The DTC business model features a very large market and high margins. However, it is also rife with competitors of all sizes, so it requires effort and diligence to make the most of it.
Keep reading to learn what the direct to consumer business model is, how it works, and the benefits and disadvantages of the model.
What Is the Direct to Consumer Model?
The direct to consumer (D2C or B2C) business model features a business that sells directly to the end consumer without going through an intermediary, or middleman. This gives the business far more control over their brand identity and profit margins, but also comes with much more responsibility than the B2B model.
D2C Business Model vs B2B Business Model
There are many differences between B2B vs. B2C businesses, but the biggest is their customer base. B2B businesses sell to other companies, or intermediaries, who may then resell the products at a markup to end consumers.
Though the direct to consumer business model cuts out the intermediaries, depending on where you are in the supply chain, those middlemen might be different. For example, there is a manufacturer or producer that sells to a wholesaler. Or one who sells to a distributor. Or they sell to a retailer, who sells to a consumer, etc.
But the direct to consumer business model skips a few steps. In it, finished goods inventory goes directly from the manufacturer or producer to the end consumer. Or directly from the wholesaler to the end consumer (learn how to buy wholesale). Or directly from the distributor to the end consumer.
The theme? It always goes directly to the end consumer.
D2C Business Model Types
There are five primary types of D2C business models: direct sellers, advertisers, online go-betweens, community-driven, and fee-based. Let's take a closer look at how each one works.
This is what most eCommerce businesses tend to be. These are retail websites hosted on dedicated eCommerce platforms or an online marketplace. They may be powered by internal platforms or third-party platforms like BlueCart.
The experience for end-consumers:
The same as regular online shopping. But at the other end is a manufacturer or producer, not a reseller. Imagine a farm that sells eggs directly to customers who will consume them. They're in the DTC food market now.
Some manufacturers, producers, or suppliers may opt to advertise their products directly to end-users, though they may not sell the products in that manner. Think of pharmaceutical companies that use television commercials in their DTC marketing efforts. Regular people see the ads, but can't buy them directly, they need to buy them through their physician's office. Blogs or media outlets also create content that’s typically free, though they may also use DTC advertising for the D2C business.
Marketplaces or Online Go-Betweens
These Internet intermediaries act as bridges between buyers and sellers. They’re not quite the vendors or distributors they’re replacing, they’re more like matchmakers.
Think of sites like Priceline or eBay that act as forums for buyers to find sellers and vice versa.
BlueCart eCommerce is a great example of this in the hospitality space. With an industry-leading digital catalog that takes care of online visual merchandising, customers can browse high-quality images of your products anytime they want.
Marketplaces are also risk-free D2C solutions that naturally scale with the businesses they serve. There are also B2B online marketplace, so you can sell to both if you're so inclined.
These are essentially marketplaces designed to facilitate consumer-to-consumer sales (C2C), but many businesses are utilizing them as well. Facebook Marketplace is the best example of a community-driven direct to consumer sales tool. Businesses can target potential buyers based on their interests and community membership versus purchasing behavior or content consumption. This applies to any interest-based forum as well, which makes them a great choice for any business operating within a very narrow niche.
Some D2C sites use a subscription box business model and charge a fee for access to their products. Costco is a great example of this. They allow manufacturers to sell directly to consumers (both in-store and online), but with a subscription fee that subsidizes it. This is also commonly used for businesses that sell products through kitting, where you pay a flat rate each month for a curated selection of products that vary in value.
Benefits of the DTC Model
The direct to consumer business model may require more work upfront than a comparable B2B model, but it also comes with many benefits. Here are the biggest benefits:
Selling to individual customers instead of businesses can greatly decrease your costs like warehousing, eCommerce fulfillment, eCommerce packaging, and more. This is because you don't need to store extraordinarily large quantities of products nor fulfill orders of a very large size through bulk shipping. Instead, you make far more transactions of smaller sizes which costs a lot less to handle. You can even choose to use dropshipping or 3PL fulfillment and lower those costs even further by eliminating a warehouse entirely.
Running a DTC business allows you to control how your prospects and customers see your brand. rather than relying on third-party companies or resellers, you get to invest your time and energy into crafting the narrative of your brand. This can be a double-edged sword, but it also presents the opportunity for you to increase eCommerce sales by sharing your mission and products with the world. If you ever need to clarify what exactly your business' mission is, you can look back at your eCommerce business plan.
One of the biggest benefits of the DTC business model is the sheer size of the available market. Nearly half of all consumers shop with direct to consumer brands and these customers are twice as likely to continue to buy from brands that they see marketing for. B2B businesses are greatly limited in their scope by a much smaller market. DTC businesses can access millions of customers and can target multiple niches without even stepping on their own toes.
High Growth Potential
With the ever-expanding reach of the internet, the market for DTC businesses is getting bigger every day. This also means that the barrier to entry for new businesses is much lower, so you can expand into new markets even if you are limited by your starting capital. Whether you run an existing business or are just full of eCommerce business ideas, you can be on the road to profit much more quickly if you choose the DTC model.
The Very Model Of The Modern Major Business
The direct to consumer business model is continuing to grow at an exponential rate as new markets continue to gain access to the internet. Whether you're just starting a business or looking to expand, there are many benefits to the model if you're willing to dedicate time and resources to meeting customer demand. You'll also want to keep an eye on direct to consumer trends so you can ride demand waves to even greater heights.