Manufacturers and distributors had clearly agreed upon rules – Manufacturers made products, distributors/retailers bought it in large volumes and sold it to end customers at a higher price.
But that was the case only till eCommerce technologies intervened and changed things for good. Handling end customers is no more complicated, thanks to eCommerce platforms and operational tools that have given the power for D2C brands (Manufacturers) to reach customers directly.
Online spending by “DTC enthusiasts” will increase by 18% year over year – Forrester.
Brands like Warby Parker, Dollar Shave Club, BarkBox, Casper, and HIMs are a few among the brands that brought D2C to the spotlight.
Though smitten by the D2C bug, as a manufacturer still relying on traditional methods, you might be doubtful of whether the approach is necessary. Our blog explains 6 reasons why brands like yours should consider moving to the Direct-To-Consumer eCommerce model.
1. No middlemen means better margins
The D2C model surpasses the middleman – distributors and retailers. As we’ve discussed earlier, manufacturers depend on distributors to sell their products from whom end consumers procure it for a higher price. The price increases at each level, but manufacturers end up getting only a small portion of the bigger pie.
In a D2C model, there’s no such thing as revenue share though the expenses for customer acquisition cost are involved. The markups that once went to the wholesalers and retailers will now be all yours. Depending on the product category, the net margin per unit could double in a D2C model.
Another encouraging factor is the consumer’s intent to buy directly from manufacturers. Interacting with a manufacturer makes them feel like talking to an expert who thoroughly knows the product they are about to buy.
“52% of consumers are already visiting manufacturers’ websites intending to make a purchase, and a third of those actually would prefer to buy from the manufacturer”. – Forrester Research study on behalf of Digital River.
On the whole, D2C approach allows you to have better control over your profit margins by reducing dependency over distributors and cash in on customer intent to buy directly from you.
2. Access customer insights – A manufacturer’s treasure that’s owned by retailers
As you control every step in reaching end customers in a D2C approach, you get access to a huge amount of third-party data. Earlier, manufacturers selling via third-party vendors have no idea of why consumers are buying your products.
According to a 2019 Deloitte report in collaboration with Google, “Retailers use data to fulfill objectives which include improving user experience, enhancing core sales activities and engaging in emerging monetization opportunities”.
Questions like what they like the most about your products, where they expect you to improve, remain unanswered. In other words, to enhance product quality or roll out new products, you depend on the distributor’s / wholesalers’ feedback gathered from customers, which is often not disclosed.
When customers directly buy from your website, you’ll gain insights on their buying patterns, preferences, seasonal spikes, and granular level data like geography and socio-economic data. The insight you receive from being in charge of the analytics will reduce customer acquisition costs and shorten the lead-to-purchase cycle.
3. Competitive advantage and wider product range
Retailers showcase a limited quantity of products from multiple brands in order to provide surplus brand options for consumers and compete with large retail rivals. Limited shelf space means consumers get access only to a fraction of your product portfolio.
D2C approach overcomes this shortcoming by allowing you to showcase your length and breadth of products in your exclusive eCommerce store. Brands can flaunt patterns, style, color options, multiple variants across a single product without limits. You are no more constrained to carefully assort a limited number of products to sell on a third-party retailer website.
On the flip side, you don’t compete with other brands’ products that would be accompanying yours on a retailer’s website, narrowing down the competition to zero. In the case of a retail brick and mortar store, there’s no risk of a salesperson favoring your competitor’s brand for any reason.
4. Increased customer engagement and loyalty
“One-third of consumers visiting a manufacturers’ website with the intent to make a purchase prefer to buy from the manufacturer,” says Forrester. Apart from the fact that consumers love to hear directly from a manufacturing brand, a D2C store is also a place where they can find better prices than those marked-up prices provided by retailers.
This self-volunteered consumers’ attitude also means that they expect a great customer experience from the brand’s manufacturer. By leveraging the valuable data that customers provide, brands can delight customers at every interaction.
According to study, 82% of manufacturers selling directly to consumers improved their customer relationships, and 76% improved customer experience.
Providing a memorable experience could be an after-sales email thanking for purchase along with discounts for the next one or a quick response to an inquiry in customer support. Providing such experiences can build a positive personal connection, which would encourage customers to turn into your brand evangelists.
5. Pandemic-forced rise in digital buying
eCommerce growth statistics YoY is on the rise since its inception, but the COVID-19 pandemic has further fueled the acceleration.
Online sales increased by 76% due to the pandemic – DigitalCommerce 360, July 2020 report.
Digital buying will continue to rise as it is the best alternative for consumers to get the products delivered at the safety of their household. Consumers have started preferring brands that offer additional conveniences like curbside pickup, in-car, and in-garage delivery. More consumers, even those who have relied on in-store shopping, have started preferring digital buying.
The more consumers get accustomed to conveniences offered in online buying, the eCommerce growth graph will continue its upward trajectory. For manufacturers eying DTC models, the time is ripe, and so is the foreseeable future.
6. The sinking supremacy of retail
The retail apocalypse started before the pandemic.
Post the 2019 holiday season, department store retailers saw sales decline 1.8% from Nov. 1 through Dec. 24, according to data from Mastercard Spending Pulse.
CNBC reports that the decline happened even as holiday retail sales overall grew 4.1%. The COVID-19 pandemic has worsened the situation. The pandemic that shows positive signs for brands to move towards D2C has comparatively had an inversely proportional effect on retail brick and mortar sales.
Major department stores that have been the go-to option for customers across the US have closed doors, and over 100,000 small businesses have failed. This leaves every manufacturer with a question: who is going to sell my products?
As the scenario is likely to continue for an unforeseeable future, D2C adoption has become a necessity for manufacturers more than an opportunity.
Apart from the factors discussed above, adopting a D2C approach can help brands improve overall brand control and messaging, identify up-sell and cross-sell opportunities, access first-party data that can be used in hyper-personalized advertising, and retargeting abiding the new limits placed by GDPR and CCPA and so on.
In short, the opportunities are endless. However, every manufacturing brand has to be careful in planning their D2C shift and, in parallel, look out for additional channels to sell instead of relying entirely on the D2C channel.
If you are thinking of launching your DTC eCommerce project on Magento, Ziffity can help. Talk to our experts to get ideas on planning your D2C roadmap. You can check out our other blogs on the D2C segment here.