D2C, a commerce model where the manufacturer of a product is also the retailer, is not a fad, but a growing and lucrative trend. The U.S. D2C market was USD $128 billion in 2021 and is expected USD $212.9 billion by 2024, a growth rate of 66%. D2C brands that sell everything from shoes to underwear to hair coloring are disrupting the traditional retail model—and gaining market share—over brands that have enjoyed market dominance for decades.
D2C e-commerce sales in the U.S. from 2019 to 2024—Source: Statista
Warby Parker, one of many companies that are nailing D2C, sells stylish, affordable glasses. They have a socially responsible mission—to provide accessible vision care for everyone—which appeals to their customers. They initially launched in 2010 as an online-only retailer, but now operate in over 200 physical locations throughout Canada and the U.S.
As of March 2023, Warby Parker had a market capitalization valued at USD $1.1 billion. While this is a small percentage of the USD $170 billion global eyewear market, it’s big enough to make an impact in the eyewear sector and demonstrate the potential of D2C models.
In this article, we'll address the importance of D2C commerce for traditional manufacturers and retailers, including what it is, why it's beneficial for both customers and businesses, and how to create a D2C marketing strategy. Our aim is to illustrate how legacy manufacturers and retailers can begin building a sustainable D2C brand clearly.
What is D2C Commerce?
D2C commerce is a retail business model that involves selling your products directly to consumers through your website and other (mostly digital) channels. With D2C, you don’t rely on third-party retailers, distribution partners, or wholesalers to sell your products to the end customer. This gives you more control of your brand image and messaging, pricing, marketing, and customer relationships.
What capabilities do you need to start a D2C business?
Here’s an overview of what you’ll need if you want to start a D2C business or implement a D2C strategy with your legacy brand:
- Product development – You design your own products or source them from suppliers that meet your quality and ethical standards. You also source your own materials if you’re manufacturing them yourself.
- Merchandising/selling – You showcase your products on your own website or app (or both) where shoppers can purchase them directly. You may also sell directly to consumers on social media platforms like TikTok or Facebook (e.g., social commerce). And, of course, you can sell your products in physical stores just as D2C brands like Warby Parker, Allbirds, and Everlane do.
- A customer-centric website – Successful D2C brands leverage their website for just about everything. It’s the primary D2C hub and storefront that also features informational and promotional content. This can include blogs, videos, reviews, and social proof (e.g., content from customers that’s been pulled in from social media posts). A D2C website is not just an online store. It’s the central HQ for your brand and must engage and educate customers about your company’s values, products, and purpose.
- Order management – You handle the fulfilment and delivery of all orders, either by using your own warehouses and logistics network, or by partnering with third-party providers that specialize in e-commerce fulfilment.
- Product development – Using data from your website, app, marketing channels, and other sources like customer feedback, you refine your initial product offering, launch new products, and improve your D2C strategy. Internal data helps you understand customer preferences, behavior, and satisfaction which further informs product development, marketing, and customer service decisions.
- Marketing – You drive your D2C marketing strategy, though you may hire an agency to help you with details like developing ads, social media campaigns, and launching media. You’re also in charge of the customer experience and your ongoing relationship with your customers. D2C companies build customer trust and cultivate relationships by offering personalized recommendations, loyalty programs, discounts, referrals, and subscriptions.
- Support – You own the relationship with your customers and this includes providing exceptional customer service and support. You'll connect with customers on your website, app, and across social media. You'll use live chat, phone support, email, and self-serve support that may include video tutorials, FAQs, blog posts, and detailed articles about your products and your company’s purpose.
While D2C companies have been around for a while, the concept of direct-to-consumer retail has seen an explosion in recent years, driven by changing consumer habits and preferences. Today’s shoppers are drawn to authenticity and purpose, making it harder for legacy brands to compete with emerging brands like Warby Parker through traditional channels.
Because of this, the D2C commerce model offers some distinct benefits compared with the traditional model that uses middlemen to get goods from the manufacturer to the consumers.
Benefits of D2C commerce for legacy and traditional brands
D2C commerce offers some distinct benefits compared with the traditional model that uses middlemen to get goods from the manufacturer to the consumer. These include:
- Faster time to market – Launch new products or services without waiting for approval or distribution from retail distributors, third-party retailers, or wholesalers. This allows for more agility and responsiveness to customer needs and market trends.
- More control – A D2C approach gives you more control of everything related to your brand and its reputation. Building a sustainable D2C brand allows you to shape your own brand identity and values and communicate directly to customers through your own channels. This helps ensure product quality and consistency and avoids potential conflicts or dilution from intermediaries.
- Better customer engagement and loyalty – D2C allows you to build direct and long-term relationships with customers by offering personalized experiences, recommendations, feedback, and support. You'll also have more access to—and control of—your customers' data. This allows you to cultivate and build customer relationships with loyalty programs, email and ad campaigns, and ongoing outreach.
