Time to embrace the fall of the commercial middle man.
When it comes to business models, direct-to-consumer (D2C) and business-to-consumer (B2C) capture attention in the world of commerce. Both models differ in how they approach product creation, delivery, and customer value.
Regardless of the model used, modern organizations quickly realize that placing customers at the center of the sales and marketing cycle is the way to go. For the purpose of this article, we’ll look at two of the most popular models, D2C vs B2C, to gain more clarity on how they differ and where they are aligned.
What is the D2C business model?
The D2C e-commerce model connects product manufacturers directly to customers. Products are sold and shipped to the end consumer without employing any intermediaries. Businesses that use the D2C model leverage the brand’s sales channels, such as store outlets, online stores, and third-party retail shops, by leveraging third-party logistics (3PL) software.
With the rise in this business trend, sellers in non-luxurious industries such as smartphones, laptops, electronic items, consumables, and cosmetics have also warmed up to manufacturing, promoting, selling, and shipping their products independently.
The D2C marketing strategy provides service providers and manufacturers complete control over the selling process. It enables brands to develop products, market them to their target customers, and deliver products to consumers. All these activities lead to increased ownership of overall customer communication and experience.
How does D2C work?
Selling products and services directly to end-users almost sounds magical. But working with a D2C model requires partnership and coordination at every stage of the product life cycle and delivery process.
To understand how D2C businesses operate, let’s look at how they differ from conventional business models.
Standard business models shift products through manufacturers, wholesalers, and retailers, before delivering them to customers. These models involve changes in the product price and negotiations at every stage. One of the key facets of these revenue models is the presence of multiple agents; this factor also impacts the time taken to deliver the product to the end customer and reduces overall profit margins. Each stage moves hierarchically, and customers are never actively interacting with any of the members of the business chain.
The main idea for companies that employ D2C strategies is to partner with different stakeholders across the product and supply chain to connect the business’s products directly with the customer. The internet and digital marketing services are the primary reason for this being possible. D2C companies can take orders, pack, and ship right to the customer’s home with special logistics (3PLs).
The importance of 3PL for D2C brands
No conversation about D2C e-commerce is complete without mentioning the role of third-party logistics.
Most D2C businesses operate through online stores for their e-commerce growth. These companies need to establish strong customer connections, use customer data to have actionable insights, and invest in innovative marketing strategies. D2C brands cannot afford to spend time worrying about e-commerce fulfillment activities and outsource them.
Enter: 3PLs
Third-party logistics are responsible for providing services such as warehousing, picking up products, packaging, and shipping. They help D2C companies to focus on building strong products, increasing market growth, and boosting innovation. 3PL providers improve business scalability, performance, and customer satisfaction by taking responsibility for the outbound logistics activities. A successful D2C business trusts people to do what they’re good at to be great at what it does.
D2C commerce examples
While it may seem that the term D2C is a relatively new business concept, traditional marketing techniques such as mailing product pamphlets and catalogs directly to customer mailboxes are typical examples of direct-to-consumer marketing.
Some examples of D2C brands include the leading makeup company, Glossier. The brand leverages social media to connect with customers, draw engagement, and celebrate authenticity.
Another example is the Dollar Shave Club, a personal grooming company. Its supply chain consists of fulfilling customer orders through partnerships with 3PL services to connect manufacturers directly with customers.
Another example is Hello Fresh, a meal kit company. It allows customers to pick from a variety of different food preferences as their main offering and ships it directly to them. The company is also known for marketing itself and is gaining popularity with its fresh ingredients and recipes.
5 Benefits of D2C commerce
The D2C model has changed the business landscape for the better. It has brought in a type of commerce driven by buyers and their decisions. Furthermore, D2C strategies allow brands to create shopping experiences across multiple channels and customer touch points.
- Increased control over the sales journey: Since there are no intermediaries in the buying process, companies have better control over their offerings from the beginning to the end.
- Stronger customer relationships: The D2C model places customer needs and desires at the top of the sales funnel. By having a direct relationship with the customer, brands can improve personalization to retain customers.
- Higher profitability. Companies that cut down intermediaries are more likely to reduce operational costs and increase profit margins. Cutting down retailer costs provides opportunities to work on expansion and product innovation.
