The world of e-commerce has a language all its own and one phrase you’ll hear consistently is that of direct-to-consumer sales. If you’ve ever considered selling directly to your potential shoppers, instead of using a wholesaler and brick and mortar store, then you will soon realize there is still a lot to learn about direct-to-consumer sales.
Selling directly to your customers has quite a few benefits both for you and your shoppers. If you’re an e-commerce business owner, or are considering starting an online retail business, then knowing the benefits of selling directly can allow you to create a lucrative venture.
But knowing the basics of direct sales and how to get started can be a little daunting. There’s a lot to consider as you jump into the world of selling directly to consumers. So before you make the plunge, we put together this guide to help you get started and understand the ins and outs of this unique selling business model.
This article will focus on the following:
- Defining Direct-to-Consumer Sales
- Different Types of D2C Companies
- Benefits of a D2C Business Model
- Risks With a D2C Model
- Getting Started in D2C Sales
- Marketing and the Impact to D2C Sales
- Tips for Getting the Most Out of D2C Sales
Defining Direct-to-Consumer Sales: What Exactly Is It?
Direct-to-consumer, or D2C sales for short, is the phrase used for a business model where you sell directly to the consumer, without selling your products exclusively in a brick and mortar store and purchasing the product at wholesale. Think of it as selling to someone without the middleman.
The D2C model works with both manufacturers of products and consumer packaged goods (CPG) companies. You don’t have to necessarily be a start-up either. You can be a company with an existing retail footprint and choose to sell a select number of products directly.
Practically since the dawn of the internet,there has been a focus on direct-to-consumer sales — but there’s no sign of it slowing down anytime soon. One study predicted $18 billion in sales in the U.S. alone for the direct-to-consumer model. This was after a record year in 2019 of over $14 billion in sales.
The bottom line for companies — the direct-to-consumer model is here to stay. While it is continually adapting to the changing needs of customers in terms of products and marketing, D2C brands and sales have become an integral part of e-commerce. Shoppers are continuing to use apps and websites for purchases at an increasing rate, and less purchases are being made in a physical store.
Not only are start-up e-commerce companies using the direct-to-consumer business model, but manufacturers are now going direct to the consumer. A 2018 Global Consumer Insights survey showed manufacturers are reserving at least one product for direct-to-consumer selling, as opposed to offering it to a retail chain first.
The Traditional Retail Model
To understand the benefits and foundation of the direct-to-consumer model, it helps to know how the traditional retail model is structured.
In a traditional retail setting, you as the manufacturer or CPG company, have to buy the products from a wholesaler or make the product yourself. You then build up your inventory and pay to have the items shipped to your own brick and mortar store or to other retail partners.
If you operate your own store, you have to pay all the fees associated with this. Fees such as rent, utilities, security, employees, signage are all part of having a physical location. You rely on advertising and foot traffic to sell your products. If your products are sold through a retail channel, you have to split your profits with them as well.
The traditional retail model results in less margin for your company since you have a larger amount of overhead or a retail channel is receiving a cut of your sales. By selling directly to your shopper, you can reduce a significant portion of the fees you would pay for a physical store, and you can expand the reach of your business to a global scale if you desire.
The Different Types of Direct-to-Consumer Sales Companies
It doesn’t take long to identify companies who are using the D2C business model. Amazon is by far the largest example, although they are experimenting with brick and mortar stores. Amazon doesn’t make their own products, but they do sell products from third-parties directly to the consumers, without going through a retail store.
But Amazon is hardly the only company. Warby Parker eyewear is a great example of taking eyeglasses directly to the consumer, instead of making a customer take an eye exam at the doctor’s office. Companies like the Chili®Technology Mattress have taken the traditional mattress experience and made it a complete online experience for their shopper.
Subscription services are also great examples of the D2C model. From clothing, to shaving supplies, to meal kits, these are all examples of companies who sell direct-to-consumers through a subscription service. According to a RetailMeNot survey, 15% of people use subscription services, but 35% of those surveyed said they plan to start using one in the near future. Subscriptions continue to account for a portion of e-commerce sales, although there are those who argue certain segments have become oversaturated.
