What is direct-to-consumer?
Direct-to-consumer (D2C) is an ecommerce strategy where manufacturers sell their products directly to consumers through online platforms, bypassing traditional intermediaries like wholesalers and retailers. This model grants companies complete control over product development, marketing, sales, and customer engagement. It enables quicker responses to market trends and direct customer feedback, leading to improved product offerings and personalized marketing. Eliminating the middleman can also result in cost savings for both the manufacturer and the consumer.
Why are companies selling more D2C?
D2C is skyward-bound
The transition to D2C sales is a strategic response to the evolving market dynamics and consumer preferences driven by digitalization and the AI revolution. As businesses adapt to these changes, the impact on the market becomes increasingly evident, setting the stage for significant growth in the D2C sector.
The global D2C market is on a rapid growth trajectory, expected to reach $1.5 trillion by 2025, showcasing a compound annual growth rate (CAGR) of 25%, according to Statista. This growth is driven by D2C brands' direct relationship with consumers, leading to increased loyalty and consumer purchases. A PwC survey showed that a significant portion of consumers, about 63% of respondents, have purchased products directly from a brand’s website.
The move to D2C is particularly impactful for established brands, which are expected to dominate D2C revenue. While digitally-native brands are predicted to earn $39 billion by 2025, established brands are set to generate $186 billion, demonstrating the substantial shift and potential in D2C for big brands. D2C ecommerce in Europe, particularly in Germany, has experienced significant growth, with the Berlin-based brands hub Stryze emerging as the region's most valuable D2C startup.
Consumers choose to shop direct
Many D2C brands are experiencing significant growth in their direct channels, often seeing double-digit increases. This surge is largely attributed to consumers deliberately choosing to patronize brands they love and trust.
Statista reports that 53% of consumers prefer shopping directly from brands due to better pricing, followed by 49% who value free delivery. Another significant factor for the D2C growth is the digital-first nature of younger consumers, particularly millennials and Gen Z, who are comfortable with online shopping and drawn to D2C brands for better shopping experiences and shared values such as sustainability.
Personalization powers D2C
Personalization plays a crucial role in the D2C model's success, with studies showing that a significant percentage of consumers would consider buying products customized to their preferences, and some are even willing to pay more for such personalized items. Going back to the digital-first nature of consumers, a report by PYMNTS found that 43% of Gen Z consumers prefer shopping directly at a brand’s ecommerce website. Similarly, 64% of millennials prefer the same direct shopping method, valuing the direct connection and personalized experiences that D2C offers.
As brands consider incorporating D2C into their sales approach, they may encounter obstacles. Yet, the rewards of adopting a D2C model surpass these challenges.
6 key benefits of going direct to consumer (D2C)
Exploring the D2C model reveals a landscape rich with advantages for brands ready to take control of their market journey.
- Increased control over brand messaging and consumer engagement
D2C gives companies complete control over their brand image, enabling direct customer interaction for a consistent brand experience. In today's competitive market, consumers often favor brands that provide clear and consistent information — and any discrepancies across various channels can lead them to competitors. The traditional manufacturer-retailer model restricts manufacturers' control over their brands, limiting their influence on initial marketing efforts like packaging.
Once products are in the retailers' hands, manufacturers cannot directly shape the sales experience, build consumer relationships, or collect valuable data. Despite potentially significant advertising expenditures, the retailer ultimately controls product presentation to the consumer. D2C, therefore, becomes crucial in maintaining brand consistency, allowing manufacturers to directly influence consumer perception and engagement and gather insights critical for tailoring their market approach. - More opportunities to innovate
Retailers typically adhere to established norms in their sales approach, favoring products with proven market success and hesitating to stock new, untested items. This conservative strategy can limit manufacturers to only creating products that align with retailer preferences, stifling innovation. D2C models, however, offer manufacturers the freedom to introduce new products on a smaller scale, enabling them to target specific demographics, conduct market tests, and collect valuable consumer feedback.
This approach empowers manufacturers to understand customer preferences better, focus on producing items that show actual demand, and make iterative improvements based on direct consumer insights. D2C bypasses the conservative retail filter and accelerates the innovation cycle, allowing manufacturers to stay agile and responsive to evolving market dynamics.
- Direct access to customers and their data
Dependence on wholesalers and retailers can block manufacturers from obtaining detailed customer data, limiting their capacity to respond quickly to changing consumer needs. D2C models break down these barriers, allowing brands to directly gather critical data like email addresses, geographic locations, social media interactions, and buying patterns.
This direct data acquisition is critical to refining product ranges and exploring new market opportunities. Furthermore, D2C facilitates a stronger, more personal connection with customers, yielding rich insights crucial for tailoring products, making strategic decisions, and broadening market reach. - Increased profitability
Manufacturers can significantly increase their profit margins by bypassing intermediaries in the sales process. When relying on middlemen, manufacturers' earnings are limited to the markup from the cost price to the wholesale price. However, adopting a D2C model enables manufacturers to sell their products at retail prices, thereby capturing the markup that would traditionally go to the retailer.
This shift enhances their profit margins and provides greater control over pricing strategies, allowing for more competitive pricing or higher returns on each sale. By selling directly, manufacturers can reinvest the additional profits into product development, marketing, and customer service, further strengthening their market position and financial health.
- Stronger brand loyalty
With a D2C approach, manufacturers gain increased autonomy in delivering superior service and supporting their customers. This direct engagement enables them to leverage their relationship with consumers, fostering stronger connections and enhancing customer loyalty. With direct access to consumer data and feedback, manufacturers can design and implement targeted marketing campaigns that are more likely to resonate with their customer base.
This strategic advantage allows for personalized experiences, improved customer satisfaction, and higher retention rates. Additionally, the D2C model allows manufacturers to quickly adapt their service offerings and support mechanisms in response to customer needs and preferences, further solidifying the direct-to-consumer relationship.
- Expanded market opportunities
Selling D2C liberates manufacturers from geographical constraints, enabling them to target and penetrate global markets effectively. Leveraging D2C sales strategies opens the international stage as digital commerce transcends traditional geographical limits, allowing brands to engage with customers worldwide.
This global reach amplifies market presence and accelerates growth by tapping into diverse consumer bases across different regions. The shift to digital commerce allows for scalable marketing efforts and distribution strategies, making it feasible for manufacturers to establish a solid global footprint and enhance their brand visibility internationally.
