Consumer Experience

What is Direct-to-Consumer and How to Balance D2C with Wholesale

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Direct-to-consumer strategies have transformed retail, both in the way consumers shop and how brands and retailers manufacture, market, and sell.

As with any successful retail strategy, there are pros, cons, and considerations before fully embracing—or rejecting—D2C. Importantly, a winning direct-to-consumer business will artfully navigate the relationships between brand, retailer, and consumer.

What Does Direct to Consumer Mean?

As we explored in our eBook, “The Wholesale Brand Disruption Guide,” direct-to-consumer is defined as “the marketing and selling of products directly to consumers from the brand manufacturer.”

This is contrary to the traditional strategy of wholesale, when brands partner with retailers to distribute products in bulk for sale by those retailers. Both strategies can occur in brick-and-mortar stores or across online marketplaces. However, the popularity of eCommerce has helped grow D2C businesses. Many of the earliest and most popular direct-to-consumer brands gained their followings online, such as Casper, Bonobos, and Dollar Shave Club.

Simply put, direct-to-consumer is when brand manufacturers sell directly to customers without a retail partner in the middle.

Direct-to-consumer is defined as the marketing and selling of products directly to consumers from the brand manufacturer.

Why Is D2C Popular?

The D2C model is successful in part because of the strength of eCommerce. According to Forrester,  more than 50 percent of computer and consumer electronics sales and roughly 33 percent of clothing, footwear, and accessories sales will be completed on eCommerce marketplaces.

Additional data from Business Insider and Internet Retailer showed that eCommerce sales were behind 49.4 percent of all retail growth in 2017, and eCommerce sales increased by 16.4 percent year-over-year from early 2017 to the start of 2018.

All in all, online shopping is popular. It’s convenient, quick (thanks to one-day and two-day shipping), and cost-effective, as customers can compare prices quickly and easily across brands and retailers.

These are the factors that helped make D2C so popular, as well: Diffusion research reported on by RetailDive noted that shoppers who enjoy D2C do so because of the convenience, product quality, and low-cost shipping. Diffusion also found that 81 percent of U.S. shoppers will make at least one D2C purchase between 2018 and 2023. During that time period, a third of all consumers intend to do at least 40 percent of their shopping with D2C brands.

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Why Direct-to-Consumer Works for Brands

A direct-to-consumer strategy isn’t perfect, but it’s got a lot going for it (if you’re a brand manufacturer).

For starters, D2C companies have more control over what they put out in the market. It’s up to the brands how they’re represented online, how their products are priced (including minimum advertised price policies), and how and where they’re distributed.

In a traditional wholesale strategy, brands relinquish some control to others when they sell their products in bulk. Retailers and distributors are then responsible for selling those products to customers, creating product listings online, or setting up displays in-store. Plus, retailers set their own prices and promotions in many cases.

Owning and operating your own webstore also allows you to control what customers see. Walk into Target or Walmart (or visit their websites) and you’ll see competitor brands listed side-by-side. D2C companies avoid that by running their own webstores. This level of control also opens up more options for data collection and analysis, from buyer behavior to web traffic, paid advertisements, remarketing, and much more.

Above all else, going direct-to-consumer is a clear communication channel between brand and customer. That helps with building loyalty, understanding buying preferences, and generating more repeat purchases.

Challenges Behind D2C Selling

Depending on your point of view, one of the biggest pros going directly to consumers can also be its biggest cons: the lack of retailer and distributor involvement.

Retailers are retailers because they’re good at selling. They understand shoppers and they have existing infrastructure to acquire, distribute, and sell a wide range of products and services. New D2C brands may not have this same level of experience.

This creates challenges. One common struggle for D2C companies is in fulfillment. You’ll have to have an answer for warehousing and shipping, especially if you’re competing against Amazon and its free two-day shipping. Few people have the resources Amazon does to open many warehouses spread across the country, so your brand will have to find a viable solution and set expectations with customers accordingly.

Beyond the warehouse, brands are also assuming control over marketing, customer services, social media, sales, and much more. It’s on the brand to attract potential buyers and market their products across traditional or digital media. It’s also on the brand to handle customer service questions and manage returns—which can be a major issue for pure-play eCommerce brands.

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D2C Selling is a Balancing Act

What we haven’t mentioned yet is the relationships between brands and retailers when direct-to-consumer selling is involved.

Naturally, retailers may not enjoy having brands that sell through their channels open up their own D2C business. And, the sales generated by retailers is often critical to many brands who want to sell D2C. Not everyone is an online-only D2C startup.

A D2C channel eating into traditional retailers’ sales is one concern. Another is pricing. A brand must fairly balance its prices across its direct-to-consumer channel and its wholesale channel so one doesn’t undercut the other. In addition, price is a key consideration for shoppers, and they’ll frequently shop around for the best price. A D2C brand’s prices must be competitive.

To pull off this balancing act, brands should look for ways to have D2C selling complement the work their authorized retailers are doing. One way to do this is by sharing data on consumer behavior. Retailers will appreciate learning more about customers and what they want. Not every customer will prefer D2C over a retailer, so it’s beneficial to find out why and create strategies to serve both those audiences.

Brands can also use their D2C channel as a way to launch new products, test innovations, and workshop ideas with shoppers before a wider release to retailers. The balance is finding out the best way to have a successful D2C strategy and wholesale strategy—they’re not mutually exclusive.

A brand must fairly balance its prices across its direct-to-consumer channel and its wholesale channel so one doesn’t undercut the other.

Drive Revenue with Direct-to-Consumer Selling

The big lesson for brands who want to adopt a direct-to-consumer model is to make sure any new strategy works well with existing ones. In this case, that D2C selling won’t hurt trusted retail partners.

When done right, D2C can be positive for all involved parties. It’s now a fact of life in retail, as more pure-play D2C companies launch and more consumers become familiar with buying this way. Download a copy of our Wholesale Brand Disruption Guide to see examples of why more brands are shifting from B2B to D2C.

Best of all, you’ll get tips and tricks to start selling D2C online so you can take advantage of all the retail channels at your disposal.

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