- Higher margins and profitability – Reducing or eliminating costs associated with middlemen allows you to keep more revenue from each sale. D2C gives you the freedom to optimize your pricing strategy based on customer demand, value perception, and competition.
- More innovation and differentiation – Since you’re selling directly to consumers, you can pivot more quickly. Many D2C businesses use technology and data to create products that cater to specific customer segments or needs or offer more customization based on customer feedback. For example, eSalon is a D2C brand that creates custom hair color for their customers based on factors like hair type, eye color, and skin tone.
Challenges brands face when transitioning to D2C
Making the transition to a D2C model can be challenging for legacy brands thinking about how to start a D2C business. Traditional companies typically face hurdles around adopting new technologies, managing customer expectations, and building trust with younger consumers. Knowing what brands are going to D2C—and being successful—is a great motivator. Companies like Nike, Patagonia, and PepsiCo are embracing D2C (and crushing it).
- Competing with digitally native D2C brands - Digitally native D2C brands have the advantage of being built from the ground up with a customer-centric focus, while legacy brands typically need to adjust and adapt existing processes and resources.
- Relying on new technologies - Legacy companies must invest in and incorporate new technologies like omnichannel commerce platforms, digital marketing approaches, data unification/analysis, intelligent chatbots, and more.
- Embracing social media - Social media is a key channel that D2C brands use to engage with customers, build relationships, and demonstrate brand values. Legacy companies must learn how to use social media as part of their overall D2C marketing strategy.
- Ensuring customer satisfaction - As the owner of the customer relationship, it's essential that you provide exceptional service, support, and experiences. That means investing in customer service channels like chatbots, voice assistants, live chat, phone support, and email. You’ll also need to create content that informs customers of self-serve options.
- Focusing on acquisition costs versus vanity metrics - Legacy brands tend to focus on vanity metrics like ad impressions, video views, and leads/sign-ups. But to be successful in a D2C model, you need to understand the dynamics of customer acquisition costs versus superficial vanity metrics. Measuring cart abandonment rate, repeat customer rate, customer acquisition cost, and lifetime value count more than ad clicks and video views.
- Creating a compelling narrative - To keep customers engaged over the long term, you need a powerful story that resonates with your audience. This narrative should be based on your values and purpose and communicated in an authentic way. Below, we provide some specific examples of disruptive D2C companies and legacy brands that do this exceptionally well.
5 Strategies for D2C Commerce Success (with examples)
D2C commerce has been around for more than a decade. As noted above, Warby Parker launched in 2010 as an online-only eyewear brand. Other brands like Everlane (a clothing retailer), Mamaearth (organic skincare and beauty products), and Allbirds (wool footwear loved by tech nerds) were launched in the early to mid-2010s. The success of these companies demonstrates that there are effective approaches your traditional brand can employ when strategizing how to start a D2C commerce business.
1. Define your brand value and purpose
Purpose and value—informed by customer feedback—are what guide D2C strategy and inform innovation. Consumers want brands to care about the same things they care about. In a survey of 30,000 consumers by Accenture, 63% of respondents said they preferred purchasing from companies that “stand for a purpose that reflects their own values and beliefs.” These same respondents said they actively avoid companies whose purpose doesn’t align with theirs.
D2C helps you identify and align with what your customers care about. It’s like a perpetual feedback loop. Selling directly to consumers allows you to better (and more quickly) understand their needs. You can then adapt your products and approach to meet those needs. By successfully connecting your brand to a need or purpose (or both), your products and company become meaningful to your customers.
Real-world example: In 2022, Nike’s D2C division, Nike Direct, accounted for 42% of Nike’s total global brand revenue. Nike obviously wasn’t a fresh-faced startup. They leveraged their 165 million social media followers to expand into the D2C commerce space. But it wasn't just about reach. Nike has been able to lean into its brand mission and purpose, which is “to do everything possible to expand human potential” to create a unique brand experience that resonates with customers.
2. Make sure you have a commitment from leadership
According to Deloitte, 70% of digitization initiatives fail because of people, not technology. Even when companies get it right, it can take several years before a company successfully competes in the digital market. Pivoting or expanding to D2C is a long game and that requires commitment from your company's leaders.
Expanding into D2C commerce requires a significant shift in your company’s business model and culture. D2C relies on the right technology and company infrastructure to support this selling approach, but it also requires you to have a customer-centric business model. That's why you need buy-in from executives, board members, team leaders, and everyone involved in driving your company’s culture.
