What you need to know about direct-to-consumer business

by Meike Müller

You've probably heard of D2C or direct-to-consumer. This is a type of sale that is not all that new. Manufacturers sell directly to the end consumer, without any intermediaries. This type of sale used to be common until it was superseded by B2C sales. Now, however, direct manufacturer-to-consumer sales are on the upswing again. Find out why, what you need to know about D2C and why you as a manufacturer should consider this sales option. If you want to take your e-commerce business to the next level, we'll be happy to help and advise you.

Reading time 5 min

What to expect

What is D2C?

D2C stands for Direct-to-Consumer and describes sales from the manufacturer or producer directly to the end consumer. Compared to the widespread B2C (business-to-consumer) sales, there is no middleman between the producer and the consumer. For the manufacturer, D2C sales have some advantages such as higher profits and direct customer contact. Of course, the business model also has some disadvantages. We will go into the advantages and disadvantages later.

D2C sales are not a novelty. In the past, it was common for manufacturers to sell their goods directly to the end consumer. With mass production and a good infrastructure, D2C sales made way for B2C sales. Goods were, and still are, bought in high volume by companies such as supermarket and department store chains, as well as large marketplaces and online retailers, and sold to end consumers. Meanwhile, D2C sales are experiencing a resurgence. Whether D2C is also suitable for you and how you can profit from it, you will find out in the following.

Reasons for D2C sales, advantages and disadvantages

Now we would like to take a look at why D2C sales could be interesting for you as a manufacturer and what the advantages and disadvantages are. Of course, if you rely on direct-to-consumer, that doesn't mean you can't sell to intermediaries. Some manufacturers rely on two sales methods to get their products to as many buyers as possible. For an overview, we have briefly listed the advantages and disadvantages. For a detailed description you can read the following headlines and the corresponding paragraphs.

Advantages and disadvantages in a short overview:

Advantages Disadvantages
  • Higher profit margins
  • Direct customer contact
  • Possibility of supplementing the product range by knowing the preferences
  • Brand loyalty
  • Full control over all decisions
  • More room for new inventions or products
  • Difficult to establish as own brand and attract customers
  • Not all products are suitable for D2C sales
  • Gaining brand awareness is not always easy
  • The collection of data must be reused in a meaningful way so that it brings an advantage. This requires experts and know-how (this can sometimes lead to additional costs)

Better understanding of your customers

As a rule, you have little to do with your customers outside of the D2C model. This also means that you rarely get direct feedback from the users of your products. However, this is sometimes important in order to identify what needs to be improved or added to the product range. In principle, direct customer contact gives you inspiration for new items and helps you learn about the likes and dislikes of your target group.

Another plus point is that you can receive praise for your products directly via social networks or e-mail contact. This may not be directly profitable in a financial sense, but it's still nice and motivating. Furthermore, being close to your customers can breed some brand loyalty if the buying experience is positive.

Full control

When you sell to the end consumer yourself, you have full control over all decisions. You choose how your products are packaged, how they are shipped, how you incorporate sustainability into your store, and what marketing strategies you pursue.

Less profit loss by selling to middlemen

If you sell to intermediaries, they will want to earn money from your product. For this reason, you usually can't sell your products as expensive as to the end customer. The middlemen earn money on your product idea, the development of the products, etc. If you choose to sell D2C, you alone will make profit. This also ensures higher profit margins on your side. Or you have the opportunity that the product can be sold cheaper to end customers. This can also expand the target audience as the item becomes affordable to more people.

Brand awareness

The topic of brand awareness is quite complex, because it is not so easy to establish yourself as a brand on the Internet and become known to the target group. Having your own online store with your products might initially result in hardly any visitors finding their way to your store. You have to take your time to make your online store known through chosen marketing strategies. This takes time. But once you have done this, it will pay off. For the beginning you can of course also choose a marketplace to land the first customers. This way your products will be found faster and once you have built up a certain circle that knows your products, more visitors will come to your own online store. Independence from marketplaces is important to save taxes and marketplace costs.

New innovations

It is usually difficult to bring new products to market if you are dependent on the middleman to buy them. Generally, you probably don't sell to just one distributor, but to several. It is not easy to meet their expectations and product range plans. However, if you decide to use D2C, you can quickly find out for yourself whether your customers like a product idea or not. Thanks to social media, it is even possible to survey your target group beforehand in order to test how your idea is received or what wishes the customers themselves might still have. If the target group still doesn't like a product, you can work together to make changes and improvements.

How can you sell direct-to-consumer?

If you are a product manufacturer, you have probably sold to bulk buyers. Now, however, you would like to reach end customers yourself. In principle, you have two options: The stationary trade or the online trade or e-commerce. But even in e-commerce there is not only one way. We will briefly introduce you to the individual sales channels.

The most popular sales channels

Of course, the Internet is the easiest way to sell your products to the end consumer. You can either set up your own online store with Shopware and Shopify, for example, or you can first decide to sell through a marketplace such as Amazon, Etsy or Ebay. With the marketplaces, you can simply register as a merchant and create items. You don't have to actively bring customers to your site because they are already browsing the marketplaces. Here it is much more about offering attractive products that are interesting at the moment. Presenting them in an appealing way on the platform and ensuring good quality. If you have your own online store, you will most likely have to put more work into marketing, but this is interesting and gives you more independence.

