The D2C business model has thrived over the past several years, accentuated even more by superdigitalization caused by the global pandemic. The number of D2C shoppers increases yearly, as does the average spend per buyer. In 2022 eMarketer estimates 103.4 million U.S. consumers will buy from a D2C business. And many experts expect this to trend to continue growing in the near future.
With social customs and global economies (hopefully) beginning to normalize as we inch towards the end of COVID restrictions, the D2C trend that has disrupted the eCommerce space for years now may finally come to a point. Was the start up success for many of these brands only a dream, or will they grow and scale to rival the big-box retailers?
Back to Basics: What is D2C?
D2C is a business model where companies sell directly to customers, skipping over traditional distribution and retail. It's often thought of as brands "going direct," and in most cases, this means cutting out retailers and wholesalers. But D2C isn't just about selling things directly through your website or storefronts - It is a whole new modern way of connecting with and selling to consumers. The focus is not so much on selling a commodity as it is providing an experience and interacting with consumers on social media, and other digital channels. The model prides itself on direct communication as much as it does easy and convenient transactions. It eliminates the anonymity of buying from a corporate entity, and replaces it with a brand persona whose values and interests are often aligned with that of the consumer.
Every D2C brand has different needs when it comes to its go-to-market strategy, but they all share one goal in common – to get products into consumers' hands quickly and efficiently, while delivering an exceptional customer experience. In many ways, D2C is a way for start-ups with small budgets to compete with big corporations.
The value D2C brands place in authenticity and community engagement resonates well with Millennials and Gen Z'ers especially, who now happen to make up the bulk of the U.S. buying force. As a result, D2C has carved out a place for itself in online retail, and larger corporations have taken note and even adopted some D2C practices of their own.
The Factors for D2C Success:
Without millions to spend on brand awareness, D2C companies instead rely on the advantages that a streamlined business model can provide for both brand and consumer.
- Clean and controllable customer data:
With almost all customer interactions happening online, it makes it easier for marketers to identify and track customer patterns and behaviors. Most viewed or frequently brought products, preferred shipping and payment methods, preferred means of communication, can all be tailored to the user and to improve offerings for future campaigns.
They also have complete control over their first party data allowing them to build a pure, comprehensive customer profile that they can then use in look-a-like models to target larger audiences with similar behaviors and traits.
- Lower Prices:
Retailers and wholesalers often mark up inventory before selling it to consumers, but direct to consumer brands are able to avoid the additional costs of a middle man.
- Cost-Effective Marketing
One other big advantage is that they don't have to spend as much on marketing. Some companies don't even do any traditional advertising at all! Instead, they rely heavily on word-of-mouth and social media to reach customers across the world. This allows many of these brands to have a lower overhead at the start to grow quicker and expand reach.
Obstacles to Overcome:
The D2C pioneers like Casper, Dollar Shave Club, and Away were fortunate in being one of the first to enter the market. Their success has become a blueprint for so many other brands following suit, but the market has become increasingly saturated and expensive as a result. Newer brands find it difficult to enter the market and to be recognized by their target audience since their competition is already so well-known.
The cost of customer acquisition, particularly on social media platforms like Facebook and Instagram, has also skyrocketed in recent years, which has made it hard for newer companies without well-established budgets to have a successful marketing strategy.
Another obstacle that might arise in 2022 is that while D2C increased its share of the retail space, it's still not at its peak. The gradual return of brick-and-mortar shopping may cause share to drop, as D2C trademarks will fail to capture a sizeable portion of buyers who prefer to shop in-store. Some established brands have made the transition from online-to-offline, but the investment in opening stores is likely too expensive for the average D2C start up.
How can D2C Brands Achieve Long-Term Growth?
To remain successful in the long run, D2C trademarks need to focus more on their business fundamentals. They can start by focusing on building a strong eCommerce foundation, as that will help decrease some of those customer acquisition costs and make it easier for companies to compete with big-box stores.
And remember what has made D2C so successful in the past. Those core values will continue to resonate with emerging consumer markets, and drive customers away from established competitors:
- Unique, high quality products that can’t be found anywhere else
- Exceptional customer service
- 1:1 customer interactions and personalized experiences
Casper, for example, has found success with its products by offering mattresses designed for all types of sleepers and lifestyles. In contrast, Boll & Branch has found success by manufacturing quality bed sheets at reasonable prices. With both of these companies, their individual strategies have allowed them to transition from merely customer acquisition, to building long-term relationships. And that is what ultimately will set apart the pretenders from the survivors as more innovative brands emerge in the new year.