The explosion of Direct-To-Consumer (“D2C”) brands disrupt the way traditional brands sell their products and services and change the way brands build relationships with their consumers. As e-commerce continues to evolve, we’re seeing more and more brands moving to a direct-to-consumer strategy. Today’s new generation of disruptive brands transforms the way people shop as they build, market, and sell their products without the middlemen. It allows brands to provide an end-to-end brand experience as they retain control over the entire process.

You might be wondering, why would brands want to take on this added responsibility when they can easily keep selling through retailers and wholesalers? It is due to the evolving needs, expectations, and behaviors of the modern consumer. Consumers are expecting more personalized and authentic engagement with brands. Direct-to-consumer brands recognized this consumer need within the market and have adapted accordingly. This consumer need will continue to grow, so companies now need to cater to this evolving consumer need. Otherwise, they will fall behind.

What is direct-to-consumer (D2C)?

Direct-to-consumer (D2C) is a strategy that allows manufacturers and CPG brands to sell and market their products directly to the consumer by bypassing retailers or any middlemen. D2C brands often market and sell their products via online mediums. Some key attributes of D2C brands include their ability to attentively respond to consumer feedback and collect first-party consumer data that guides business decisions.

Why are brands going Direct to Consumers?

Consumer beliefs and behaviors are changing fast.

We’re seeing the shift towards D2C resulting from high consumer expectations. Consumers are expecting much more from brands to provide personalized and authentic service. 54% of consumers expect to receive a personalized discount within 24 hours of their first contact with the brand. D2C brands are better able to create customizable experiences for their consumers through direct sales and marketing channels compared to brands that rely on retailers to sell and market their products. The key element in D2C companies that allow them to easily cater and adapt to evolving consumer demands is their ability to gather first-party data. These brands are able to constantly learn and understand their consumers' needs. In turn, their consumers are more likely to continue engaging with these brands as a result of their positive experiences with the brand.

We are also seeing consumer behaviors changing rapidly, with a massive shift towards online shopping that has been propelled by the pandemic. As a result, 75% of consumers in the United States have tried a different way of shopping. Even though some of these behavioral changes were caused by COVID-19, brands need to find ways to satisfy the consumer needs in its current state and post-crisis period. According to one study, 81% of US consumers reported that they will make at least one purchase from a D2C brand within the next five years and a third of US consumers plan to do at least 40% of their shopping from D2C companies in the next five years.

Benefits of D2C Strategy

Low barriers to entry

Entering the market directly often means that D2C brands sell their products via online mediums. Not only is this more cost-effective than traditional brick-and-mortar stores, but it provides low barriers to entry. It eliminates the reliance on retailers or resellers to get your products in the market.

For example, it takes between 18 to 36 months for a new CPG product launch to reach the shop floor. As most traditional CPG brands are publicly traded companies, they will need to prioritize the needs of their shareholders and it may be difficult to convince them to take a chance on a new innovative product without a sales history. D2C brands can mitigate these risks by launching new products on a smaller scale, test them within a tighter demographic, and gather their feedback. This way, D2C brands are able to better understand what their consumers truly want and get their products to the market quicker.

Increased control over brand merchandise and product messaging

In traditional manufacturing-retailer relationships, manufacturers could only have full control over their packaging and their outbound marketing activities such as commercials and advertisements. Once the product hits the store shelves, brands no longer have control in influencing the sale. If the retailer struggles to sell their product then brands risk incurring a loss.

D2C strategies allow brands to have a more meaningful impact on their consumers as they maintain control from the start when consumers make the initial engagement to the end when the product has been purchased. Since D2C brands don’t have to rely on retailers to sell their products, they have more control over the entire process from the product design, brand messaging and reputation, to customer service.

Gain access to first-party data

Consumer data could be gathered from market research and conducting focus groups. However, this is not necessarily enough to get a good understanding of your consumers. Interacting with them directly throughout the consumer journey is a better way to gain insights into your consumers’ preferences, lifestyles, demographics, and path to purchase.

With D2C, brands are able to obtain invaluable consumer data through direct interaction with their consumers. This first-party data is owned by D2C brands and competitors do not have access to this same data. With a data-driven business model, brands are able to tailor their product promotions to their consumers’ needs, target specific behaviors and create a hyper-personalized consumer experience.

