Digitalization, the steady rise in e-commerce sales, and increasing competitive pressure are making it ever more important for companies to convince customers of their products and services. One way of achieving a competitive advantage in e-commerce is so-called D2C commerce. In this business model, direct contact with a company’s customers plays a central role.
D2C in e-commerce is a business model in which manufacturers sell their services and products directly to potential customers. The advantage of this e-commerce model is that products are not made more expensive by various intermediaries and the manufacturer does not lose control over the product and, for example, marketing. A manufacturer using D2C in e-commerce can market its products directly to the target group and retains control over the entire value and supply chain.
In order to establish direct contact with potential buyers and customers, the D2C approach usually uses the company’s own branded web stores or marketplaces as the means of choice. Especially marketplaces offer a lot of opportunities in the fast growing marketplace environment.
More: In a gominga interview, Manuel Siskowski (founder and CEO of Wiesemann 1893) describes how Wiesemann 1893 uses review management on marketplaces and its own webshop. Click here for the interview!
The D2C business model in e-commerce – simply explained
The abbreviation D2C stands for “Direct to Consumer”. In the “Direct to Consumer” business model, products or services are sold directly to the customer. While traditional sales models work with several intermediaries and rely on wholesalers and retailers, a company that sells direct to consumer in e-commerce takes over the entire value chain.
One of the advantages of the Direct to Consumer model in e-commerce is that it significantly increases the margin for the manufacturer. This is because the price of a product normally increases with every intermediary involved in the value chain. At the same time, the margin, or profit, for the manufacturer decreases in the process. In addition, the manufacturer retains control over the product. Thus, the company itself can determine the marketing, the packaging or the selling price. Probably the greatest advantage of the direct-to-consumer (D2C) strategy, however, is the amount of data that can be collected about customers for sales and marketing. Especially in data-driven e-commerce, the customer understanding gained in this way can be the decisive advantage.
The advantages of a D2C strategy
In addition to increased margins and complete control over a company’s products, the Direct to Consumer model in e-commerce has the advantage that the manufacturer has direct contact with its customers. This contact makes it possible to respond directly to the criticisms and needs of the target customers. This can increase customer satisfaction and improve consumer engagement and brand messaging.
With the increasing use of social media, such as Instagram, Facebook or TikTok, direct contact with the target audience is becoming more central to the commercial success of companies. Due to the increasing turnover through social media, which is mainly caused by millennials, the contact to the target group via social networks becomes more and more a lucrative sales opportunity.
Due to the easy and quick contact with the potential target group, products can be tested extensively before they go into mass production and cause high marketing expenses. Products can be tested in small tranches and their potential assessed. This reduces the risk of a sales flop and expenditure on sales and marketing can be invested in a targeted and efficient manner.
Another interesting aspect of D2C in e-commerce for companies is that they can sell the products regardless of location. This makes it possible to trade nationally as well as internationally. This allows companies to expand their sales market and target group. This circumstance can have a direct positive impact on sales.
The crucial advantage of Direct to Consumer (D2C) in the data-driven e-commerce world: Direct customer contact creates countless touchpoints with prospective buyers or customers. Thus, there are a lot of opportunities to gain valuable data from customers (e.g. buying behavior or opinions) for sales, marketing and product teams. The data gained here can be the decisive competitive advantage in e-commerce.
These are the challenges to consider in a D2C strategy
The fact that companies have significantly more control over the value chain in the direct-to-consumer model of e-commerce can be an advantage, but also a disadvantage. This is because many companies lack competencies in marketing, sales or customer service. If this is the case, it may be better to let other companies take over these steps.
If a company lacks competencies in these areas, it can either acquire these competencies or outsource the processes and pass them on to third parties. However, both options will most likely cost money, so this cost should be considered when implementing a D2C strategy. However, if a company masters the distribution and marketing of products, this can be a major advantage. This is because the company knows best about the benefits of its own products.
Another challenge of a direct-to-consumer approach is that retail is a strong competitor. This is because retail companies know best about the local characteristics and needs of their target customers. In addition, these companies already have experiential knowledge and data about which products are profitable and sell well. This knowledge advantage can be an advantage over companies that are just starting to pursue a direct-to-consumer strategy.
Probably the biggest challenge is that when you start selling directly without intermediaries, you are confronted with a completely new area that was previously covered by the intermediaries. We are talking about returns and the associated management. Technically and above all logistically, this is a huge challenge, because as a manufacturer or brand without previous direct sales, you have to set up the returns process for the first time.
More and happier customers through D2C in e-commerce
One of the main arguments why customers pursue a direct to consumer strategy is that the improved customer contact leads to more satisfied customers. High customer satisfaction leads to repeat purchases and loyal customers. This has the advantage that companies have to invest less effort in acquiring new customers and generate trust among customers through good reviews and word of mouth.
One way to increase customer satisfaction is to offer optimal returns management. This includes accepting returns in an uncomplicated and fast manner and making contact with the customer as friendly and courteous as possible. This is why competent and well-trained customer service is very important in a D2C strategy.
Through direct contact with the target customer via marketplaces or their own brand webshop, companies also have the opportunity to respond to feedback and requests for improvement. As a result, customers’ wishes and needs can be better understood and met. D2C in e-commerce therefore helps companies to focus more on the target customer. With the help of review management, the feedback gained can be efficiently managed and evaluated. This focus on the needs of customers enables companies to grow sustainably and in the long term, and thus successfully compete with rival companies.
Conclusion on D2C in e-commerce
By applying D2C in e-commerce, a company’s customers can be tied to the company and its products in the long term. Proper implementation of the strategy leads to greater customer satisfaction, more frequent repeat purchases and improved control over the company’s own products. As a result, marketing expenditures can be invested more efficiently and used in a more targeted manner.
Due to the current trend towards social media and e-commerce, companies should try to profit from the change and adapt. Direct contact with the target group can be an existential advantage over competitor companies and influence the economic success of a company. By using e-commerce strategies, such as D2C, companies can participate in the increasing sales of online markets.
In summary, now is a good time to benefit from D2C strategies. Most companies can grow and compete against other market players through such a strategy with their own brand webshop or marketplaces.