Thinking D2C? These are the pros and cons.

Can the D2C model future proof your business? We’ve put together a list of pros and cons to help you navigate the process.

The D2C business model seems to be everywhere these days, with companies like Disney, Nike and PepsiCo all making pivots in that direction with astounding returns.

Startups and corporations alike are leveraging the strategy in different ways to connect with their customers, increase profit margins and launch new products quickly. Here are a few interesting D2C stats:

The question now is: Can the D2C model strengthen your business?  

We’ve put together a list of pros and cons to help you navigate the process, but let’s start off with some basics.

What is D2C?

D2C or direct-to-consumer is a model that gives companies end-to-end control of every step in the business process, including manufacturing, marketing, selling and distribution. It’s about having a direct relationship with customers.    

The strategy enables companies to embrace a more entrepreneurial mindset and take their business process into their own hands. Everything from ideation, design, building and launching is kept in-house, enabling businesses to cut costs and operate with agility.

The pros of the D2C business model.

In recent months we’ve seen customer habits across every industry shift in favour of vendors that offer convenience and exceptional customer service – both hallmarks made popular by the D2C model.

1. Direct access to customer data.

Understanding your customers, their preferences and how they interact with your products and services can enable you to:

  • Build better, more personalised offerings
  • Optimise existing products and services
  • Boost your marketing efforts

A middleman normally has direct access to this valuable data. D2C businesses, on the other hand, have direct relationships with their customers, enabling them to gain real insight into their preferences, their needs and even test new products and services before they launch.

2. Higher profit margins.

Cutting out any third parties enables D2C companies to reduce costs that would normally go to wholesalers and distributors. The extra income can be invested in enhancing your customer experience and strengthening your marketing efforts so you can reach and connect with more of your customer base.

3. Scaling is easier.

The D2C business model is highly digital, enabling companies to reach customers all over the world and gradually reduce their geographic restrictions as the business grows and expands its operational capacities.

4. Innovation is quicker and happens more often.

In traditional B2C models, manufacturers can be restricted in terms of putting out new and innovative offerings because their retailers tend to prefer proven “sellers”. In contrast, D2C companies have the freedom to launch novel, new offerings at a smaller scale, assess their customer’s response and make any needed improvements based on real customer data.

The process can be repeated as many times and as often as needed, giving D2C the upper hand in terms of launching new products and discovering new untapped customer needs.

5. Increased brand loyalty and customer engagement.

D2C brands have full control of everything that has to do with branding, imaging, messaging and values. They have the freedom to create quality content and engage with their audience through different channels without having to worry if some third-party seller is mismanaging their image.

This enables D2C brands to interact, relate and empathise with their target audience, creating more profound levels of engagement and connection that keep customers coming back for more.

The cons of the D2C business model.

Despite the many benefits of the D2C model, it is not without its cons:

1. Increased competition.

The D2C landscape has changed quite a bit in the last decade, with more and more companies leveraging the strategy to compete for the same customers. Not too long ago, there were a handful of startups selling glasses, makeup and a few consumer packaged goods, today it’s corporations like Comcast, Verizon and Amazon making their entrance into the arena.

2. Increased liability.

Going D2C gives brands complete control over their operations, but that also comes with increased liability for things usually shared with third parties (e.g. shipping, sensitive customer and financial data, cybersecurity breaches).

3. Complex supply chains.

Having complete control over the entire business process definitely has its perks, but it makes everyday operations a lot more complex. You’ll be juggling a lot more aspects of your business (e.g. orders, shipments, transport, payments, returns, customer care), increasing not only your responsibilities but your points of vulnerability.

Is D2C right for you?

Key factors mentioned above are helping companies create better customer experiences and changing the way we think about retail.

For corporations that already have an established customer base and proven offerings, making a D2C pivot is a great way to innovate, cater to new customers and expand beyond their core offerings. Companies like Mattress Firm, John Hancock and Warner Media are already leveraging some of their “unfair advantages” with their own D2C ventures to future proof their businesses and protect themselves from disrupters.  

Proper planning, validation and management can help safeguard against some of the challenges associated with this model, unlocking a slew of possibilities for companies to experiment with new products and services.

If your company can take on the supply chain, then you can take on more of the revenue.

Ready to find out more about how you can leverage and adapt the D2C business model to suit the needs of your business? Check out these 8 D2C tips to accelerate growth in your business.

We can help you explore new business models like D2C to take advantage of to enter new markets and find new revenue!

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