Direct to Consumer (D2C)

Until recently, consumers purchased most products from third-party retailers. If you needed to stock up on snacks, you’d head to the market and browse the aisles to find your favorite treats. If you ran out of shampoo, you’d buy it the next time you went to the drug store or you’d purchase it from a digital marketplace. Now? Most consumers (64%) regularly buy directly from manufacturers. This is known as direct to consumer (or D2C) sales.

Instead of relying solely on retailers to get their products into the hands of customers, manufacturers can sell directly to consumers by creating their own digital commerce channels.

By 2024, D2C sales are expected to be worth more than $200 billion. That’s why many manufacturers are considering going direct to consumer.

But how do you create a successful DTC strategy and grow sales on your ecommerce platform without alienating your relationships with retailers?

Simply put: Direct to consumer is when a brand sells their product straight to the end user instead of distributing products through retail partners. For example, a maker of tennis rackets can sell them through a sporting goods store (a retail partner). Or, they can take a direct-to-consumer approach and sell the same tennis racket directly to the player through a D2C channel. Common direct-to-consumer channels include ecommerce websites, social commerce, and apps. D2C channels often complement, rather than replace, traditional retail channels. For example, a confectioner might sell their candy in gift shops and sell directly to consumers online.

B2C describes any company selling products to the end consumer. D2C is when the maker of the product sells it to the end consumer. A B2C company could be a retailer, marketplace operator, or a manufacturer selling D2C. However, it’s possible – and becoming more common – for brand manufacturers to sell their products in two ways, through two different channels:

• A business-to-business (B2B) channel: This is when a manufacturer sells their products wholesale to a B2C retailer.
• A D2C channel: This is when a manufacturer sells their products directly to end users. D2C sales often happen online, although some brands also have their own brick-and-mortar retail stores.

Relying solely on third-party retailers or marketplace operators for your sales comes with certain challenges. For example, retailers and operators often charge fees for each sale, which can reduce your profit margin. They may also have rules and policies that hinder your creativity when it comes to branding and merchandising. Additionally, selling through retailers means that you need to compete with other manufacturers for shelf space — whether digital or physical — which can affect your brand’s visibility and sales.

That’s why companies in many industries are launching direct-to-consumer channels. When a company looks beyond its wholesale strategy to include D2C channels, they can tap into new opportunities to build relationships with existing customers, expand their reach to new audiences, and grow sales beyond the limitations of current retail partners.

The benefits of DTC channels go beyond increasing sales. Here are a few other ways that going direct to consumer can drive success for your business:

• Improve profit margins: Distributors  purchase goods at significant discounts while other intermediaries, including marketplaces like Amazon, charge fees or take a commission. When selling products through a D2C channel, brands are able to capture the entire amount the consumer pays. That means a higher profit margin, which is the difference between what the company spends to make the product and what it sells the product for, whether to a consumer or a retailer.
• Access first-party data to personalize customer experiences: When you sell through distribution partners, only they have access to your end-customer data. Those partners, whether they are a retailer or a marketplace operator, tend not to share what they know. When you sell products direct-to-consumer, you can collect all that first-party data yourself. Once you have first-party data in-hand, you can come up with a data strategy and use it to identify high-value customers, deliver targeted promotions and offers, and increase sales. Knowing more about your customers can also help you cross-sell and upsell. It can influence product development and marketing tactics. This helps you acquire new customers and build loyalty with current customers more easily.
• Test and optimize rapidly: In a traditional wholesale model, many retail distributors are reluctant to stock their shelves with untested products. They may require larger financial commitments to offset potential losses. A direct-to-consumer channel lets you try out new products and improve them based on customer feedback. You can survey customers about what they like and don’t like about certain products and develop new iterations quickly, with little risk.
• Expand sales despite partner limitations: Wholesale brands depend on their distribution partners to give them more shelf space, placements in additional locations, and onsite marketing opportunities. By going direct-to-consumer online, you can find uncaptured pockets of opportunity. This is especially critical as consumers get more and more comfortable purchasing all types of products online. In fact, more than half (54%) of revenue is expected to come from digital channels within the next two years. With D2C ecommerce, you can reach consumers who might not live near a retailer, and offer a greater variety of products than retailers can keep in stock.
• Make smarter marketing investments: With a D2C model, you can aggregate information about which ads drive sales to your website, increase average order values, and more. You can develop an in-depth understanding of what it takes to convert customers and the cost of doing so. Then, you can use these insights to determine how to market more effectively at scale and increase sales.
• Establish valuable feedback loops: With a direct connection to shoppers, you can learn more about their experiences and any unmet needs. You can quickly capture feedback through online surveys and from communication with customer service departments, then use the information to improve products and operations. A real-time CRM can help brands reach out to customers immediately and organize feedback effectively. Applying automation, artificial intelligence, and analytics to the data can yield insights on how to best address shopper pain points.