No matter what you decide, both ways have their advantages and disadvantages. Having your own online store might be a bit expensive in the beginning, but it can be worth it in the long run, as marketplaces always charge a certain fee for sales. The more successful you sell, the higher your costs will be. In your online store your profits stay with you. We will be happy to advise you on your options for online trading and help you find the right sales platform for your D2C project.

Another option is to open a store. However, we consider this option to be much more difficult. You first have to find the right place, preferably where your target group is. But that is not so easy. Reaching a large number of people in brick-and-mortar stores is difficult, especially for newcomers. If you have not yet sold directly to the end customer, we recommend that you first try online. This way you can gain your first experiences much faster.

D2C Marketing

As with almost any form of sales, there are different marketing strategies and channels for direct-to-consumer. For example, you can use social media marketing, search engine marketing, and email marketing to promote D2C sales.

You can reach your potential customers directly through social networks. For this, it is not mandatory that you put financial resources in hand. A modern company account with content that interests your target audience is often enough. Of course, you can also create advertisements that are broadcast directly to a group of people defined by you. In this way, you also have the opportunity to quickly receive feedback on your products and to implement this directly in a success-oriented manner.

Another option for your marketing is search engine optimization (SEO), especially for your own online store. You can use SEO virtually free of charge by optimizing texts on your site or in your online store for the search engine, usually Google. To do this, you use certain keywords that you always include in your store with a certain regularity. Of course, many other aspects are needed to become visible in the search results. This may not cost anything at first, but it is time-consuming.

Is D2C right for you?

Now it is time to find out if the D2C model is also suitable for you as a manufacturer. If you decide to sell in your own online store or via a sales platform, then you should at least be somewhat interested in the online world and have a certain understanding of it. And of course, the motto "the customer is king" should be your first priority, even if you want to sell in stationary retail. Cultivating customer relationships is essential if you want to be well received by consumers and be remembered by them. Even if you find yourself in the right, it's not about insisting, but about offering your customers the best possible experience with your products and your brand. This also requires you to engage with your target audience and understand their needs. To help you get started in D2C business, we have put together a few more interesting tips for you in the following paragraph.

D2C tips for a good start

For a successful start into the new business model, a certain preparation is a must. Just follow our tips and you will be one step closer to success.

1. a specific target group

In order to reach your desired customers, you need to define your target group. To do this, you should be as specific as possible to know the needs and desires of the people. Addressing your customers directly and being able to solve their problems will help you gain a foothold in the D2C business.

2. calculate your profit margin

Yes, your margin is higher when you reach your customers directly. But that doesn't mean you should set your prices lower to attract your target audience to your store. If you continue to sell to retailers and wholesalers, you will drive them away. On the other hand, you have already established that the price of your products is perfectly fine, because it works for other retailers as well. Profit from the higher margin and use it to make your business even more attractive: With an expansion of the product range, the development of additional sales channels, innovative marketing campaigns and much more.

3. do not do everything yourself

In the beginning, you probably want to keep your costs as low as possible. You don't know yet if your plan will work out and your D2C business will be a success. However, you should not do everything yourself. Especially not if it takes a lot of time to learn the ropes. Seek support from experts who know what they are doing. Either look for a partner who offers corresponding services such as social media marketing or the creation of an online store, or hire additional employees who are already familiar with the field.

4. consider your marketing strategy well

To prevent your marketing expenses from skyrocketing, you should think about which strategy you want to rely on. To do this, you should think about where your target audience is most likely to be found. Maybe you've already collected some data and can use it to tailor your marketing campaign. Personalize emails and other marketing efforts as much as possible. You should not leave out existing customers either, as they are usually quicker to pick up and convince.

FAQ - more questions and answers about the D2C business model

Now we will deal with the most frequently asked questions about the direct-to-consumer business. If you have any other questions, please feel free to contact our experts.

What makes D2C different from other business models?

D2C online commerce is about selling a manufacturer's products to the end consumer. Here, the middleman or bulk buyer is left out. Most manufacturers tend to sell large purchase quantities to other companies that specialize in B2C sales. The manufacturer, on the other hand, tends to engage in B2B e-commerce. With the not-so-new method of direct-to-consumer sales, manufacturers adapt to selling smaller quantities and can offer attractive prices to the end consumer, since no middleman also has to earn money on the sale.

Why is D2C used?

D2C is used by manufacturers to learn more about their target group. Often, the sale itself is not the focus. The collection of important data and the resulting insights are what make direct-to-consumer sales so appealing. Because that's how you find out, for example, what your customers are looking for, which social media channels they use, which products they like, and much more.

What challenges do you face with D2C e-commerce?

In D2C online commerce, you'll face a few hurdles, of course. These are mainly that you will have to compete with established retailers and chains. Especially the experience of existing retailers will make it difficult for you to stand out from them. Analyze your competition and find out what you can do better. Most of the time, telling a personal story, responding to your clientele and using creative ways that fit your target audience will help. The reach at the beginning will not be high, but with time you will have the opportunity to build a customer base. Another challenge is to interpret the data you collect correctly. Only when you realize what's behind the numbers and data can you make sense of it and put it to good use. If you need help with your data management of your e-commerce business, feel free to contact us. At EXWE, we have years of experience in e-commerce and will work with you to take your online business to the next level.

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from 03.08.2022

Hello, my name is Meike. I take care of the EXWE back office and am responsible for our social media channels. All of our articles are meant to make your life easier and help you make decisions. Nevertheless, it can happen that something remains unclear, so: If you have questions about this article you can easily reach me at +49 231 93149827.

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