The rise of the D2C model and where it stands today -By Sarthak Dave from Shaheed Bhagat Singh College, University of Delhi
We have been well-versed with the various business models since high school - B2B, B2C, D2C, making it to the top of our list. But what exactly is the hype around them and why do they hold importance in our lives is what needs to be understood. The answer for one of these above-mentioned models lies in its ability to help a business reach heights. It could actually turn into a regular feature for e-commerce and retail brands. And this shift, in all totality, could fundamentally change how businesses operate and supply chains work. Yes! We are referring to the D2C model here.
What is the D2C model?
D2C stands for direct-to-consumer, which means that companies can manufacture products on their own and sell directly to consumers without having to rely on middlemen or other related channels. Such businesses may take the form of e-commerce platforms, a retail store and/or run on social media. The idea or the objective is to practically remove resellers, producers and companies that would otherwise come into the picture before reaching the final consumer.
Now that we have understood what D2C means, let us peak a bit into its history to gain some valuable insight.
Before the internet revolution, it was practically impossible to imagine a D2C model playing out successfully, especially for large scale businesses. And even though the D2C model of business gained steam in the US during the dot com bubble, it fizzed out soon. However, in recent years, there were striking examples of various companies and brands from a diverse range of industries successfully adapting the D2C Model, especially in the west.
Redistribution challenges, absence of retailers to put your brand on the ground and generating a solid online presence backed with revenue growth without compromising on profitability have resulted in few success stories in this model. Nevertheless, the unprecedented corona crisis has led to a new wave of enthusiasm and optimism for the current and upcoming D2C players.
Impact of COVID-19 on the D2C model
COVID-19 has put globalization at crossroads and measures are being implemented by countries who want to protect domestic and small businesses which could ensure some relief from giant MNCs. But this is a double-edged sword because access to foreign markets where there is scope for profitability/revenue growth is curtailed. Having said that, there still are factors that explain the fresh optimism regarding the rise of direct to consumer models.
The D2C (direct-to-consumer) market has been growing rapidly, with double-digit rates for several years. It is projected to maintain a further 19.2% growth in 2021.
This is yet to hit the peak though. Brands are beginning to see the benefits of building new direct sales channels with their consumers after years of watching the boom in online and mobile e-commerce shopping. At the same time, we are witnessing a Retail Apocalypse, with thousands of physical retailers that have closed since 2019 (more than 9,300 stores and chains did so in the US alone).
An insight into the current trends
The super-digitalisation generated by the COVID-19 crisis will affect many who don’t accelerate their efforts in Direct-to-Consumer, Online-to-Offline or other channel transformation solutions in the face of new consumer habits. The data by Scalefast on Consumer Behavior below is a testimony to the fact that the D2C model is only going to expand in the near future.
- 61% of consumers would be willing to share more information with brands if it would allow them to have a better shopping experience.
- 54% of consumers expect to receive a personalised discount within 24 hours of the first contact with the brand.
- 51% of consumers see it as vital to receive a personalised experience through the brand’s various digital channels.
- 26% of consumers believe that improved security and user experience on the payment gateway facilitates their consumption at D2C.
- For at least 22% of consumers, having the option of same-day-delivery becomes an important purchase decision.
What lies ahead?
Many other studies indicate similar trends. According to the Direct-to-Consumer Purchase Intent Index, more than 80% of end consumers are expected to make at least one purchase through a D2C brand within the next 5 years. So, what explains the rise of D2C? Here are a few points that must be noted:
- Greater profit margin: By eliminating intermediaries, brands are able to reduce distribution costs and gain greater control over their profit margin in return.
- Enhanced scope for Personalization: The relationship with the customer returns to the brand, allowing control over the entire experience chain: from website to personalized messages or product delivery.
- Absolute control of data: Maintaining a first-rate customer relationship means having access to all data in real-time. This allows brands to identify patterns, trends, needs, preferences and to know the tastes of their users better.
- The possibility of digital-first marketing: Brands are entering the field of digital performance, and starting to get global control of all channels, regulating their branding and conversion efforts under one funnel and finally closing the circle so that their communication is 360º, once and for all.
So, what actually lies ahead?
The new generations will play a fundamental role in the growth of D2C. Gen Z and Gen Y are more environmentally aware than ever, and are looking to commit to brands that are not only greener and more sustainable, but also demonstrably socially aware (and contributing, of course).
Brands that position themselves with transparency throughout their business strategy (production, supply chain, supplier relations, etc.) will in the long term capitalize on trust and credibility with much greater probability. D2C allows companies to have total control over these factors, and at the same time a greater capacity to prolong this positioning without friction throughout its journey.
So, brands take note, the D2C model is here to stay!