Direct-to-Consumer (D2C): What lies behind the term

If companies want to sell products these days, they can no longer avoid an online sales channel. Online retail in Germany cracked the 100 billion euro revenue mark for the first time in 2021 - and the trend is rising. The company's own target group is spending more and more time online. Anyone who doesn't take place online these days will have a hard time increasing their own sales in the long term.

One abbreviation is currently dominating the trade like no other: D2C. What is meant by this is the term direct-to-consumer. In this article we will show you what is behind this approach, what advantages it brings and how you can implement a successful D2C sale.

D2C Definition: What is Direct-to-Consumer (DSC)?

In a nutshell, D2C or direct-to-consumer refers to the direct sale of products and services by the manufacturer. This means that the detour via intermediaries is eliminated.

What initially sounds like a mere sales channel opens up completely new opportunities for acquiring new customers, building intensive customer relationships and growing sales for companies thanks to digitization. But before we go into more detail about the advantages of the D2C approach, let's take a look at the past.

A look back - the background

Before the rise of e-commerce, there was one and the same approach in retail for a long time. Put simply, a manufacturer produced their products, which were then sold to a middleman, who in turn shipped the items to brick-and-mortar retailers. There the products were finally sold to the end customer. As a result, manufacturers and end customers never really had contact with each other.

Direct selling itself is not a new invention. Companies such as the vacuum cleaner manufacturer Vorwerk have already relied on sales without intermediaries in the past. The best-known example is probably the famous "Tupperware". However, what used to be possible only with a complex and costly sales structure, companies can now implement much more easily in e-commerce.

D2C - A new era in retail

Trade is in constant change. For many established companies, the D2C approach is a useful addition to sales via stationary retail.

Example: For a sporting goods manufacturer, selling its products through stationary sporting goods retailers was the norm for a long time. With the D2C approach, the manufacturer can now sell its articles directly to the end consumer via its own online store or an app and obtain valuable insights into consumer behavior.

However, a new dynamic is being triggered by new companies. What was unthinkable until a few years ago is already a reality today. Young companies are launching their own brands completely online, without any physical presence or detour via third parties - and very successfully. D2C brands such as Wildling, Shape Republic and Karlswrong are turning the industry on its head and showing what is possible online.

In the age of online retailing, competition for customers' attention is high. Those who are present online and reach their target group have great potential for customer loyalty and strong sales growth.

Direct-to-consumer is more important today than ever before

Direct access to its customers online is extremely important. The corona pandemic has made this clear to us with closed shops and hygiene and distance rules. As a result, people's shopping behavior has changed rapidly. Regardless of whether it's fashion, electrical and garden items or groceries, the share of online business is increasing in all retail sectors. Online is the “New Normal” .

In addition, consumers are becoming more demanding, especially when it comes to online sales channels. Today's consumer is mobile - and connected. The share of sales in online retail via smartphone is steadily increasing. This development seems logical: the greatest potential lies precisely where customers are. It is therefore not surprising that shopping via social media is on the rise.

The younger target group in particular is making its purchasing decisions more consciously. Nowadays, sustainability as well as social and ethical aspects play a major role in purchasing decisions. Brands today need to communicate more transparently and openly. And the best way to do that is through direct contact with potential customers.

In the direct-to-consumer approach, the manufacturer takes over production, marketing, sales and customer relationship management. What initially sounds like a lot of work also offers a lot of advantages for producers.

D2C: The advantages of the approach

People's shopping behavior is changing more and more. Customers' demands are changing, and traditional distribution channels are being broken up more and more. If you want to be successful in the future, you have to know today what customers will want tomorrow. Direct contact with customers is becoming increasingly important in order not to get lost in the competition and to prevail in online retailing.

The growth potential offered by the direct-to-consumer model is more attractive than ever. A closer look at the D2C approach is worthwhile, because companies can benefit from it in several ways.

1. Independence from retail trade

In the direct-to-consumer model, brands are no longer dependent on retailers. Full control over product presentation, pricing through to customer service lies with the manufacturer. Producers are free from rigid volume targets and price pressure from retailers. In addition, with direct-to-consumer sales online, there is no danger of being pushed off the shelves by retailers' own brands.

2. Cost savings - a win-win for all sides.

At the end of the day, it's all about money. On the one hand, the D2C approach makes it possible to save on unnecessary distribution costs. On the other hand, the elimination of intermediaries increases manufacturers' profit margins.

But the direct-to-consumer model is also worthwhile for customers. In the traditional retail trade, a surcharge of around two and a half times the purchase price is added. This markup does not apply in D2C retailing. Purchasing products directly from the manufacturer is therefore often cheaper.