Easier to build consumer relationships and understand consumer needs

It can be challenging to create a unique shopping experience for your consumers when you’re selling your products or services through other retailers or marketplaces. With D2C, brands can own and nurture their consumer relationships by leveraging their data-driven understanding of their consumers’ behaviors to deliver a more targeted value proposition. As a result, they are able to easily build relationships with their consumers and thereby cultivate strong customer loyalty.

Challenges of D2C Strategy

Whilst there are plenty of opportunities that arise from going direct to consumers, it also comes with some challenges.

Digital Marketing

Although the online aspect of D2C brands poses many opportunities to reach a larger audience, the challenge arises when it comes to driving them to your site and converting them. D2C companies are all competing through the same online channels and targeting the same consumers - mainly millennials. This is driving up the average cost of acquisition, which puts more emphasis on the importance of customer retention. It is crucial that brands evaluate the optimal mix of direct channels to better focus their consumers’ attention and investment.

Effective control of Customer Relationship Management (CRM) data and analytics

Going direct to consumers means that you are exposed to a plethora of consumer data. Brands need to be able to store, manage, and interpret the data quickly and efficiently. Data helps inform business decisions so it must be digested properly. If you can identify data that allows you to proactively meet your consumers’ expectations, you’ll be able to better serve them.

Warehouse and logistics

Having a dynamic view of the entire order lifecycle, from transaction to delivery, is crucial for D2C brands. The smallest change in delivery or damage to packaging is enough for consumers to take their frustrations publicly, and potentially make the switch to a competitor. In today’s consumer environment, there are high expectations for products to be delivered on time.

Examples of D2C Brand

Whilst there are numerous D2C brands popping up in the market, we’re seeing an increase in legacy brands incorporating D2C elements into their business model. Industry leading brands that have long relied on retailers are starting to recognize the advantages of D2C strategies.

For example, Gillette introduced its on-demand shaving supply service in 2017 in response to their D2C competitor, Harry’s and Dollar Shave Club. Gillette’s consumers are now able to purchase blades online directly from Gillette when they need or build a custom subscription.

For existing brands that market and sell their products and services through retailers or resellers shouldn’t completely disregard their current business model. But rather, they can start incorporating aspects of D2C strategy into their existing model and determine how it can work for them. An easy way to get started is by capturing first-party data at each point of contact with your consumers along the path to purchase.

Is D2C really here to stay, or is it just a passing fad?

D2C companies are all the rage right now as society moves towards more of a digital world. Even legacy brands are rebuilding their business models to create direct connections with consumers. The main reason why D2C companies have achieved much success in recent years is because they are better able to cater to the evolving needs of today’s consumers by providing them with highly personalized and authentic service. This consumer need isn’t going away - rather it will continue to evolve and brands will have to adapt to keep up in the market.

The question isn’t necessarily whether D2C will “phase out” but rather, ask yourself whether or not your company can continue to operate using a D2C business model effectively and profitably well in the future?

So will we see big brands selling directly to consumers instead of through retailers?

This completely depends on whether or not the individual brands are able to implement a hybrid business model to ensure both online and in-store operations run effectively and efficiently. It may work for some big brands and not for others. As we’ve seen, Gillette has jumped onboard with their online on-demand razor subscription service and we may see more similar legacy brands do the same with the way consumer demand is evolving.

A D2C strategy is not a guaranteed formula for success - those who implement this strategy without considering all factors and implications will no doubt fail. However, as long as your company can adapt your business model and strategy to cater to constantly evolving consumer demands, then a D2C strategy would be a good fit for your business.

Incorporate D2C tactics into your business model

Your business may not be ready for a complete restructuring, however you can still incorporate some D2C tactics and strategies into your existing business model. Adapt to the dynamic consumer and economic environment by optimizing your first-party data collection. With 3 tier logic, our innovative marketing platform allows brands to host and launch their promotion and loyalty programs, whilst tracking the progress in real-time. The Data Capture & Analytics dashboard features invaluable insight on consumer purchasing behavior, consumer demographics, and brand expenditure. Ask our team about personalizing your promotion and loyalty programs now.

What is Direct To Consumer (D2C) Strategy?