Direct-to-Consumer – why direct sales can be a competitive advantage for companies Tags Blogroll About OSK

Whether in the supermarket, in a shop or via online marketplaces - in order to be able to compare as many brands as possible at a glance, we buy from different intermediaries everywhere and from every location. However, larger brands and many start-ups are increasingly bypassing retailers and relying on the direct sales channel to the end consumer: direct-to-consumer, or D2C for short.

The trend from the USA has also arrived in Germany and the number of companies that independently manufacture, communicate, sell and ship their own products is increasing. The growing popularity of this approach is causing a stir in the trading world.

In the blog post, we explain what D2C is, what advantages it brings and what it means for the business landscape.

Direct sales are conquering retail

The direct-to-consumer sales model simply means direct sales. This means the sale of products and services directly by the manufacturer to the consumer. Intermediaries and intermediaries, including platforms like Amazon or brick-and-mortar retailers, are deliberately left out - in concrete terms, without platforms like Amazon and without brick-and-mortar trading stations.

Sales then take place via a web shop, social media channels or e-commerce platforms, which significantly shortens the customer journey. However, some brands do not only rely on the D2C business model to make themselves independent of retailers. They also want to use the insights gained to be able to respond better to customer needs and to optimize their service. They can then use the results of the insights in marketing.

There is also a direct way in marketing

If you want to compete and grow in the D2C world, you have to put a lot of time into marketing. Direct marketing addresses an individual from whom you hope to respond. The difference to traditional marketing is that the manufacturer himself - and not the corresponding marketplaces - maintains customer contact and can use this in communication.

For example, if customers enter a discount code, respond to a request for feedback or verify the log-in in their own web shop with their email address or telephone number, the company knows immediately who reacted to the measure and how . Through customized emails, newsletters and offers, the brand can target recipients directly to encourage them to respond. Through direct-to-consumer marketing, brands can strengthen the direct interaction between customers and companies and ultimately build a long-term customer relationship. In order for this to work, brands have to build their own channels to consumers.

Direct vs. classic

Broadly speaking, manufacturers have two ways of bringing products or services to customers: either through intermediaries or through direct sales. There are some key differences between the two strategies.

With traditional sales, reach, personalization and the design of the range for the brand are limited to the end consumer. Likewise, the manufacturer is partly dependent on third parties for pricing and the capital expenditure is high if he regulates distribution through intermediaries. In contrast, the company that sells directly has full control over the products and price, can ship to unlimited distances, self-manage personalization and keep capital expenditure low.

Complete control for companies

By doing without the middleman, D2C brands avoid price surcharges from downstream trade levels. This allows them to offer products cheaper than the competition without having to forego quality. At the same time, direct-to-consumer brands have a crucial strategic advantage - full control over the collection and use of first-party data. You get unlimited access to data on customer behavior and brand perception. As a result, product development, delivery and customer relationships can be continuously optimized.

Companies benefit from a higher margin and customers benefit from a lower final price. Direct sales also avoid products being thrown out of the middleman's stationary or virtual retail shelves, for example in favor of private labels.

The company has direct access to customers and full control over the brand experience. The D2C approach makes it possible, for example, to bring special editions onto the market quickly and at short notice, to offer special discount campaigns or other personalized experiences, since the manufacturer is not dependent on retailers. In this way, brands can create emotional reasons to buy. All this makes the brand unmistakable and strengthens customer loyalty.

These brands have already successfully implemented the business model

The luxury retailer Threads is a good example of a brand that successfully operates the D2C approach. The company sells its products exclusively via the messenger services WhatsApp and WeChat. This gives Threads the opportunity to offer an individual shopping experience - no matter where customers want to buy the products from. The purchase is processed via the mobile messenger platforms and delivered all over the world.

The shoe label Allbirds also understood D2C. Even well-known celebrities like Leonardo Di Caprio or Mila Kunis have been seen in the shoes. The brand relied on the D2C business model right from the start and was able to implement it successfully. The American label is omnipresent on Instagram, where it even sells limited editions that are not available in the online shop.

Through emotional storytelling and many rounds of questions, the label binds Instagram users to itself. Through social media, companies like Allbirds reach a loyal and engaged clientele who are engaged with the brand. This way brands understand their target group better and can use this data advantage for direct marketing.

But companies can not only implement successful D2C sales via social media. Some D2C companies, such as the baby products start-up Lillydoo, rely on subscriptions to the products. This allows the company to compete with products like Pampers.

The sports brands Nike and Adidas show how big player brands do it right: They founded their own flagship stores – both online and stationary – and declared war on Ebay and Amazon. Finally, they massively expanded their own online sales channels.

Building a D2C distribution channel: a challenge?

Thanks to technical progress and digital tools, market entry is possible for practically everyone. Even without a deep technical understanding, all the required structures can be set up. In theory, every manufacturer is able to set up its own online shop and sell products to end consumers.

Newcomers in particular have discovered the direct-to-consumer approach for themselves and built their existence on it. They use their own agility to their advantage in order to be able to act more freely and with fewer restrictions in the market.

But what about a change in sales?

For many classic companies, it is not so easy to implement D2C internally. For years, intermediaries were often the only way to get products and services to customers. They also represented a large part of the value chain.

Shifting responsibility in sales and successfully building an online presence is one of the biggest challenges. Without intermediaries, the brand has to mobilize more forces to be seen. In addition, sales, all marketing, customer support and logistics have to be managed by yourself. Selling via D2C therefore requires more time and resources for the company overall.

Before you jump into direct sales, you should develop a business plan. It reduces the risk of missing crucial process steps and misjudging sales forecasts.

There are no synergy effects

The lack of involvement of distributors has advantages and disadvantages. Intermediaries know their customers and are able to offer a wide range of goods and services thanks to the existing infrastructure - in short, they are good at sales. D2C brands first have to work through this experience.

Similarly, D2C brands no longer benefit from the synergy effects of working with intermediaries. Without the presence in supermarkets and department stores, other ways have to be found and developed to attract new customers.

D2C market is growing - the end for shops and classic e-commerce?

The corona pandemic has changed the purchasing behavior of consumers. She showed how important it is to find direct customer access. Because especially in a difficult phase, the D2C approach can be a key to success - especially in the direction of independence, growth and customer trust.

Therefore, it sometimes makes sense for traditional companies to be open to the business model of big player brands and newcomers. Because despite the higher effort, the model can prove to be a competitive advantage.

The question of whether D2C will cause e-commerce retailers to “die out” has been around for a long time. Some brands still rely on middlemen, whether through tied partnerships or lack of staff. In addition, the D2C model is not suitable for all companies. The approach is not profitable, especially for brands that sell everyday products such as groceries. People buy such products in supermarkets.

D2C may not be the end of retail, but traditional companies should deal with the topic, as it offers strategic advantages and is currently gaining in importance.

More articles on topics from the digital and communication world can be found in our overview on the start page.

// About the author

Jennifer Winter is a qualified tech journalist and communications scientist. She completed her master's degree in technology and innovation communication at the Bonn-Rhein-Sieg University of Applied Sciences. At OSK, Jennifer works as an online and social media editor. She has always been interested in new trends and innovations in the digital field and writes about them for the OSK Blog. In her free time, she is at home on the soccer field, follows international soccer and also plays in a club herself.