What is the direct-to-consumer model?
The direct-to-consumer (DTC) model is a sales approach where a company sells its products directly to consumers without the involvement of intermediaries such as wholesalers or retailers.
Read on to learn more about what this model is, how successful companies have used it, and how it can work for your business.
The difference between traditional and direct-to-consumer sales
Before you make your DTC plans, it's helpful to understand the difference between DTC and the retail model used by traditional retailers.
The traditional business model
Traditionally, a company creates its products and sells them to retailers, often through a wholesaler, who then sell the products to consumers. There are several steps in this process.
Wholesalers are companies that purchase products in large quantities from the manufacturer and then sell them on to retailers. To make a profit, the wholesale company buys at a lower-than-retail price and sells higher.
After getting a delivery of your product from a wholesaler, third-party retailers place the product in their shops—either in person or online. The retailers set the retail price, do most of the marketing, and take a markup so they can make a profit.
The direct-to-consumer (DTC) model
DTC selling is, as the name implies, more direct. Rather than selling through intermediaries like wholesalers and retailers, DTC brands manage the whole product journey—from design through manufacturing operations, sales, and fulfillment.
Most DTC brands get their start with online sales through their own website or by partnering with an e-commerce platform. Rather than selling their products wholesale, these brands take orders and ship directly to buyers.
Although most DTC selling happens online, many companies that started operating online only have also opened their own retail stores. Particularly for products like eyeglasses, customers often want to see the product in person before buying. But even with their own stores, these DTC brands still control the entire sales and fulfillment process while using their physical stores to enhance the customer experience and grow sales.
Why are brands going direct to consumer?
While the traditional retail model is still going strong, many legacy brands are adding DTC options, and new brands are starting with the DTC model right away. These are some of the reasons why.
Customers expect online retail
Ever since e-commerce became widespread, brands have been looking for ways to take advantage of it. In the early days of the web, customers may have only used the internet for research before going to a local retailer to make their purchase. But consumer expectations have changed and consumers now assume that whatever they're looking for will be available online.
Of course, sales can still come through existing channels selling products from numerous brands, but direct selling has become not only more common but also something consumers look for and expect. And since the coronavirus pandemic kept many brick-and-mortar retail stores closed for months, customers came to rely almost fully on DTC retail.
Marketing and order fulfillment have become more doable
DTC selling has always been possible. Brands like L.L.Bean did it long before online retail existed. But marketing a brand's products and ensuring order fulfillment required a lot of coordination and extensive logistics. For a new brand just getting off the ground, putting all the e-commerce pieces in place from the get-go might have been an almost unmanageable amount of work.
However, because of the number of brands now selling directly to consumers, the marketing and order fulfillment processes have become much easier. Whether you choose to devise and implement your marketing strategy focused on social media channels or use a marketing firm or software, you can find an option that's right for your brand.
In addition, it's no longer necessary to manage the entire fulfillment process on your own; companies exist specifically to help online sellers with everything from processing payments to expedited shipping—and all at an affordable price.
It's easier to get a foot in the door
Previously, brands had to work hard to get their products placed on the limited shelf space available in grocery or department stores. And if the product's target audience was narrow, many retail partners weren't interested in carrying it.
But if you're selling DTC, you create your online shopping storefront specifically for the people who are right for your brand. It's not necessary to scale up so quickly and you can start small and focused, reaching the right consumers online.
Advantages of direct-to-consumer selling
There are several advantages the DTC model has over more traditional sales methods, especially when it comes to keeping control of all parts of the process.
Take charge of your marketing strategy
When you're selling directly to consumers, your marketing is entirely under your control. You can target the audience that makes the most sense for you using traditional or digital channels. Plus, you can see what marketing messages work best and tweak them as often as you want to find the best strategy for you.
Reach consumers farther away
Selling online means that your products are available almost anywhere in the world and you can expand your customer base along with it. Depending on the nature of your product and your ability to fulfill orders over long distances or internationally, you may have a virtually unlimited supply of potential end consumers.
