What is D2C Business?
The whole concept of Direct to Customer or D2C business model is kind of new. Which makes many wonder, what is a D2C business model? Traditional supply chains involve a manufacturer who makes and sells products to a wholesaler, who in turn sells them to a retailer. The retailer is the touchpoint between the company and the consumer. But now, owing to the pandemic; there is a remarkable rise in the brand selling their own products and services to the end-users. As an eCommerce seller; understanding the concept of a D2C business and even adopting it into your business, could just work wonders.
Since the beginning of 2016, the D2C business has grown many folds. This model of business is almost becoming common practice; egged on by internet penetration and eCommerce growth. With the worldwide pandemic coming into play; D2C is proving to be a huge advantage to online brands. Many well-established businesses began as start-ups with a pure D2C supply chain. So, let’s jump right in and understand the D2C business.
What Does Direct to Consumer (D2C) Mean?
Basically, direct-to-consumer (D2C) is an eCommerce business strategy, where brands take the product directly to the end-users without the interference of other middlemen. This is done via channels like online brand stores and eCommerce presence. Besides these, businesses have been investing in the promotion of products and sales, through social media platforms. All this is directly handled by the brand itself which is why various retailers, wholesalers, distributors, and other parties are removed from the equation.
D2C vs Traditional Supply Chains
The question is why is the D2C business model being considered when we already have traditional supply chains?
- In conventional supply chains, as a brand, you have to contact a retailer to sell your brand’s product. Further, convince the retailer that your product is worth their selling effort. This results in not all products being successfully sold by the retailers.
- Besides that, there is a delay in the sale of the products as well. As robust logistics systems require products to be delivered in the right quantities to distributors, stockists, wholesalers, and retailers. This further delays the display and sales of products.
- Also, feedback is what brands consider and rely on to enhance their sales prospects. By having a D2C business website you can immediately get feedback. And put these suggestions into action much faster. This is possible because there is no involvement of several other retailers and dependence for information.
- Moreover, you have to also consider that with D2C your brand can save on expenses. Since there is no middleman in this mode, you can save on the money you would be paying distribution partners to promote and sell your product.
- Lastly, e-commerce websites do not provide 100% coverage to every area/ pin-code. The rise of this problem has become much more noticeable due to the pandemic. It restricts one from reaching out to these consumers. But in a D2C business, one can use shipping partners of one’s choice to service almost all 26000+ pincodes in the country.
Therefore, this strategy works as a successful medium to earn higher profits and reach potential buyers directly. This is why a D2C e-commerce business also functions as the perfect platform for start-ups to start selling.
Check out the list of Top D2C Brands in India.
How to Set Up a Good D2C Business?
1. Figure Out Manufacturing or Sourcing of Your Products
A successful D2C allows business owners to earn healthy margins. A primary way to do this is to bring down your cost of goods. There are two scenarios here:
- Own Manufacturing: Here you control the sourcing and get raw materials at competitive rates. Fixed costs need to be brought down. The location of your manufacturing unit is an important factor that affects transportation costs.
- Sourcing from a Manufacturer: Many successful D2C businesses outsource their manufacturing. It is important though to select the right product- a niche one or one with a key differentiation feature.
2. Well Designed Online Store
The first thing for any eCommerce seller to consider when shifting to or starting a D2C model of business is having an online brand store ready. This is not only crucial to maintaining your brand’s online presence but will also be a pure D2C channel to sell your products.
Most eCommerce sellers or retailers who started selling on marketplaces and grew from there, do not realize the importance of having their own brand store. However, this is important if you want your brand to grow and consumers to remember you well. Some often used cart platforms for eCommerce are:
Some of the above need you to have a developer create the website. However, the others have user-friendly drag & drop solutions. Payment gateways can be plugged in. For example, Mamaearth, which specializes in toxin-free baby products, increased its revenue with its online website, and to date, the channel contributes a major percentage of its revenues. A web store is all about user experience. The following factors play a major role in customer decision-making:
- Well captured product photos
- Detailed product description including specification
- Easy browsing
- Indexing/categorizing products so it’s easy for customers to discover them
- Secure website- SSL certificates in place
- Wish listing or bookmarking feature
- Simplifying customer journey after they add a product to the cart
- Multiple payment options and secure payment gateways
3. Selling on e-Commerce Marketplaces
Many D2C purists may say that eCommerce marketplaces aren’t exactly since a seller or brand pays a commission to Amazon or Flipkart. However, practically, it is the easiest D2C business.
- Most of these marketplaces have the option for you to showcase your brand via listings or brand stores. That lets you directly communicate with consumers.
- You don’t have to spend on advertising to drive traffic to the site. You can increase your visibility organically by cracking the algorithm of the website. Plus there are PPC ads which are cost-effective ways to give your brand an initial push.
- Ecommerce marketplaces have witnessed an increase of 32% in order volume since 2019. Some sellers and retailers restrict themselves to just one or two websites due to the perceived complexity of multiple marketplaces. However, using software like Browntape, you can fully integrate with marketplaces like Amazon, Flipkart, Myntra, etc. Also, e-commerce platforms like Magento, Shopify, and WooCommerce can be integrated. A centralized inventory lets you manage your entire business from one dashboard.
4. Using Social Media
As a D2C business, your brand needs to take its place on various social media platforms. This in turn will benefit your brand’s performance in the market. Instagram, Facebook, Twitter, Pinterest, and more can be used. By using these sites you will:
- Being active on social media will create brand awareness.
- As a brand, this social media platform can work as an eCommerce site. Since you can sell your products from the platform itself.
- Engaging with your audience builds a personal connection with your consumers.