Real-world example: Coca-Cola has been experimenting with D2C commerce by expanding online platforms like Coca-Cola En Tu Hogar ("Coca-Cola in Your Home"), which was launched in Mexico during the pandemic. The platform allows Mexican customers to order products directly from Coca-Cola for at-home delivery with no minimum purchase amount required. To support this service, Coca-Cola needed to fully digitize its legacy call-centre system, a huge initiative driven by Enrique Negrete, Coca-Cola's DTC LATAM Senior Director. In 2021, Negrete received Adobe's coveted Experience Maker of the Year award for the program. The award is given to individuals whose leadership in the areas of marketing, advertising, and commerce demonstrate exceptional creativity, innovation, and impact.
3. Invest in employee upskilling and new expertise
A top must-have for achieving breakthrough growth in D2C commerce is having the right talent and skills in place to support D2C. According to McKinsey, misalignment of talent and culture can create roadblocks, delays, and misunderstandings - all of which can derail your D2C goals.
When looking to fill in skills gaps, it's important to consider hiring an experienced D2C leader while giving existing team members the information they need to develop and execute the new initiative. Providing the right training and upskilling helps your team navigate the nuances of selling directly to consumers and ensures you'll develop a sustainable D2C marketing strategy. Also, when hiring for new roles, make sure to use a values-based approach when recruiting.
Real-world example: Patagonia, a pioneer of selling directly to consumers, has been successful in expanding its existing D2C commerce business by hiring people who share their values and mission of trying to save the planet. Anti-consumerism is a core marketing strategy for the company, with its billionaire founder pledging to give away ownership of the company to support initiatives that combat climate change.
Patagonia also recently purchased startup D2C brand Moonshot, a snack company that uses regenerative agriculture to manufacture its crackers. In this case, Patagonia already had a strong D2C technology infrastructure which includes their website and retail stores. Their acquisition of Moonshot demonstrates that a commitment to values-based talent and culture is essential to competing in the D2C commerce space.
4. Align your retail channels and distributors with your D2C approach
It's important to align your retail channels and distribution partners with your D2C strategies, particularly since some partners may feel threatened when a traditional brand pivots to the D2C space.
You can work with retail distributors and merchants in several ways to reduce anxiety around your D2C initiative. Make sure to inform them about your initiative and incorporate ways to work with them. One way to do this is to give your retail partners exclusive merchandise and let them offer discounts on certain items which aren't offered on your D2C channel.
You can also demonstrate how your D2C channel helps sell more of your products, for example, by launching new products on your website, gathering data, and then rolling them out to retail partners after price and viability are proven.
Real-world example: Nike, again, is a great example here. They made a major bet on the potential of D2C when they launched their Nike Direct e-commerce platform in 2017. To avoid alienating their retail partners, they worked with them to co-create a seamless omnichannel experience for customers and have seen tremendous success as a result. Nike made USD $18 billion in total sales in 2022. Their sales from D2C were 42% of that. This proves how successful a company can be when both D2C and traditional channels are aligned.
5. Build a strong online presence
A strong online presence starts with the right commerce technology and this is particularly important if you're already selling directly to consumers from physical stores. An omnichannel commerce platform that connects inventory, fulfilment, customer data, and analytics is essential for managing orders across multiple channels.
Technology also helps you understand what works best for your customers when it comes to product discovery, online marketing campaigns, social media strategies, content management, and customer service. Over time, you'll be able to use your D2C to optimize your approach and create a truly customer-centric D2C business that delivers personalized experiences to customers regardless of how (or where) they interact with your brand.
As we touched on above, your online presence extends to social media platforms which increases brand awareness and lets you engage customers with content that is authentic, relevant, and meaningful. A strong social media presence also enables you to respond quickly to customer feedback and quickly address customer questions and issues.
Real-world example: Casper, a mattress manufacturer, is a great example of a D2C brand that's using its strong online presence to be successful in traditional retail spaces. They use the content on their website and social channels to promote subject-matter expertise around sleep, comfort, and all things mattress-related. They give customers a $75 amazon gift card and a 10% discount for every successful referral, which motivates people to share reviews and stories. They post customer testimonials in ads and on social media, which connects their social media presence to their website. Casper now sells pillows and sheets through Target, and they have over 60 retail stores, most of which are located in the U.S.
Getting started with your D2C business
D2C commerce presents an exciting opportunity for traditional companies to increase sales and build customer loyalty. We've touched on many of the strategies that traditional companies can use to be successful in the D2C space. To figure out the capabilities you need to start a D2C business, it's important to assess your goals and resources to determine the best course of action. From there, you can start planning and executing a strategy that works for your business.
Traditional retail companies and manufacturers looking to drive eCommerce capabilities can browse some of the topics in our eCommerce Learning Directory. Our lessons cover eCommerce essentials and best practices focused on helping traditional organizations identify opportunities, understand shoppers, and meet consumer expectations around D2C experiences.
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