3. Direct-to-consumer relationship - The data in their hands.

The business relationship in the direct-to-consumer model is in the hands of the manufacturers. Along with first-hand information about customers and their needs. Manufacturers now learn directly what works and what doesn't. Through the direct customer relationship, data can be collected on the entire customer journey. This means that manufacturers can serve customers' wishes in a more targeted manner and produce in a more targeted manner.

4. Marketing that pays off - With D2C to more effective marketing measures.

Data is the new gold in the digital age. If you know a lot about your customers, you can tailor your products and services perfectly to their needs. With the right data, you can tailor your marketing measures to the respective customers. The focus is on the individual customer approach. Avoid marketing frustration among customers through inappropriate advertising and strengthen customer loyalty with personalized offers.

5. Focus on the essentials

The product range of classic D2C brands is relatively small, especially at the beginning. However, focusing on specific products enables a high degree of personalization. This is a point from which established companies can also learn.

With a direct line to customers, providers can address customers' needs in a targeted manner. Thanks to direct feedback through close communication with their customers, product developments can be made much more targeted. Goodbye production for the gray mass market!

6. D2C - Customer loyalty made easy

D2C is more than just a sales channel. Ultimately, it's about building customer loyalty through individual services. An individual customer approach and direct interaction with the consumer strengthen customer loyalty. The long-term success of your own company is built on loyal and returning customers. This customer group buys different products more often. At the same time, these customers are less price-sensitive, incur fewer service costs and are more likely to recommend products to others. A classic win-win situation.

7. Turn your customers into fans - More growth through the community

In the D2C business, your customers are not just revenue generators. The business relationship does not end with the purchase of their product. On the contrary, this is where it really begins. Through direct and close communication, you can bind your customers to your company. By building a community around your brand, you can enable customers to identify with the brand and thus increase loyalty to the company.

8. Flexibility in pricing and offers

Flexibility in pricing and offers is one of the key advantages of direct-to-consumer (D2C) sales. In the D2C model, companies have the ability to adjust their pricing strategies and offers as needed to respond to market changes, customer preferences, and other dynamic factors.

9 Innovation and personalization

Innovation and personalization are two key pillars of direct-to-consumer (D2C) sales that enable retailers to differentiate themselves from the competition and deliver a superior customer experience. The combination of innovation and personalization in the D2C model enables retailers to offer unique products and services that meet customer needs while building deeper relationships with their customers. This helps drive the growth and success of D2C brands.

10. higher profitability in niche markets

Higher profitability in niche markets is one of the notable advantages of direct-to-consumer (D2C) sales. Overall, focusing on niche markets in the D2C model enables higher profitability through targeted audience, lower competition, higher price elasticity, closer customer loyalty, more efficient marketing spend, and the opportunity to innovate. This approach can help D2C brands build a solid foundation for sustainable success and growth.

The challenges in D2C sales

Although direct-to-consumer (D2C) sales offer many advantages, there are also some potential disadvantages that should be considered during implementation:

High competition

Competition can be intense in the D2C space, especially in established markets. As more companies adopt the D2C approach, it can be difficult to stand out from the competition and find a unique positioning.

Requires resources and expertise

Establishing and managing a D2C sales channel requires time, resources and expertise. Companies must deal with e-commerce platforms, logistics, payment processing, customer support and other aspects of the business. This can be especially challenging for smaller companies.

Complexity of customer acquisition

Acquiring customers in the D2C space can be complex, especially if the company is not yet an established brand. It may be necessary to make significant investments in marketing and advertising to attract customers to one's D2C store.

Logistical challenges

Logistics in the D2C model can be complex, especially if the company sells physical products. Warehousing, shipping, returns management, and delivery time are all important aspects that must be carefully planned and managed.

Limited reach

Compared to established marketplaces or merchants selling through retail stores, the reach of a D2C business can be limited. This can make it difficult to reach a broad customer base, especially in global markets.

Financial burden

Launching a D2C business typically requires an initial financial investment. This investment may include e-commerce platform costs, website development, marketing activities, inventory, etc.

Lack of market expertise

When a company is new to the D2C space, it may initially lack market expertise and experience. This can lead to wrong decisions and affect the success of the D2C business.

Dependence on technology

The success of a D2C business relies heavily on technology solutions, including e-commerce platforms, payment processing, website functionality, etc. Technical issues or disruptions can negatively impact business operations.

Although D2C offers many benefits, companies should also consider the potential challenges and drawbacks and make an informed decision about whether this approach is right for their business strategy.

Tips for successful D2C sales

Selling your products directly online requires some preparation. We have summarized the 5 most important tips for your successful D2C store.