As a brand, you can achieve this with the help of social media contests, giveaways, and even use influencers to endorse your brand. One such example of a brand that was successful with the help of social media is Bewakoof. This is an online clothing brand, that increased its revenues through social media.
5. Having Customer Support
For any business, your goal should be to have happy customers. This can work in the favor of your brand. This will guarantee your brand with returning consumers. Furthermore, you will have these consumers promoting your brand via written reviews and word of mouth. Social media too works similarly. When you have customers sharing your content there is a bigger chance that they will also buy your product. Therefore, giving your business a steady growth in its customer base. Your brand should strive for customer loyalty. You can do this organically with:
- Reward loyalty with points or gifts.
- Establish trust with timely services and good customer support.
- Being connected emotionally to your customer base.
- Seek feedback and integrate it into your service.
- Have good promotional emails and launch alerts.
Trust isn’t built overnight which is why you need to be patient and cultivate it at every touchpoint.
6. Use a Suitable CRM
Customer relationship management (CRM), is where you as a business manage your interactions with all customers. With CRM you can manage and analyze your customer interactions. Much like graphs, you can find all your customer’s information in one place efficiently. For your eCommerce store, you need to integrate good CRM software to manage your customer relationship.
You can easily integrate and use either one of the above software to your eCommerce site. With the help of this taking big decisions is easier and be assured are well informed.
7. Utilize Collected Data
With CRM you have your customer’s data all in one place, this makes it easier to use and refer to. This will help your D2C business to market and promote your products appropriately. With gathered information of age, gender, demographics, taste, and more targeting audience and predicting trends for sales to positively impact revenue, will grow easier. Your brand can thus promote and develop sales tactics accordingly to assure sales convergent rates. Enhancing your customer’s journey with your eCommerce business, in turn, will also build brand loyalty.
8. Shipping Partner
Shipping becomes a crucial aspect to look into especially for your D2C business. With good timely shipping, you are building your brand in the market. This is why you need a reliable partner to support your eCommerce shipping needs. Shipping involves more than delivering the product, it also includes the speed, quality, and hygienic procedures reflected on your brand. Factors to consider from your customer’s point of view:
- High shipping costs, taxes, and fees can cause cart abandonment.
- Customers look for free shipping.
- Customers are likely to add more items to their cart to be eligible to free shipping.
- Consider the return shipping policy as well.
Taking all this into consideration, look for a mutually benefitting shipping partner for your consumers and your D2C business. A few suggestions for delivery partners are as follows:
You can also check out the D2C brands that won the Shark Tank in India
What are the Benefits of a D2C Business?
1. Increased profit margin
Consider you are selling an item for around ₹500. As a brand, you would sell it to a middleman retailer for ₹1000 to make a 50% profit for yourself. From here the middleman retailer goes ahead and sells the same product for ₹2000. So in this case the profit margin you receive is lesser than the retailer’s profit, which isn’t feasible.
Now, what if you take a step ahead and reach out to the customer directly and sell the same product for ₹2000. This would in turn be a 75% (1500 divided by 2000) profit margin for you as you will be making ₹1500 (2000-500). Therefore, a D2C business increases your profit margins. You can even retail the final product for 1500; undercutting competition while still making higher profits.
2. End Consumer Research and Feedback
While you have middlemen doing the selling to all your end customers, you are losing out on feedback and valuable consumer data. This data is tough to gather from retailers. Consumer research is expensive and time-consuming; especially when you outsource it to an agency. However, what you can get from retailers is the opening and closing inventory count, no. of products returned, and probably the reason for return. The question is though, is this enough?
But if you have a D2C e-commerce business in place, you can get queries and feedback related to purchase almost instantly. Furthermore, it is easier to discover trends, tastes, and consumer behavior. This feedback can be incorporated to help better your service or product. You are given the liberty to test out sales strategies with D2C. And also, with the acquired customer information, you can contact consumers and build recall.
Moreover, you can even try to cross-sell products or even up-sell products from your brand. For example, if you sell organic bath bars, you can upsell your range of organic shampoos or conditioners.
3. Increase Brand Loyalty
Building brand loyalty among consumers is a challenging task in traditional retail. Competition is fierce and retail real estate comes at a price. Despite one’s product being great; BTL consumer promotions by competition can convert even a loyal customer.
In a D2C e-commerce business, however, it is easier. There are multiple avenues to improve customer experience and multiple avenues to keep them engaged. As you have direct contact with the consumers, you can customize your activities to suit them.
Customers can be in various stages of loyalty; for example new buyers, frequent buyers, and loyal customers. Depending on your goal for the customer, you can offer coupons & discounts. Companies with a D2C business even work on specialized packaging with cross-selling coupons. The targeted products depend on a customer’s previous purchases- the data for which is readily available. Customer support is another avenue in a D2C business to increase loyalty. Indian D2C brands such as Vedix & Bare Anatomy, offer personalized hair care solutions with their oils, growth serums, and hair cleansers. Such steps surely leave an imprint on a customer’s mind.
4. Control Over Supply Chain
This factor is a major plus point since in a D2C business, you can cover more ground by reaching your audiences directly. One common problem recently noticed during lockdowns was that a large number of pin-codes became inaccessible via e-commerce marketplaces. This became a technical problem for brands that do not have complete customer data due to the privacy rules of marketplaces. However, brands having an existing D2C business could overcome this hurdle by signing up with shipping partners having extensive reach.
Shifting your business to D2C doesn’t have to be a task to break your head over. Simply with the right sources and connections you can have your own D2C business set up and ready to go. So, what are you really waiting for? Start right away in setting up an effective D2C business that not only earns you revenues but also large profit margins.