Why Your Brand Needs to Consider Adopting the D2C Model

Posted on January 29th, 2021
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Why Your Brand Needs to Consider Adopting the D2C Model

The D2C wave has transformed the eCommerce industry and will continue to reshape the way consumers perceive retail and online shopping. Recent reports by Avendus Capital state that the D2C segment could possibly have a USD 100 billion addressable market by 2025. With more brands coming into play, India has become one of the largest retail landscapes in the world, expected to cross USD 1.7 trillion by 2025, and has added 80 million online shoppers in the last three years, reaching the 130 million mark.

Right before the eCommerce high tide, brands were depending on traditional brick-and-mortar retailers like Amazon, eBay, and Walmart. With the significant rise of digital commerce, brands have gained direct access to their customer base and target audience. A plethora of easy payment methods such as PayPal and UPIs in India has also compelled more brands to adopt the D2C model and skip the middlemen entirely.

There are many advantages of using the D2C model that support its rising popularity. By eliminating the third-party retailers, brands are able to form and nurture a long-term relationship directly with their customers. These digitally-native brands have also gained effective control over transactions, user experiences, and customer contact information, which are essential for encouraging repeat purchases and customer loyalty.

With a robust online presence and international shipping, D2C brands are going global and innovating at a faster pace as they can easily beta test new products and explore new markets. The test-runs help brands penetrate new market segments without committing to irreversible, costly investments or binding partner agreements with third-party retailers.

The direct-to-consumer model also offers economic advantages. Industry experts estimate that manufacturers can record a 15% boost in their profit margins by adopting D2C sales channels, making the revenue incremental to businesses shifting from traditional retail channels. By integrating digital sales channels, brands can enjoy the benefits of selling directly to the consumers without upsetting existing partnerships with brick-and-mortar stores and physical retail.

As the retail market is rapidly shifting to online sales, manufacturers and legacy brands of all kinds are trying to keep up with the change. To compete in this global digitized environment, brands must consider how a direct-to-consumer strategy can assist them in achieving greater customer awareness, tap into more market segments and increase profitability.

Let’s take a look at some of the greatest advantages of the D2C model:

1. Enables brands to control the customer experience

When brands are selling through a department store or third-party vendors, they are more likely to have less control over how their products are being displayed and presented. The products offered by your brand could be found stuffed into the bottom shelves, in the back aisles or failing to reach the top of the results page on third-party online retail websites. It is possible that damaged goods could be sold to the customers and your competitors may be able to secure a more prominent display and steal your customers.

Interacting directly with customers gives you more freedom to present your brand in whichever way you want. This control ultimately enables you to refine the conversion funnel and drive more sales and profit.

2. Allows you to stay connected to your customers

Another major benefit of selling directly to the customers is that brands can not only interact with customers, but they can also nurture this relationship and strengthen it over time. Maintaining effective communication with customers is crucial for recording repeat purchases and targeting those customers who spend more than first time buyers.

A scalable and lucrative direct-to-consumer strategy is to launch a subscription model where customers purchase your unique products and innovative subscription box combinations every month. This strategy will help you gain a significant amount of recurring customer purchases.

Needless to say, the stronger relationship you have with your customers, the more likely it is that they return to purchase the same or more items. Additionally, in the D2C model, brands have access to consumer data, which is key to any business's growth. Having a deep understanding of the customers' buying patterns allows brands to excel in impressing their customers, to adapt to their changing preferences, to understand the demand and need for new products, and ultimately, to increase profitability.

For instance, Corey Epstein, co-founder of D2C jeans brand DSTLD spoke to interviewers from Racket.com about how they are leveraging customer data. The customer data gathered from the brand’s website allows it to be agile and adaptable to shifting trends. With the consumer data, it is possible for them to know in real-time whether the skinny jeans they are selling are better than the straight-fit jeans.

According to Epstein, the brand frequently adjusts the quality they produce based on the previously recorded demands, which is very difficult to achieve in traditional retail models, as brands don’t know what is selling and what is not being liked until two months later when they finally receive the reports from department stores.

3.Encourages brands to tap into new markets

Over the years, many brands have claimed that the biggest risk associated with expanding their business into new countries is that they are unsure if the people will buy their products. However, now D2C brands can leverage their digital channels for obtaining feedback even before launching their products. Also, you can save time and money by promoting your latest products on social media platforms and selling online, directly to the consumers, instead of building a relationship with third-party retailers.

The D2C model gives you the freedom to develop new products and perform small-batch production test runs, launch limited products, offer pre-orders and waitlists. They can also encourage customers to take surveys to determine if they are liking their products or not.

For example, legacy beauty brand Keihl’s is using the D2C model to explore new markets effectively. This beauty brand (originally based in the United States) is incorporating the D2C model to achieve an omnichannel presence in Thailand to spread brand awareness and expand their market share.

4. Provides the ability to increase margins

Third-party retailers tend to mark up product prices by 50% or more to cover their service charges and other operational expenses. By selling directly to the consumers, you can gain control over these margins according to your business goals.

A good example is Nike. This global sportswear brand is witnessing a significant increase in orders via their direct-to-consumer website while recording substantially better margins on every sale they make. Nike CEO Andy Campion has highlighted the importance of the D2C model by explaining how it is more productive and profitable while offering superior consumer experiences.

Final Thoughts

The popularity of the D2C model is backed by several advantages that allow brands to enhance customer relationships, increase profit margins, expand brand reach to different regions and countries. It even increases brand credibility and popularity.

Leveraging intelligent techniques and D2C tools can help you too to achieve a greater sense of satisfaction when it comes to retail and revenue generation, taking your brand to greater heights.

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Posted on:
January 29th, 2021