Build direct relationships with customers
Every business knows how important building customer relationships is to long-term success. Adopting a DTC strategy means there's no one in the way when it comes to communicating directly with your customers or getting to know them and what they want.
Try out new products and adjust
When you sell directly through e-commerce, you have real-time information about what products and services are doing well and you are well positioned to spot any changes. Moreover, trying out something new doesn't require going through wholesale or retail partners. The ability to pivot quickly means your business can adapt faster to shifting consumer tastes.
Hold on to more of the profits
When selling products through traditional retail channels, your brand isn't the only one that needs to make a profit. The wholesaler and the retailer each get a cut of the final sale price—an amount that has to be factored into the eventual product cost.
In DTC sales, however, the entire purchase price comes back to you, which can result in higher profit margins. You also choose how you advertise your business and fulfill your orders, which can lower costs all along the supply chain.
Challenges of DTC selling
You may already be sold on the benefits of selling directly to your customers, but before you launch your new product or subscription service, take a look at some of the challenges you can prepare yourself for.
Requires management of the entire sales and fulfillment process
Because everything is under your control when selling DTC, everything's your responsibility too. You won't have the support of a preexisting supply chain or placement in national department stores to help boost your band's visibility. But the good news is that as DTC brands have become more common, services to help with all of the logistics have grown too.
Some costs are higher
In addition to being in charge of the whole marketing, sales, and fulfillment process, the costs of those steps become yours as well. But you also have the choice to use lower-cost methods like social media marketing and loyalty programs to service customers in a way that meets your organization's budget and goals.
Need to understand and adapt to changing customer wants
Every company wants to build brand loyalty, but it takes work, and customer desires can be unpredictable. DTC cannot be a simple set-it-and-forget-it process. At the same time, with DTC selling, you can access all customer data, from sales to fulfillment, to help support customer retention tactics.
Examples of successful DTC brands
To help inspire your direct sales plan, let's look at some brands that have successfully put DTC selling to work for them.
Digitally native brands
Most of the DTC consumer brands that have become household names today are companies that started selling exclusively online, with a DTC strategy right from the beginning.
Eyeglasses may not seem like a product that would work when going direct to consumer, but Warby Parker—started in 2010—has found success selling straight from their website. In 2013, the brand began opening retail locations, allowing customers to try on their whole range of frames and purchase or order them in store as well.
Dollar Shave Club
Founded in 2011, Dollar Shave Club is a subscription service for razors and other grooming products. Since their products are things that most people need to buy on a regular basis, they saw an opportunity for selling directly to consumers, saving shoppers from having to restock at physical stores.
A shoe brand that has been selling directly to consumers since it was founded in 2014, Allbirds has built a loyal customer base with its comfortable and sustainable shoes made from eco-friendly materials.
A makeup and skincare company founded in 2014, one of the things that Glossier has done particularly well is build a brand community through social media; for example, they used influencers to reach their target audience very early on in the business.
The DTC trend isn't just about brands that got their start online. Many well-established companies have recognized the value of a direct connection with their customers and have added DTC into their overall brand strategy.
While you can still buy Nike's popular shoes and athletic wear in stores, Nike has expanded its reach by adding DTC sales to their website as well. This has allowed buyers to customize the design of certain products—something that would be more difficult to do through retail partners.
Perhaps inspired by the success of brands like Dollar Shave Club, Gillette, which has been selling razors since 1901, introduced its own subscription model in 2015, including subscriptions specifically marketed to women.
Despite being 170 years old, Levi's clothing company has taken the lead in adopting a DTC strategy, including significant investments in e-commerce and online marketing, with a goal of expanding DTC sales to 55% of their total revenue by 2027. It has also opened its own retail stores, allowing the brand control over the in-store experience as well.
Even luxury brands have started selling directly to consumers. Coach is famous for its stylish handbags and accessories, which are still available through retailers, but the company has also built a robust DTC business through its website and online Coach stores, which has resulted in creative marketing efforts like personalized product recommendations by zodiac sign.
Tips for getting started with DTC sales
If you've decided to jump into DTC sales, we've put together some information about things you'll want to consider and resources to get you started.
