What are the Main Types of D2C Models?

D2C Models or Direct to Consumers is a retail model where brands sell their products to consumers with no intermediaries involved. Traditionally, manufacturers sell their products via agencies, distributors, wholesalers, and retailers. But recently, most brands are pivoting to the D2C models to reach out to the end customers directly. D2C brands use channels such as online stores, applications, own retail stores, and factory outlets to sell products. This shift can be majorly attributed to the following reasons:

Digital adoption by brands and consumers
Increased internet penetration and accessibility
Boom in eCommerce platforms with improved logistics operations
New payment solutions in terms of payment gateways and point of delivery
Discretionary spending by high-value items by consumers in not just metros but small towns

Due to these factors, India has become the 4th largest D2C market in the world following US, China, and Japan.

Benefits of a D2C Business

Cost-Effective Supply Chain

By eliminating intermediaries from the supply chain, D2C businesses reduce their operational costs. Brands save on the commissions taken by retailers, wholesalers, and distributors. This helps in increasing their profit margins and achieving a cost-effective supply chain.

Smooth and Efficient Logistics

By taking full control over operations, D2C companies can ensure efficient and smooth deliveries. Manufacturers or brands, receive orders online and provide last-mile delivery services. Companies may use their own logistics or partner with 3rd party logistics provider (3PLs).

Strong customer relationships and brand resonance

Selling directly to customers gives brands an opportunity to interact with them. Companies can collect customer data from various touchpoints. While doing do, they can establish a strong relationship with their brand.

With the help of advanced analytics, brands can further use the insights to:

Target customers with relevant offerings
Understand customer behavior, patterns, and preferences
Provide a personalized customer experience
Improve their product features as per customers’ requirements.

Challenges Faced by D2C Businesses

Managing Complex Operations

Having full control over the business involves a lot of planning, decision-making, and execution, which is a task altogether.

D2C brands struggle with managing all the operations by themselves. To achieve smooth operations, companies need to invest in automation and error-free logistics tracking systems.

Small brands can still manage their operations with ease. But it gets difficult if the brand operates in diverse product lines.

Constraints in expanding

Beyond a certain point, online expansion has its limitations. Beyond their own site, companies have marketplaces to expand to. However, what beyond that. If we take the example of WOW, we see that after exhausting all online expansion options, the brand went the offline route. Same with Mama Earth. So any D2C brand with no network of wholesalers and distributors, finds it very difficult to expand. Companies struggle to tap new markets and establish themselves in different geographies.

High Marketing costs

D2C brands majorly depend on digital channels for sales and marketing. These channels include social media marketing, digital marketing, and eCommerce. But the cost of advertising on these digital channels has been increasing steadily. Advertising cost on Facebook alone has doubled YOY in 2020-21. Also, it is very difficult for a brand to differentiate itself on digital channels. All these factors make it difficult for the D2C brands to sustain themselves.

Types of D2C Models

Direct Selling

Direct selling is a model where the company offers its products to customers through independent sales representatives in a non-retail environment. There are two main forms of direct selling:

Door-to-Door selling: A technique where the sales reps provide demonstrations of the products at the customer’s home. It is the most traditional way of selling products.
Multi-level or network marketing: A technique where the seller appoints other sellers to do sales on a commission basis.

Amway and Tupperware are some of the major brands that follow the direct selling model.

Pure Play Digital

In a pure-play digital model, companies rely on their owned digital channels for marketing and selling their products. Some popular retail channels are websites, mobile applications, and/or social media channels.

Most of the brands aim to follow the Pure Play model as it gives them full control over their business and sales. However, it is difficult for companies to scale using this model. Thus, only small D2C players are able to sustain this way.

Examples of pure-play digital brands are Vistaprint and Bummer.

Omnichannel D2C Model

The omnichannel model focuses on customers rather than the brand. Companies following the pure-play omnichannel model engage with customers via multiple owned channels. They provide uniform customer experience across websites, retail stores, social media, etc.

The omnichannel model requires companies to build different retail platforms and scale them. Also, to provide a consistent customer experience, companies need to invest in centralized ERP, CRM, and POS systems.

LensKart is one of the most successful pure-play omnichannel brands in India.

Marketplaces only

If we closely gauge this model, one will note that there is an intermediary involved i.e. the marketplace. eCommerce platforms are a blessing to small sellers. Manufacturers that cannot invest on building their website and essential logistical operations adopt the marketplace model. Sellers leverage the huge customer base and logistics fleet eCommerce giants such as Amazon and Flipkart have to offer.

Manufacturers have to register themselves as sellers on these marketplaces. Sellers need to update their products with details to reach the customers. These marketplaces take care of the operations and deliveries.

Most of the local brands or small-scale start-ups follow this model. Not surprisingly, many have made it big in terms of revenue and profits by just being available on marketplaces.

Read on the top D2C Brands in India

Hybrid Model

Every D2C platform has its own set of challenges. Be it marketplaces or eCommerce stores. It is a risk to put all your eggs in one basket. Hence it makes sense to diversify.

So D2C brands instead take the hybrid approach. Almost 90% of the D2C brands are hybrid, i.e., they sell their products on their own channels as well as marketplaces.

Many omnichannel D2C brands such as Mama Earth, Nykaa, Sugar Cosmetics, and Licious were hybrid at some stage of their growth.

D2C For The Future

D2C business models have their own set of challenges. These include:

Supply chain optimization
Focusing on cost reduction
Building strong customer relationships and brand resonance
Investing in IT infrastructure for efficient operations

The D2C market seems to be very promising, especially in India. By the end of 2021, India was already home to 600+ D2C brands. And the growth suggests that the total addressable market will be a $100 Bn opportunity by 2025. Warrants a fair consideration, doesn’t it?