Direct-to-consumer channels help growth by creating a direct, first-level relationship with customers which can be useful in ecommerce KPIs including higher margins and profits.
Direct-to-consumer (D2C) refers to a business model where a brand or manufacturer sells its products directly to consumers, bypassing traditional intermediaries like retailers, distributors, or wholesalers.
As product leaders we might be looking at the business model of our company and identifying how it can become more efficient and profitable, even if it means adding or changing our business model.
How D2C contributes to growth
The direct customer relationship is the most valuable benefit of D2C companies. It helps companies capture more accurate information on their customers' demographics, purchasing habits, and other characteristics.
This information may be utilized to tailor advertising and create more personalized customer touch points leading to increased customer satisfaction, lead to more purchases, and solidify brand loyalty.
D2C also gives companies control over their pricing and positioning strategies, helping them to achieve and sustain their ideal margins.
With direct connection to customers, firms may obtain real-time input on their products or services, allowing for speedier iterations and improvements. This iterative process aids companies in staying competitive and meeting client needs.
Let’s also address the elephant in the room on D2C financial complexities and expectations.
Many of the hot D2C brands raising hundreds of millions of Dollars in funding have crashed recently and valuation have come down significantly from the highs.
This is true and proven publicly, however I don’t believe the reasons for the correction are the concept of D2C as a business model, and more of the interaction of founders with financial investors and Venture Capitalists.
Growth at negative margins (where every sale is actually a loss financially) can rarely lead to a long lasting, profitable enterprise. Growth with negative margins sometimes does result in creating massive enterprise value, if the company can continue to raise outside capital, likely Billions of dollars until the economies of scale can actually kick in.
My point in including this business model as a growth factor is to grow intentionally and measured, as in the 99% of profitable businesses do.
If your team can plan for the long term and is not looking for quick turnarounds then considering a change to, or adding a new D2C channel might be worth running some experiments to gather more data.
Examples of Direct-to-Consumer companies
Warby Parker was founded in 2010 with the goal of disrupting the eyewear industry by offering stylish prescription glasses and sunglasses directly to consumers at lower prices than traditional retailers.
In 2013, Warby Parker opened its first brick-and-mortar store in New York City (D2C does not have to only be online). Since then, the company has expanded its physical presence to over 90 stores across the United States and Canada.
Warby Parker went public in mid-2021 and reached an all-time high of $10.23 billion in November 2021. However, the company's market cap has since declined by over 80% to just over $1 Billion due to a number of factors, including increased competition from other online eyewear retailers, rising manufacturing costs and ever increasing customer acquisition costs resulting in lowering margins combined with encountering LTV limits. Warby Parker’s market share in the US is in the 1-2% and they have highly established competition in the space which makes new customer acquisition more expensive.
This is where product managers can create ways to increase LTV and higher margins from their millions of existing customers.
Questions to ask when considering D2C
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Are my product and customer profile a fit for a D2C model?
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Do I have the design, production and logistics expertise needed?
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Are there reliable Third party suppliers we can use to handle parts of the operation?
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What would unit economics look like for our business?
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What experiments can I run to capture actual data if D2C is a potential fit for us?
An added note is that many companies are actually utilizing multiple distribution channels as a lead-gen option for their own D2C model.
For example companies might list a limited number of their products on marketplaces such as Amazon to create brand recognition and funnel customers from the marketplace into their own D2C channel.