose to use third-party providers just for some aspects of the business, while yet other D2Cs maintain their entire business pipeline in-house.
There is no hard and fast rule, but for many D2Cs, third-party platforms are the no-brainer choice. Just one e-commerce platform, Shopify, hosts over 1,000,000 online stores. Take into account the dozens upon dozens of platforms — from manufacturing through sales and marketing to shipping — and there is likely no D2C in the world that is untouched by the influence of third-party platforms.
But what are the differences between third-party and in-house solutions? And why do so many D2Cs choose to adopt third-party platforms? Let’s take a look.
The decision to go in-house or to employ third-party platforms is an individual one and will depend on many aspects of the D2C company — its size, the complexity of the product, the skills and capabilities of the team, budget, and more. Here are some of the key differences to consider:
In order to manage the supply chain in-house, D2C brands need to invest in the necessary infrastructure, such as floor space, equipment, technology, and staff. For D2Cs with a larger production volume or complex operations, this requires huge resources. Brands who do not have the time or budget to build infrastructure can leverage the already-existing infrastructure and capabilities of third-party platforms, for nothing more complicated than an ongoing fee.
The D2C supply chain demands different expertise at every stage. The skills required to manage an online store are entirely different from those necessary to handle the logistics of warehousing and shipping. If a D2C goes in-house, it will need to employ and train a wide employee base with the expertise to operate every aspect. By using third-party platforms, D2C brands can rely on the existing expertise of outsourced companies, which saves enormous resources involved in recruiting, training, and retaining in-house experts.
For more on third-party logistics providers:
A key difference between using in-house or third-party platforms is that of control. One of the main strengths of D2C companies operating entirely in-house is their control of the entire supply chain, from the initial idea, all the way to the relationship with the end consumer. Third-party platforms disperse that tight control away from the D2C. However, with the right partnership, proper supervision, and optimized integration of in-house and third-party systems, the brand can still maintain uniformity of product quality, marketing messages, brand identity, and data integrity.
D2Cs operate the entire supply chain, and this demands disparate capabilities and skills. Here are the types of third-party platforms that D2Cs often use to handle operations along the length of the pipeline:
Many D2Cs outsource design and manufacturing to factories with experience in their niche. However, more and more are now turning to product design companies that cater specifically to D2Cs, such as 3D printing companies, like Shapeways and Kickr Design, or full-stack product design and manufacturing specialists, like Parcel Supply. Using third-party providers for the development-to-production stage is often far less costly and time-consuming than establishing and operating in-house departments. Plus, third-party startups use advanced tech-based solutions and are better equipped than standard factories to meet the unique needs of D2Cs, including high quality with fast turnaround times, and specialist designs at affordable costs.
A key difference between D2C and the traditional B2C model is the direct relationship between the brand and the consumer. D2Cs selling on their own websites hold complete control over their brand identity, marketing activities, customer relationships, and customer data. This is a huge advantage and one that is difficult to give up. However, many D2Cs are also turning to third-party marketplaces and e-commerce platforms, like Amazon, Wish, and eBay. Working with third-party marketplaces, D2C brands can reach a huge, established, global customer base. Rather than waiting to build up their own website traffic, which can take years, D2Cs can benefit straight away from over 2 billion monthly visits to Amazon alone. Third-party marketplaces drive valuable exposure for a new brand and help build social proof with recommendations and ratings.
The burgeoning Retail-as-a-Service (RaaS) model is also impacting the D2C industry, with a growing number of RaaS platforms offering branded, service-oriented, and experiential experiences at the in-store point of sale.
For D2Cs who want to maintain control of their entire e-commerce infrastructure in-house, there is the option to use a third-party e-commerce platform, like Shopify or Big Commerce. Another alternative is to build a WordPress website and integrate it with e-commerce plugins to customize the platform as necessary. Some D2Cs choose a third option, and that is a full-stack solution, such as Seller Deck or Channel Advisor, that offers bespoke online store solutions — from design and development to marketing and payment processing. Although a full-service provider will be more costly than a DIY third-party platform, an end-to-end customized solution has the advantage of completely streamlined management and operations for D2Cs, which means less use of in-house resources (and fewer headaches).
For additional reading on Shopify:
A common challenge for D2Cs is fulfillment, which covers order processing, packing, shipping, distribution, returns, and exchanges, all over the world. For online retailers, mistakes in fulfillment typically cover 20% of logistics costs. In addition, order fulfillment is a key factor in customer satisfaction. Consumers want fast shipping, and high shipping fees are a big cause of cart abandonment. There is little room for error, yet mistakes abound, and they are costly.
Self-fulfillment, handled completely in-house, demands a deep infrastructure and high resources. This is possible for highly specialized D2Cs that offer personalized products, and for companies the size of Amazon that are big enough to build and maintain the fulfillment infrastructure. Yet most D2C brands do not fall into these categories, so they engage third-party logistics companies to handle shipping and distribution. In this case, the D2C merely ships its products to the third-party provider that handles all aspects of fulfillment on their behalf, including warehouse management, packaging and shipping, and coordinating returns.
The D2C supply chain is complex and demands numerous capabilities and technologies. Depending on the niche and type of product, these will differ greatly. Manufacturing of food products, for instance, requires highly specialized and regulated operations that meet strict standards of quality, health, and safety.
Third-party platforms are specialists in their particular field, which means D2Cs can benefit from high-level expertise without having to invest in developing it. Rather, by simply outsourcing, D2Cs receive levels of service that would take years and hefty budgets to create in-house.
Third-party platforms have already built the necessary infrastructure to do the job. D2Cs only need to “plug and play” to access it. A D2C may choose to use third-party platforms for most or all of their supply chain. Or they may develop in-house operations to serve specific needs, and “fill in the gaps” with functionality provided by third-party platforms. This gives the D2C an advantage of much faster time to market and less capital investment requirement upfront.
D2C brands are known for their “disruptive innovation” — challenging traditional retailers and slowly displacing them as the leader in their category. This requires a certain ingenuity and “thinking out of the box” attitude. D2C brands who use third-party platforms can free up lots of time, manpower, and money that would be wasted in various rote operations, like order processing, leaving more room for creative juices to flow. This leads to innovation and development, which is vital to success in the D2C space.
A key aspect of the D2C business model is the direct line between manufacturer and consumer. This has effectively ruled out the middleman, giving D2C brands total ownership of their pipeline. However, total ownership requires enormous resources. Rather than building and maintaining in-house infrastructure and manpower for the various operations of the company, smart D2Cs tap into the advantages of third-party platforms when and where they need to.
Check out this Shopify checklist to measure your success:
Last updated on December 6th, 2022.