Selling to retailers and other businesses is different from selling to consumers. Consumers have different needs and expectations, and you’ll need to tailor your D2C channels to meet them. Here are a few challenges unique to D2C (and how to overcome them):

• Personalization: Almost two thirds (65%) of consumers expect companies to adapt to their changing needs and preferences. They want relevant, personalized experiences — from product recommendations to promotions and more. When you implement a new D2C channel, personalization should be a top priority. To meet consumers’ high expectations and create scalable personalization, leverage tools like predictive analytics and product recommendations powered by AI.
• Inventory and order management: When you introduce D2C channels, you’re not just selling bulk orders to other businesses. Now, you’re shipping and fulfilling single items to customers across different regions and geographies. You’ll need the right approach inventory management and order management tools to fulfill and deliver orders to every doorstep.
• Omnichannel strategies: Consumers want the ability to transact with your business on any touchpoint, whether it’s on social media, in messaging and shopping apps, or on your website. When you go direct to consumer, it’s important to be methodical and strategic about connecting all of these channels. Ensure that all of your systems (like customer relationship management, inventory and order management, and more) work together to create a cohesive, omni-channel customer experience no matter where a customer shops.

One of the biggest challenges when it comes to going direct to consumer? Maintaining your relationships with retailers. If you’re adding a D2C channel to supplement your strategies with third-party retails, you’ll need to consider how to manage these business partnerships. Some retail distributors may see a brand’s D2C expansion as a threat to their partnership and to their bottom line. This reaction is understandable. Concerns companies commonly have when brands go D2C include:

• Market oversaturation
• Undercutting prices or other forms of price competition
• Conflicts over physical territories
• Issues from selling to the same target audience in a particular market where both D2C and a retailer or distributor exist

However, a smart D2C strategy can actually complement existing channels and boost sales for everyone. You can help assuage retail partners’ concerns by explaining how your plan can benefit them. Here are five tactics consumer goods companies can use to avoid channel conflict when going direct to consumer.

1. Test new items on your D2C website. This can quickly determine their level of popularity as well as their ideal price points. Then you can use those insights to offer distributors new best-selling items that will fly off the shelves, ensuring both you and your partners thrive.
2. Use acquired customer lists. When retail partners are offering special promotions, you can drive foot traffic and sales to them.
3. Increase investment in marketing. Heightened awareness of and affinity for the brand will make products become even more popular among shoppers at partner retail locations.
4. Create unique or immersive experiences on the D2C channel. Your site becomes a destination for consumers who want to connect with the brand and learn more about it. Knowledge articles, tips, and how-tos can help consumers move along their customer journey. Your site can even tie into retail channels and drive sales there.
5. Give your retail partners access to exclusive merchandise. Sweeten the deal for your retailers: Let them offer discounts that are not available on your D2C channel.

It’s important to recognize and appreciate the symbiotic relationship between your D2C initiatives and your distributor network. That helps you find ways to integrate your marketing efforts and improve sales for everyone. However, some channel conflict is inevitable. Besides your own B2B and B2C channels, it can come from marketplaces and platforms such as Amazon, affiliate networks that promote your products for you, and even your social media channels.

Mitigate that risk and compensate with mutually beneficial initiatives. For example, load up wholesalers with items that have demonstrated broad consumer interest. Keep more specialized items on your D2C site. This plays to the strengths of each channel.

Relying too much on retail partners can limit your growth. Strengthen your position in the market by adding D2C channels to complement existing wholesale channels. The best ways to initiate D2C sales are with a branded website or owned retail channels.

1. Build a branded website. A digital shopping experience makes your products more accessible and desirable for online audiences. You can share in-depth product information and complementary content, like how-to videos. You might offer free samples, trials, or online exclusives. Make it easy for shoppers to get everything they need with bundled discounts and free shipping. All the extras will encourage customers to come back to your site in addition to – or as a substitute for – existing points of sale in your distribution network.
2. Open retail stores. In your own self-branded retail locations, you can provide a more holistic customer experience. An omni-channel approach within these stores offer more access, convenience, and education to customers.

Create a D2C subscription service

One way to dip your toes into the waters of D2C? Create a subscription service. Health food company KIND Snacks took this approach. The brand crafted its direct-to-consumer sales and subscription service to create deeper customer connections, increase their customer knowledge, and build an innovative ecommerce channel. The result? They were able to keep valuable, loyal customers satisfied and supplement retail channels with a new experience for consumers.

Supplement retail sales with a new D2C channel

From home and personal care to food and drink, your cupboards probably contain at least one Unilever brand. Each day, 2.5 billion people use Unilever products — and until recently, they were all sold through third-party retailers. Now, Unilever makes meaningful connections with its consumers around the world through DTC channels. To get closer to its end customers, select Unilever brands now sell products direct through their own ecommerce websites. This allows Unilever to personalize how it engages with consumers, collect first party data, and better understand their challenges and desires.

Sometimes your customers are browsing in retail stores. Sometimes they are there to get their hands on your product immediately. But more and more, they are searching and shopping online. A direct-to-consumer channel lets them get closer to your brand, learn more about your products, and find exactly what they need. Adding a D2C channel to your distribution mix can help your company improve, grow, and even strengthen your relationships with your distribution partners.