Benefits of a D2C Business Model
Now that you know what a B2C company looks like, you’re probably wondering what kind of benefits it can have for you and your shopper. Turns out, there are quite a few. Selling directly to a customer can allow you to:
- Keep more of your money in your pocket. You can realize higher margins when you cut out the expenses associated with having a retail store or the costs associated with a retail channel. It’s no secret many manufacturers and CPG companies are suffering with reduced margins and shuttering retail stores.
- Neil Blumenthal & David Gilboa, the co-founders and co-CEO’s of Warby Parker say it best about costs. “By circumventing traditional channels, designing glasses in-house, and engaging with customers directly, we’re able to provide higher-quality, better-looking prescription eyewear at a fraction of the going price.” In other words, once they cut out the middleman, they were able to pass the cost savings onto their customers and provide a quality product. Not to mention keeping money in their own pockets.
- Reach a global audience. With a D2C business model, you can expand your reach to parts of the world you may never dreamed you would be able to sell to. You can sell 24/7, 365 days of the year by operating completely through your website and social channels.
- Remain in complete control of your brand. Since you are in almost complete control of your customer experience, you can keep a tighter grip on your brand. When you no longer have to rely on third-party companies or retail stores, then you can control the messaging.
- Create customer loyalty. When you do something really well and you refine the shopping and checkout experience for your shopper, it creates a more positive experience for them. By working directly with shoppers, you can make their shopping experience more enjoyable which results in greater customer satisfaction and loyalty.
- Get to the market faster. When you don’t have to align with a retail partner and can distribute a product yourself, you can get your product into the marketplace sooner. A traditional retail model creates greater lag time between innovation and time to the marketplace since you have to work through distribution and wait on a retail partner’s timetable
- Your company has greater flexibility with products. With more data at your fingertips, you can react to your shopper’s needs more quickly. You can pick products based on information your shoppers have provided. You can also make changes to your product selection based on your customer’s needs — not what a retail partner is demanding or what does or doesn’t fit on a shelf space in a store.
- Let your shoppers become an integral part of your product services and selection. You can allow your shoppers to become more engaged in your products and services by letting them participate in surveys, referral programs, and loyalty programs. You have the opportunity to communicate directly with your shopper, since you don’t have to work through a retailer.
- Greater control over inventory. When you are in charge of ordering and distributing your inventory, you make the decisions regarding how much to bring in and when it goes out. With a traditional retailer, you are at the mercy of their inventory buyers and their warehouse space.
- Better pricing flexibility. If your costs aren’t tied into wholesale and operating retail stores or shipping to retail partners, then your shoppers can reap the benefit with lower prices. You can pass on the potential savings to your shoppers instead of your suppliers. Not to mention you have added flexibility with offering promotions and incentives.
- Gives you control over customer insights. Imagine being able to drill down to discover your customer’s preferences on a level you never thought possible. With a D2C model, you have complete control over your customer insights. By analyzing your information, you can:
- Understand your shopper’s preferences
- Narrow down to state or regional preferences
- Spot trends among your shoppers and react with improved product features or offerings
- Access social media profiles
- Use analytics to determine the best way to engage with your shoppers
- Determine which promotions are most effective, and which ones do not result in increased sales
Risks With the Direct-to-Consumer Model
While there are multiple benefits to this business model, there are a few risks to be aware of as you start your journey as a direct-to-consumer brand.
- Increased Liability. When you sell directly, you are taking on more risk because you no longer have a retail store or third-party to absorb any liability. There is an increased chance of an issue arising with something related in an area you’ve been involved with. For instance, if you create new packaging that contains a mistake and it was without the help of a retail partner, you are completely responsible for the error.
- Supply Chain Complexity. Selling direct to a consumer requires a robust supply chain, or a third-party, to meet the demands of your shoppers. When a customer can’t receive their item in a reasonable amount of time or it arrives damaged, then you increase the risk of losing future sales.
- Increased need for cybersecurity. When you are relying so heavily on a website to sell your product and taking in an enormous amount of credit card data, you have to invest in a secure site. Website security is now expected from consumers, since too many people have been let-down due to credit card breaches.
