Direct-to-consumer, or DTC or D2C, is a business model where a brand sells its products directly to the consumer, typically through a website or mobile application. In this model, no middlemen - wholesalers or retailers - are involved.
D2C has been around for a while but gained momentum during the pandemic when CPG brands realized they needed a way to reach consumers who were no longer shopping in physical stores.
D2C is not the same as B2C (business to consumer). While D2C is a brand selling directly to consumers, B2C is any company selling to consumers, including retailers, brands, and marketplaces.
Why Go Direct to Consumer?
There are many reasons a brand might decide to sell direct-to-consumer. For many, it’s about staying competitive. Over 51% of consumers say they prefer to shop online, including shopping for CPG products (since the pandemic, 56% purchased clothing, 45% food/groceries, and 38% cleaning/household products).
As more shopping shifts to online, brands that want to reach the largest markets will require a digital shopping experience.
Smaller brands that have issues selling to retailers because of their size and lower inventories can adopt a D2C strategy that enables them to bring their products directly to consumers, gaining the attention of retailers. They also quickly test new products and adapt as necessary.
D2C also enables brands to reach new audiences and increase sales by growing beyond current partners, potentially broadening to a global market.
Brands that sell through retailers and distributors don’t have direct access to their customers. Implementing a direct-to-consumer model gives them the first-party data they need to improve their understanding of their customers and preferences, enabling them to create the products and personalized experiences customers demand.
Selling directly to consumers enables brands to build customer loyalty and increase retention rates. With complete control over the customer experience, these brands can create loyal customers through competitive pricing, providing information and stories around their products, establishing loyalty programs, and more.
Direct-to-consumer strategies have many benefits for both digitally native and established brands, but the model comes with its own set of challenges.
First, brands have to acquire customers themselves. They don’t have the backing of big-name retailers with large marketing budgets to help them keep their products top of mind. As a result, D2C brands will spend a significant budget on marketing.
D2C brands are solely responsible for all aspects of fulfillment, including supply and delivery, returns, and customer support. With full responsibility comes greater costs and risks.
Then there’s the competition with retailers. Brands that sell D2C and through retailers risk competing with retailers and having prices undercut.
The Dollar Shave Club is one of the earliest examples of a D2C brand. Started in 2011, it shipped razors and grooming supplies to subscribers on a monthly basis. Other examples include Bonobos, Casper, Glossier, and Birchbox. These brands are called “digitally native” brands because they only sell their products online. However, some are starting to open retail stores as part of a new mixed-sales model.
Many traditional CPG brands also started investing in D2C models, alongside wholesale and retail distribution, by either acquiring D2C companies or building new ones. For example, Unilever acquired the Dollar Shave Club for $1 billion, and Campbell Soup acquired meal-kit company Chef’d for $10 million. Other examples include Chlorox, Pepsico, and Heinz.
According to eMarketer, D2C ecommerce sales for established brands will reach $117.47 in 2022 and $38.22 for digitally native brands. Those numbers are expected to grow and, by 2024, reach $161.22 and $51.69, respectively.
Nike is an example of a brand traditionally sold through retailers, but you can now go directly to its website and make a purchase. In 2010, 15% of Nike’s revenue was D2C sales. That number is expected to grow to 60% by 2025.