1. Invest in logistics solutions

Direct-to-consumer sales require a lot of effort, especially on the logistics side. Invest in suitable logistics software and sufficient personnel at an early stage, because your customers are used to fast delivery times.

2. Let your products speak for themselves

Your customers only come into contact with your products via the online channel - touching and trying them doesn't work. This makes a compelling product catalog all the more important. Provide high-quality product images and accurate descriptions. Suitable search terms help your customers to find the optimal product. 3.

3. Keep an overview of your stocks

Especially if you combine several sales channels, you must not lose sight of your inventories. Keeping your inventory in sync via inventory management software is the key to success.

4. Increase your reach

Especially in the beginning, you are fighting for the attention of your potential customers. Use creative advertising campaigns to increase your visibility and raise interest in your products. Use the help of experts and the data available to you!

5. Build trust

Once your customers land on your online store, you need to break down the barriers to their purchase decision. You can create trust in your products with product reviews from previous buyers. Effective customer service should be on hand to help your customers with any questions and dispel any doubts.

Trends in D2C retailing

D2C distribution is a dynamic and constantly evolving industry, influenced by changes in consumer behavior and technology. In the following, we would like to show you which trends are currently taking shape:

• Personalization and customer experience: D2C brands are increasingly focusing on personalized offers, recommendations and tailored customer experiences. By leveraging data and technology, they can better understand customers and address them individually.

• Sustainability and ethical consumption: Consumers increasingly value sustainability and ethical consumption. D2C brands are increasingly relying on environmentally friendly production processes, sustainable materials and transparent supply chains to meet this demand.

• Direct social impact: D2C companies use their platforms to promote social messages and causes. They actively engage in social or environmental initiatives and appeal to a values-driven customer base.

• Diversified sales channels: In addition to their own online store, D2C brands are increasingly using various sales channels such as social media, marketplaces, and pop-up stores to reach and engage their target audiences.

• Mobile commerce and app integration: As more consumers use mobile devices for shopping, D2C brands are investing in mobile optimization and developing their own apps to enhance the shopping experience on smartphones.

• Digital communities and influencer collaborations: D2C brands are building digital communities where customers can interact and provide feedback. They are also increasingly collaborating with influencers to increase their reach and get authentic recommendations.

• Subscription models and memberships: D2C brands are increasingly offering subscription models or memberships that include regular deliveries, exclusive offers, or access to premium content.

• Innovative technologies: Artificial intelligence, augmented reality and virtual reality are increasingly being used in D2C sales to improve the shopping experience, present products in a more interactive way and bind customers closer to the brand.

• Direct customer feedback and agility: D2C brands use feedback directly from customers to adapt products, drive innovation and respond faster to market changes.

• Internationalization and global expansion: D2C companies are increasingly expanding their reach across national borders, using technologies such as e-commerce platforms and local marketing strategies to target international customers.

D2C vs. B2C - the differences

D2C (Direct-to-Consumer) and B2C (Business-to-Consumer) are two different approaches in e-commerce that focus on the sale of products to end consumers. The main difference lies in the way products are sold:

Distribution channel

In the D2C model, companies have full control over the distribution channel and can deliver their products directly to customers without relying on intermediaries or retailers.

In the B2C model, companies often have to work with retailers or distributors to sell their products to end consumers, which can lead to less direct control over the distribution channel.

Customer relationship

D2C companies often have a more direct relationship with their customers as they can interact with them directly and gather feedback. This allows them to tailor their products and services to the needs of the customer.

In the B2C model, the relationship between companies and customers can be more indirect, as it is mediated through retailers or other intermediaries. This can limit the ability to get direct feedback from customers.

Pricing and margins

D2C companies often have more flexibility in pricing their products as they are not dependent on the specifications of retailers or wholesalers. This allows them to maximize their margins and directly influence the selling price.

In the B2C model, companies may be able to achieve lower margins due to intermediaries or retailers, as part of the profit goes to these intermediaries.

Brand awareness and perception

D2C companies often have the opportunity to build their brand awareness and perception directly with consumers, especially through social media marketing and direct customer interaction.

In the B2C model, brand awareness and perception often depends on presence in retail stores or other distribution channels, which can lead to different consumer perceptions.

Conclusion

The direct-to-consumer business model represents an interesting approach for both established and new companies to sell their products. Direct contact with customers is becoming increasingly important in global competition. Today, it is no longer just a matter of generating sales, but also of positioning one's own company for long-term success. The D2C approach can help by building strong customer relationships.

Setting up online sales channels is easier today than ever before. Whether it's an online marketplace or your own online store, there's nothing standing in the way of establishing your own online presence today.