- The competition is intense. If you are a D2C company, you are likely competing against other companies, some well-known and some smaller ones. Be prepared to offer a product that offers a way to make someone’s life easier at a reduced price for the best chance of surviving.
Getting Started in Direct-to-Sonsumer Sales
Despite the challenges, entering the direct-to-consumer market can be a profitable business model for you. Here are ways you can get started.
- Develop a product that makes life easier for the shopper. If you look at the success of companies such as The Dollar Shave Club or The Honest Company, one of the reasons for the success is making an everyday task (shaving or buying clean products) easier for a consumer online. You just fill out your information and it shows up at your doorstep.
- Give your customer a reason to purchase from you. Focus on a product or service where there is a frustrating experience. If you are still unsure what product (or products) you would like to sell directly, look around to see what can be improved upon. Once you find it, how will you stand out? Is it price that makes your product better? Is it faster shipping or an innovative feature? Whatever it is, highlight this and make it obvious to the consumer.
- Make your costs competitive. Cost is still a major factor driving online purchases and cart abandonment, especially with the shipping costs. If you can provide an improvement in these areas, then you may have a greater chance of success.
- Ramp-up your digital infrastructure. If you’re going to be a player within the e-commerce world, it’s expected that your website will keep up with demand. You need the right site speed, security features, eye-popping images, and content to keep your shopper engaged. Not to mention a seamless checkout process.
- Understand the importance of CRM. CRM, or customer relationship management software is an absolute must for a direct-to-consumer company. CRM’s are the lifeline to your customers and how you interact with them. There are several reputable CRM companies, so take time to explore and choose the one that best suits your business needs.
- Be prepared to spend on marketing. Marketing is another must with direct-to-consumer sales. Since your shoppers can’t physically pass by your store, you have to entice them with a message. Marketing is a critical component which can’t be overlooked in the initial stages of your business.
- Learn to be social. There was a time when being on Instagram was all it took for your sales to take off. Now D2C companies need to interact with shoppers through multiple channels. Your social media presence will be key as you try to expand your business. Social media isn’t just for flaunting your latest product either. A study by IAB shows how 67% of consumers have used social media to interact with a company on a customer service matter.
Marketing and the Impact to D2C Sales
In order to reach someone on their smartphone, television, radio or wherever, you have to spend money on marketing. Just because you aren’t paying for a physical location doesn’t mean you can skimp on marketing costs. If anything, you have to work harder to get your name out there because you can’t rely on foot traffic to build your business.
D2C advertising is big business. If you pay attention to the advertisers while you’re watching your favorite television shows, you’ll quickly realize there are an abundance of companies who sell direct and are spending a lot to reach a potential customer.
In 2019, over $2.3 billion was spent just on television advertising. Brands like Wayfair, Chewy.com and HomeAdvisor led the charge of big spending to keep their names in front of as many consumers as possible.
The good news is, you don’t have to have the budget of these giant companies to reach your potential shoppers. Like other aspects of marketing, you can set a budget to target specific groups of people. But while your marketing budget might not be in the hundreds of millions, you do need to have a solid marketing plan.
Marketing with your D2C product doesn’t always follow the traditional norms when it comes to advertising your product. In addition to traditional routes like television and magazine ads, marketing strategies for D2C companies can include any of the following:
- Email campaigns
- Driving traffic to your website
- Paid search campaigns
- Paid social (Facebook ads, YouTube ads, Pinterest Ads)
- Native ads
- Heavy emphasis on brand style (colors, fonts, etc.)
- Re-targeting your customers
- Sales funnels
While not an exhaustive list, direct-to-consumer brands have to think differently about their approach to marketing in order to reap the benefits of selling directly to consumers.
Tips for Getting the Most Out of Direct-to-Consumer Sales
If you are ready to immerse yourself in the world of direct-to-consumer brands and sales, there are specific actions you can take to continue to ensure your product stands out.
But as you can tell, direct-to-consumer companies need to carefully plan how they will attract — and keep — potential customers. By taking cues from other successful D2C brands, we’ve pulled together a list of smart strategies (some which were mentioned earlier and are worth repeating) for getting the most out of your D2C sales.