Tip #1: Find the right tools
DTC brands have control over the whole sales process and customer journey, but they don't have to do it alone. Software programs and services that cater to small businesses and DTC brands help make the process easy.
Web design and marketing
If you're not sure where to start when launching your DTC brand, having a sleek and intuitive website is the first step.
Customers want to find you easily online and will expect a well-designed and informative site. Make your online home useful and welcoming by using a tool like Mailchimp's website builder to keep your site updated with fresh content and the latest information about your product.
There are also other resources out there that can help bring your great marketing ideas to life. With Mailchimp's email marketing services, for example, implementing your marketing plan doesn't have to be complicated.
As your sales grow, so will your need to get your products to consumers. That's a task that used to be the responsibility of wholesale brands and physical stores, but when your company does DTC sales, it's on you!
Luckily, you don't have to start from the ground up. There are e-commerce platforms to help with everything from inventory control to shipping and even returns and exchanges. An e-commerce service can help make direct sales easy and hassle free for you, while providing a great customer experience that can help build brand loyalty. Choosing one that can grow with your brand will make sure you're set for the long term.
Understandably, you may want to handle every customer service interaction yourself— whether to answer questions about your products, resolve any issues with a purchase, or, the most gratifying part, accept all the rave reviews from satisfied customers.
But scaling up your DTC business means that the number of customer service interactions will grow too, and you'll need to find a way to foster good customer relationships for those who need customer support. This can take several forms:
- Live customer service: Provided through phone calls or live chat, this allows a customer to talk directly to a human being in real time. It's time and cost intensive, but also provides personal one-on-one service.
- Asynchronous customer service: If an immediate response isn't necessary, customers can send questions or concerns via email or a contact form on your website. As long as response times are reasonable, this may be an option to balance cost and quality.
- Chatbots: If many of your customer inquiries are similar, this may be the way forward. Chatbots use artificial intelligence and natural language processing to respond to customer inquiries and provide information or support. They provide quick and efficient customer service and are available 24/7. Issues that can't be resolved automatically can be elevated to asynchronous or live support.
Tip #2: Be creative with your marketing efforts
Because going direct to consumer means you're also in charge of marketing, you have ample opportunities for creativity. Think about telling a story with your marketing, especially the inspiration for your product. Get interactive by offering customers a chance to create content or participate in contests. You can even personalize your messages, since selling DTC means you have access to more customer data. In short, don't be afraid to test things out!
Tip #3: Make your online presence as welcoming as possible
Since DTC brands sell directly to customers, they won't be showing up at brick-and-mortar stores to begin their customer journey. That means that your online home—including your website and social media channels—should be attractive, easy to navigate, and informative.
Tip #4: Create compelling content
Consumers are coming to you mainly for your great product, of course, but the most successful brands using the DTC model offer them something more—an experience. Here's where you can do something out of the box. How about shooting a short film featuring your product? Inviting loyal users to send in testimonials or ideas for product designs? Offering discounts or prizes to customers who visit your site and enter contests? The DTC world is your oyster.
Tip #5: Build a community
Shopping online can feel like an impersonal and anonymous experience, so find a way to foster authentic connections with your customers and create a community around your brand.
Thinking about your brand's core values and identifying your ideal audience is a great place to start. Once you know this, provide a space for user-generated content like photos and reviews and offer incentives for engaging with your brand, such as discounts or invitations to virtual events. These can make e-commerce feel more authentic.
Tip #6: Prioritize customer service
If your brand sells directly to consumers, you're also the sole point of contact when they need information or something doesn't go as planned. Don't let them down! Having inquiries and issues dealt with skillfully will make for positive customer experiences and boost word of mouth.
Tip #7: Attract new customers
While loyal customer relationships are vital to the success of your brand, you'll also want to attract first-time customers. Advertising on social media and using referral marketing are great ways to target shoppers who are looking for a product like yours or who trust the recommendation of your established buyers.
Overall, the DTC model is attractive to companies because it offers a range of benefits that can help grow their business, reach more customers, increase profits, and take advantage of changing shopping habits. If you decide to go down this path, we hope we've provided you with a clear starting point. Good luck!