Between business-to-business (B2B), business-to-consumer (B2C), and consumer-to-consumer (C2C), the world of commerce today is a bowl of veritable alphabet soup. But what about direct-to-consumer (D2C)? This is a more recent addition to the retail landscape and has quickly gained ground as one of the fastest-growing and most important models of commerce worldwide.
What is D2C?
D2C is a retail e-commerce model that facilitates the sale of products straight from the manufacturer to the consumer with no middleman. The D2C model eliminates the need for traditional distributors that would typically handle the delivery of products from the manufacturer to the retail store shelves.
Here are some of the characteristics that define a D2C brand:
Direct to the end consumer
In D2C, the manufacturer is also the seller. There is no third-party serving as the interface with the end consumer. D2C brands are responsible for producing, packaging, marketing, selling, and distributing their products directly to the customer without having to split the margins with distributors and retailers.
D2C companies are “digital-first," which means the brand’s relationship with consumers is managed entirely via the web — marketing and sales, customer support, fulfillment, returns, and exchanges. A digitally-native approach helps reduce overheads since there are no costly retail stores to operate.
D2C transactions take place online, so D2C falls into the e-commerce category. However, many brands also adopt a physical retail presence, in the form of brick and mortar stores, pop-up stores, and co-marketing with traditional brands in their retail outlets. For D2Cs, the aim of a physical store is not necessarily in-store sales. Rather, it's designed to boost brand awareness and customer engagement that will encourage more sales online. It's part of the D2C omnichannel customer experience that blends digital and real-world elements.
Casper Mattresses — A Case Study
Although it’s a relatively new category, the world of D2C is exploding, and there are thousands of D2C companies challenging standard retail practices across all consumer goods segments. Consider the example of Casper mattresses, one of the most successful challenger brands of all time. Established in 2014, Casper completely disrupted the traditional consumer experience of purchasing a mattress. The company developed a simple, high-quality foam mattress that could be squeezed into a box and delivered directly to the customer’s door.
At first, the idea that people would buy a mattress online was revolutionary. Aside from the product and pricing, Casper also offered convenient and attractive benefits, such as free shipping and returns, a 100-night sleep trial, and extended warranty. These perks succeeded in offsetting consumer doubts about purchasing a mattress over the internet without trying it first. Casper’s success can also be attributed to its digital marketing activities, including powerful influencer campaigns. In 2015, Kylie Jenner’s Instagram post showing her delivery of a Casper mattress helped break sales records.
As the brand grew, Casper moved into the physical retail space, opening “Sleep Shops” and displaying its merchandise in brick and mortar stores such as Target. Today, Casper is a billion-dollar company that has spawned a slew of copycat mattress brands and turned the online mattress industry into an empire.
As one of the fastest-growing forms of retail, D2C has its pros, but it also has its cons.
The Benefits and Challenges of D2C
Direct contact with customers
D2C companies manufacture and sell their products directly to the end consumer, so there's no middleman or distributor. This enables D2C brands to cultivate strong relationships with the people actually buying their products, and gain deep, valuable insights into their target market. For example, long-standing office supplies company Quill strengthened its D2C approach with Quill Ideas, an online suggestion board where customers can offer feedback and ideas for ways the company can improve. This direct communication is a powerful way to find out what customers are thinking and follow up with effective changes.
For D2C brands, there are none of the overheads of managing traditional retail stores, such as rent, insurance, store design, transport of goods to and from the store, or sales staff. With fewer costs associated with online sales, D2C brands enjoy increased margins. D2C brands can pass on some of these savings to customers, undercutting traditional retailers with more competitive pricing.
Focus on marketing and branding
While traditional B2C manufacturers rely on distributor and retailer networks to handle product marketing and promotion, the success of a D2C brand wholly depends on the success of its digital marketing activities. D2C brands must invest heavily in sophisticated marketing and branding to differentiate themselves and cultivate a powerful presence online that will build awareness, engage audiences, and grow their customer base.
Agility and flexibility
D2C brands own the entire product pipeline, from manufacturing to marketing, distribution and customer support. With no middlemen to contend with, and by facilitating direct communications with the end consumer, D2C brands can adapt their products, operations, and marketing according to customer feedback and market trends, far more quickly and flexibly than they would in a traditional B2C setting. This, in turn, contributes to faster improvements, better brand performance, and increased sales.
Handling distribution and shipping
A D2C company must manage all aspects of order fulfillment, from manufacturing the product to processing the payment, shipping the item, and handling post-purchase aspects such as returns and exchanges. This requires a far larger set of logistics skills and capabilities than regular B2C brands.
Distribution and shipping are sometimes handled in-house by the D2C brand alone, which can be costly, or by outsourcing to specialist companies — which creates a new set of challenges. In addition, the “last mile” of the delivery process, which is the final journey of the package from the fulfillment warehouse to the customer’s doorstep, is often handled by third-party couriers, and the experience can be fraught with difficulty, including late deliveries, broken packages, unfriendly delivery staff, or complicated return and exchange procedures. In response to this challenge, companies offering specialized and personalized “last mile” services are springing up in major cities, providing D2C brands a better alternative to their last-mile delivery experience.
The bottom line is that if a company sells directly to the end consumer, it can safely be said that it is indeed a D2C brand. While operational details (like specific shipping and distribution practices) may vary, getting rid of the traditional retail distribution component is a key characteristic of a D2C brand. And once its identity is established, a brand can focus its energies and resources on taking the necessary steps to succeed in the world of D2C retail.