- Bring in Influencers. Influencer marketing has been extremely successful the last several years and there are no signs of disappearing anytime soon. Influencer marketing is where you partner with someone who has the ability to sway an audience. This can be an audience through a blog, Instagram channel, YouTube videos or multiple other social media sites. A survey by the agency Diffusion showed that Instagram influencers accounted for 19% of the D2C sales in 2019, proving influencers are still a successful marketing tool.
- Pay people to spread the word. In addition to influencers, you can incentivize your shopper by asking them for referrals. You’re only limited by your imagination (and your budget) but you can offer free products or coupons off the shopper’s next purchase for every referral. Not only can this provide a bang for your marketing buck, it can help develop customer loyalty and spread product knowledge through word of mouth.
- Become highly sociable. If you are selling directly to a customer, you have to reach them wherever they are. This can mean through email, Facebook, Instagram, TikTok and many other social media platforms.You can use these platforms to connect with your users and build a loyal following. Your audience can prove to be valuable whenever you launch a new product or need to explain how to properly use your products.Social channels have proven to be a great source of referrals, and making sure your product is among those being talked about.
- Provide valuable content.Visitors to your site want more than pretty pictures. It’s important to provide meaningful content for your potential customers. You can do this by inserting product reviews, providing up front product information and making recommendations for other products. Whether you choose to upsell or cross-sell to your customers, you can increase your cart conversions by nudging your customer along with suggestions.
- Exceptional customer service is key. If your company works directly with customers, one of the most important aspects is exceptional customer service. Without a brick and mortar store, your potential customer will have to rely on your website or customer service hotline. Studies also suggest adding features such as a chatbot can improve the overall customer experience, which can lead to an increase in sales.
- Optimize your website. If you’re selling directly to your shoppers through a website, then you will have to invest in the right website. Nothing is more frustrating than a slow website, not to mention it can quickly chase away potential sales. Optimizing your website means making sure you have the right speed, right images, and the proper mobile experience too. Today’s consumers are purchasing more on their tablets and smartphones, which means you need a site that can adapt quickly no matter where your customer is purchasing from.
- Optimize the purchase experience. From the initial Google search to the time to enter credit card information, optimizing the checkout experience for your shopper can increase cart conversions and lead to more sales. The best purchase experience is one where the shopper knows how many steps are in the process, page loading times are lightning fast, and communication is crystal clear for your customer.
- Make returns and exchanges as hassle-free as possible. When a consumer doesn’t have a store to return a product to, then you have to make it as easy as possible. By making your returns as easy as possible, you can create greater customer loyalty.
- Don’t forget about voice shopping. One of the biggest trends to emerge in recent years with D2C is utilizing voice shopping. Think of this as the Amazon Alexa and Google Home speakers you’ve come to recognize. It’s predicted over 23 million speakers in the U.S. alone are expected to sell in 2021, which makes this an amazing opportunity to offer an even more customized shopping experience for your customer.
- Offer multiple payment options, including an installment plan such as Splitit. In 2020 and likely beyond, consumers are looking for more flexibility when it comes to payments. Not only does this include multiple payment options such as all credit cards, but it also includes installment plans. Splitit offers your shoppers payments split into monthly installments, instead of one large lump sum. These payments are interest free and Splitit doesn’t require any additional paperwork for your shopper. Splitit also benefits you, the e-commerce owner, by increasing the average order value and cart conversion rates.
Selling Direct-to-Consumers Offers Many Benefits for Both Your Business and Shoppers
The world of D2C shopping means you might be competing with well-known CPG brands, manufacturers and retailers, but it is a growing segment in the world of online shopping. While you can’t become a direct-to-consumer brand or retailer overnight, you can set your e-commerce business up to be competitive and offer real advantages to your shoppers. There are several benefits to this unique business model, and you can position yourself to leverage these benefits.
One of the key advantages you can offer your shopper is an easy-to-use installment payment plan option with Splitit. You’ll also be glad to know Splitit integrates seamlessly with your business model, whether you choose to continue operating a retail store or venture into the exciting world of direct-to-consumer brands.