Direct-to-Consumer or D2C is a business approach in which a startup advertises its goods directly to customers and bypasses middlemen. The D2C model requires brands to produce, sell, advertise, and distribute their own items. Today, companies communicate with their consumers through a variety of online platforms. Numerous firms are currently migrating to D2C models due to the elimination of distribution intermediaries’ expenses. It enables companies to control all aspects of their product’s lifecycle, including marketing, distribution, and fulfilment.
What is D2C?
Retailing, as it is now practised, involves several parties between the producer and the consumer. A wholesaler, a distributor, and a retailer are among these parties. D2C circumvents all of these intermediaries by linking manufacturers and consumer packaged goods (CPG) brands directly to customers.
This has the advantage of allowing D2C firms to experiment with their distribution methods by sending directly to customers. Additionally, they may develop relationships with real merchants, open pop-up shops, and do a variety of other things. Due to this business strategy, many businesses are no longer reliant on traditional retail outlets for visibility. Along with assisting brands and manufacturers in achieving a healthy profit margin, the D2C model provides additional benefits.
Steps to Start a D2C Journey
In general, there are a few steps a brand follows to convert into a D2C business. The prominent steps are listed below:
- As a first step, the brand must determine the value that a D2C business solution would provide to the business. The added value does not have to result in increased income because it is a long process that sometimes may take months to reflect. D2C channels may also be used as a test channel to determine the market acceptability of a certain product.
- Not all CPG brand items may be economically offered online. There are several critical factors to consider while selecting items for online sales:
- Is it critical to maintain direct contact with customers?
- Are products able to increase profit margins with D2C strategy?
- How at ease are customers with internet shopping?
- Is the product a commodity or a one-of-a-kind?
- How often are consumers likely to make a purchase?
- Will going online provide any competitive advantage?
- Many businesses now offer their items via websites and online marketplaces. They do not, however, have to confine themselves to those outlets. D2C provides brands another way to reach their customers.
- Brands may pick from a variety of business models to implement their direct-to-consumer strategy. These strategies may include managing every aspect by themselves (i.e. own end-to-end delivery, marketing, branding, etc., outsourcing the delivery, packaging, shipping, etc.), but retaining the rest of the aspects.
In general, for any D2C brand, managing logistics is one of the most important challenges a company faces while scaling their business. In the next section, we’ll look into how different D2C brands handle logistics for their business.
Direct-to-Consumer (D2C) Fulfilment Approaches
There are three distinct approaches to developing the D2C logistics framework.
1. Fulfilment in-house
Self-fulfilment is another term for in-house fulfilment. The D2C owner handles fulfilment on their own, without the assistance of third-party providers. It entails five fundamental steps: inventory management, order fulfilment, return fulfilment, shipping, and receiving. In this fulfilment method, the D2C owner is responsible for the items (i.e. picking, packaging, shipping, return processing). Though each step of this fulfilment process needs a lot of attention to detail, the brand has full ownership of the delivery. This means the brand can always tweak it based on its requirements.
Comprehensive control over the order fulfilment process and improved quality control are two significant benefits of in-house fulfilment. Cost and time constraints may be disadvantages of this kind of fulfilment as businesses get larger and more sophisticated.
2. Fulfilment by a provider of an e-commerce marketplace (external provider)
Fulfilment via e-commerce marketplace is one of the best options. External marketplaces such as Amazon are giving a plethora of options to serve the logistical needs of product based companies. They provide visibility to businesses seeking to reach a broader audience. Additionally, they assist companies in reducing expenses associated with infrastructures such as warehouses, employees, trucks, etc.
Most of the fulfilment related offerings by external marketplaces can be categorised into two options:
- The merchant offers things on online marketplaces such as Amazon, and Amazon fulfils the store’s orders. Rather than selling their items directly to clients through their website or online marketplace, companies send them to the closest Amazon fulfilment centre.
- Reliance on external sources for inventory management only (products listed only on brand’s own website) This strategy avoids firms listing their items on E-commerce platforms such as Amazon. Rather than that, they use these E-commerce platforms as fulfilment partners. They maintain their own website for product listings. The marketplaces are solely responsible for order fulfilment, packaging, and shipping, as well as return processing.
Fulfilment via an e-commerce marketplace supplier also offers a number of advantages and disadvantages. Fulfilment through an e-commerce marketplace provider saves firms time and allows them to concentrate on other critical factors. It enables organisations to concentrate on other critical issues by freeing up worker hours. Sellers get a competitive edge by gaining access to the most efficient logistics services. However, these services are rather pricey in nature, and confidential information about businesses’ goods might be exploited or reproduced when a product becomes a bestseller.
3. Fulfilment by a third-party provider
A brand can also outsource its logistics related activities to third-party providers. Outsourcing D2C operations to a third-party logistics provider entails entrusting them with the complete fulfilment process. These procedures include inventory receipt from manufacturers, picking, packing, and shipping, restocking returned items, quality control, and customer support. Three-party logistics (3PL) suppliers provide high-quality services, flexibility, variety, and the most competitive pricing for deliveries. Due to their significant expertise in expanding logistics operations, both new and established businesses rely on 3PL partners for fulfilment requirements. Though this procedure leads to loss of control over fulfilment and quality management, it comes with a slew of advantages:
- It allows companies to concentrate their efforts on brand strategy and development;
- A large number of shipments translates into a better moat, lowers cost per delivery, and hence increases cost-effectiveness of the product, and
- Managing a large number of orders with a consistent delivery record translates into a high-quality fulfilment experience for clients, which will be hard to accomplish for a D2C brand.
Choosing D2C for your business
D2C strategy allows businesses a new approach to serve the customers. In general, if your brand already has a demand in the market, then it might be a good idea to try D2C for themselves.
This change has the potential to have a big effect on your revenue. The majority of brands are built on narratives, and narratives collapse when the brand does not communicate them. Customers purchase brand-provided experiences and prefer a direct connection with the brand. When customers purchase directly from the brand, they have a greater level of trust in the goods. Overall, if a business wants to be customer obsessed, D2C can be considered a good fit.
One of the primary reasons why not to go for D2C is due to the challenges it presents. The primary obstacle for every D2C business is the reversal of distribution responsibilities. Without the help of huge resellers, you’ll have to work harder than usual to make your brand stand out. Fulfilment, packing, refunds, and warehousing are all your responsibility. However, as you are undoubtedly aware, selling online is not always simple. Creating an internet presence is challenging and demands a great deal of attention. To succeed in the D2C industry, you must place a high premium on marketing. This is true for every company with an online presence, but it becomes more crucial when end-to-end ownership is being handled by the brand.
Conclusion
Becoming a D2C brand entails a great deal of cooperation across many business units. Though implementation of such a model has its challenges, it can be quite beneficial to the brand in the long run. A lot of things must be considered if a startup chooses to switch to a D2C strategy, since now it has to handle many things by itself. Based on the startup’s priorities and goals at hand, the startup can think through the pros and cons of building a D2C brand and choose accordingly.