- Improved business agility: D2C commerce enables companies to focus on what matters, the product and the people. Outsourcing business logistics gives back time and resources to the brand to adapt to changing market conditions, evaluate trends, and increase overall business agility.
- Better access to customer data: Using customer feedback and data to make business changes in response to customer needs is one of the greatest benefits of the D2C business model. Customers can provide direct feedback to brands without the hassle of mediators, which brands can then use for e-commerce reporting.
Limitations of the D2C model
While D2C is reigning in the e-commerce world, it comes with challenges, as with any business framework. The limitations of direct-to-consumer marketing stem from a lack of market experience, brand perception, and competition from retail channels.
- Competing with retailers: One of the biggest challenges D2C brands face is the competitive edge existing retail giants have in the marketplace. It can be difficult for D2C businesses to obtain market share and offer competitive prices to big brands that use economies of scale to gain profits.
- Managing order demand: Since D2C companies are responsible for the packaging, shipment, and delivery of products, they are often challenged with issues in order fulfillment.
-
- Building a brand: The whole essence of the D2C model is that it fosters direct connections with customers. However, gaining customer trust is especially challenging as most buyers are skeptical about buying directly from a company.
- Emphasizing sales quotas: D2C commerce adds pressure on the business to attract and convert customers, and boost conversion rates. Because there are no intermediary agents, ensuring that there is a solid sales and conversion strategy in place becomes a critical business function.
What is the B2C business model?
Business-to-consumer (B2C) is a popular business model wherein companies sell products and services through various channels. Essentially, any company that sells products to end customers is a B2C business.
A B2C company carries out product development and delivery by sourcing products from manufacturers and selling them to customers through merchants.
In the context of this article, this implies that all D2C companies are essential B2C since they sell products to a customer. However, all B2C companies are not D2C brands as they may or may not employ go-betweens to deliver the product. It is thus safe to say that the D2C business model is a subset of the greater B2C way of doing commerce.
B2C commerce examples
Business-to-consumer companies usually involve retailers in selling goods and services to end customers.
Some of the most common B2C examples are Amazon and Facebook Marketplace as product-centric business models. Customers can buy products directly from retailers online and do not need to visit physical stores.
Netflix and Spotify are service-centric B2C businesses that operate through memberships and subscriptions. These B2C models are easy to deploy and can be scaled efficiently.
Benefits of B2C commerce
B2C improves customer relationships and the interaction cycle. It enables companies to increase their customer base by expanding overall market reach.
- Multi-channel distribution: Leveraging multiple sales channels such as social media, store outlets, online selling, and e-commerce platforms increase market presence. Companies often employ multi-channel marketing software for this purpose.
- Better scalability: It should be no surprise that the B2C model can be expanded across different industries and geographical areas. Since there are multiple selling channels, businesses can add several products without worrying about scalability.
- More customer insights: B2C businesses can cross-sell and up-sell products to customers by targeting them based on their purchasing behavior and preferences.
- Low product prices: Since the B2C model can cut overhead costs and leverage digital sales and marketing strategies, it helps companies lower the price of their products.
Limitations of B2C
While B2C models continue to win the popularity award, many businesses are considering shifting to the D2C model due to commercial limitations.
- Order management: Having multiple sales channels simultaneously is great until it gets in the way of feasibility. B2C businesses often struggle with inventory challenges and logistics management since they have incoming orders from different channels, which makes order management difficult.
- Low-profit margins: The presence of intermediaries like wholesalers, distributors, and retailers cuts overall profit for the business substantially.
- High dependency: B2C businesses depend highly on different stakeholders during the selling process, limiting their control over the customer journey and experience.
- Long sales cycle: A B2C model has a longer overall sales cycle because of the time and capital it takes to manage distribution and manufacturing processes and maintain operating cash flow.
It’s all about the people
As is evident, both D2C and B2C have different use cases and ways to solve problems, create unmatched customer experience, connect business products to end-users, and maintain long-lasting customer relationships.
While D2C seeks to build a direct relationship with the customer and outsource the logistics of the sales process, B2C businesses can expand their customer base and product stacks through multiple channels.
As with any business activity, it is essential for leaders to sit with their teams and decide which model they want to leverage that works best for the company’s products, stakeholders, and resource availability.
