The Direct-to-Consumer Model: Why Brands are Driving Towards it?
COVID-19 forced physical stores to close, making online retail an increasingly essential alternative. In addition to the pandemic, the direct-to-consumer model further contributes to retail’s shift to the internet. The technological revolution has undoubtedly made it possible to cut out the middle man from the distribution chain in previously impossible ways. Are you thinking of switching to a DTC business model? What do you need to do to make a move? We’ll cover all of these questions in this post.
What is a direct-to-consumer business model?
We’ll start by defining DTC. Traditionally, you would sell your products to retailers, who then sold them to consumers. In the past, physical stores were the only option for customers to purchase products. Although email catalogs offered the chance of dealing directly, most businesses did not have the infrastructure to operate one adequately, so they relied on large retailers to sell the catalogs. Due to the availability of online shopping, the need for physical stores is waning, enabling consumers to bypass the middleman and buy directly from companies.
What is driving the market toward direct-to-consumer marketing?
Startups and major brands make the switch to DTC business models for a variety of reasons. Below are at least three factors that contribute to the decision.
- Multichannel retailers’ margins are shrinking.
As we’ve seen, Amazon, a large online retailer still primarily used by DTC companies, has taken significant business from brick and mortar stores. Due to this, they are more picky about what they sell, resulting in a margin reduction on the products they decide to sell.
- Consumer expectations are changing.
When the internet was just getting started, manufacturers had websites with a ‘where to purchase’ button with links to third-party retailers. Consumers today expect to be able to buy from the same site where they research products. Due to this phenomenon, more e-commerce entrepreneurs are creating digitally native brands that combine consumer packaged goods and technology.
- Technological advances
Using your home computer, you can now purchase products, place orders, and fulfill orders. DTC stores are more accessible than ever to create, making it easier for budding entrepreneurs and established businesses to offer new products on the market.
Direct-to-consumer tips: 5 tips for making the switch
The retail space is becoming increasingly crowded (and expensive) as competition increases, and hundreds of brands per category emerge. Companies must focus relentlessly on their customers and gain significant benefit from their direct selling model to control product development, brand voice, distribution, and, best of all, customer lifetime value. D2C could be an ideal way to increase your customer base and reach new ones beyond the constraints of geography and economics that you may face right now.
Consider the following factors before you begin.
- Assess the state of the market
Look at the current market conditions to see whether you can leverage legacy conditions with a D2C business model. Could customer pricing be improved? What is the extent of direct customer communication with legacy brands? What are the expectations of customers today? Do you have difficulty finding or purchasing current products? Is there a perfect product launch you can imagine for your company?
- Focus on simplicity
Generally speaking, D2C disruptors have offered simple products, though that is not always the case. Compared to the dozens of mattresses a store might offer, Casper initially sold just one or two beds. Imagine the difference between Harry’s razor and Gillette’s countless variations.
Think of Away or Allbirds’ shoe line’s luggage product line as an example (initially with just one model). It is sometimes necessary to demystify existing categories of products and ease the usage process.
- Be ready to embrace data.
If you’re a Direct-to-consumer brand, you should be passionate about data since you’re likely to spend a lot of time thinking about it.
It might be worth reconsidering moving to a D2C model if you don’t get excited about that! You need an integrated platform that fuses your development and customer data to know which products to launch, to whom, and when you should sell them. A few examples of the types of data you’ll collect are–buyer behavior (meaning conversion rates) by gender, age group, and geographic location; engagement by the time of day or day of the week; and refund data by buyer type.
- Find a CRM you love
Companies use customer relationship management (CRM) software to communicate and manage their relationships with existing and prospective customers.
Take the time to find the right CRM for your business’s needs, then work out how you can use it to help your brand. Since there are many CRMs available, there is no shortage of options.
- Get serious about customer service.
Customer service is the cornerstone of all D2C brands. To succeed in word-of-mouth marketing, you must create brand-loyal customers.
A new trend emerging in businesses is the realization that repeat customers and retention (in subscription businesses) are a much more effective means of boosting sales than constantly acquiring new ones. Prepare for the hiring of a customer support team, and teach them the secrets to success.
A few years ago, direct-to-consumer constituted one of the most challenging business models to get into, but now it is a profitable business model that anyone can adopt. The concept of going direct to customers is gaining ground with small startups as well as big brands. With technology facilitating online business, even more, we expect DTC to continue to grow in popularity.
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