D2C (Direct to Consumer) Model: Meaning, Examples, Future of D2C in eCommerce

For a substantial portion of the history of commerce, if you wanted to sell something to a consumer, it would require either a brick-and-mortar store of your own or a retailer functioning as a middleman. But this is no longer the case in the world of instant commerce. We now live in a world where a new model exists, the Direct-to-Consumer, or D2C model. 

This article will explore all you need to know about the D2C model. We will help you understand the D2C meaning, including how it works, why it might benefit business, how is it different from B2B and B2C marketplace, and more. We will uncover the parallels between ecommerce and direct-to-consumer and help you understand what it means to be a D2C company. Ready? Let's dive in. 

1. WHAT IS D2C IN BUSINESS?
2. D2C BENEFITS
3. D2C CHALLENGES
4. DIRECT TO CONSUMER VS. TRADITIONAL SALES MODELS
5. HISTORY, STATISTICS, AND TRENDS IN D2C
6. WHAT IS ECOMMERCE D2C?
7. D2C ECOMMERCE EXAMPLES
8. DO YOU REALLY NEED D2C AND WHERE TO START?
9. WRAPPING IT UP

Before going any further, we must clarify what is direct to consumer and why it is important. Understanding how this model operates and why it is significant to modern business is a crucial step in learning how to leverage the power of this high-impact model.

So, what exactly is D2C meaning, and how does its business model work? To answer simply, the direct-to-consumer model has cut the middleman, like a retailer, out of the equation. It is a model where the same company that creates the product is also the one that distributes and ships the product to the consumer. The idea is to remove any other companies between the brand and the customer to ensure the company maximizes its revenue.

If you're wondering how the D2C business model works, the answer lies in ecommerce. The D2C model is tied in with ecommerce, as ecommerce tools enable enterprises to handle packaging and distribution without adding middlemen. For enterprises, this is a model that puts them in the sole driver's seat. And while it can be more complicated, there are a lot of advantages.

To sum it up as simply as possible, D2C means that enterprises sell directly to consumers, typically through ecommerce, without an additional retailer or distributor.

Understanding what the direct-to-consumer model is is incredibly important because it isn’t going anywhere. In fact, the DTC is a good business model that seems poised to only expand.

First, DTC strategy boosts profitability. Projections from Statista have D2C ecommerce sales reaching $212.9 billion in the United States by 2024. Considering sales were at $76.57 billion in 2019, this model is amid a stratospheric rise to the mainstream.

Direct selling is most effective. Having a high-level understanding of direct-to-consumer models means brands can unleash all the power that it provides. The model cuts out the middlemen for businesses to maximize their profit, appeal directly to consumers, and leverage additional benefits to their advantage.

 DTC satisfies customers: it is important because it is becoming the model of choice for many modern enterprises, and consumers love it. It is a rapidly growing model that any business hoping to harness the power of ecommerce should be using. As we move into a world straying further from brick-and-mortar, D2C companies are positioned to reap the benefits.

The benefits of direct-to-consumer businesses are the defining reason this model has become mainstream. Enterprises worldwide are becoming aware of the significant upsides of D2C business. Let's look at some of the substantial benefits that come to businesses that center their model around producing and distributing directly to the consumer. 

• Higher Profits: The fewer other enterprises are involved in producing and distributing a product, the fewer mouths there are to feed. One of the biggest things businesses like about the D2C model is the high margins that can be compared to B2B revenue. While there will typically be costs associated with D2C, like building out an ecommerce solution, these costs are reduced and position businesses to benefit more from their sales. 
• Better for Consumers: Without a retailer in the way, enterprises can collect data on their customers that purchase products from them. This enables them to tailor their offerings to the consumers and enhance their products to better fit customers' needs. It also lets customers know more about the businesses they are buying from, as they can directly connect with the enterprise, not a middleman retailer. 
• Centered Around eCommerce: Let’s face it. The future of buying and selling lies in ecommerce. According to Shopify, the global ecommerce market is currently at $5.7 trillion and grows yearly. Tying your business's future to the rise of ecommerce is a sage decision, and that is exactly what enterprises that embrace the D2C model will be doing. 
• More Control for Businesses: One aspect of the D2C model sure to stand out for enterprises is that they will assume heightened control over every aspect of their business. They will control packaging, marketing, and display with their website or ecommerce platform. Rather than a retailer or third-party store advertising your product, you control the marketing. This also makes establishing a brand and building connections with consumers easier.

The direct-to-consumer model has been proven effective for many major enterprises, but like every business model, it isn’t perfect. There are some endemic flaws with a D2C model that pose challenges to businesses. Let’s look at some of the crucial challenges of the D2C model.  

• Increased Responsibility and Risk: While the D2C model puts enterprises in the driver's seat, this can come with increased risks. D2C businesses are in charge of every aspect of their business, which is a significant responsibility. They have to oversee more, and while more control is always good, businesses have to take a broader focus. 
• Requires a Lot of Learning on the Fly: If you are a business with a small team, the D2C model will require you to do a lot of learning as you go. You will have to understand the ins and outs of ecommerce and supply chain management, and you will need to be proactive about marketing and product enhancement. This can be a lot to tackle for a small team or even a big one. 
• Might Take Significant Investments: While a D2C model does enable enterprises to slim their margins, that doesn't mean it is cost-free. There are certain costs associated with running a D2C model that can put some initial financial strain on a business. There will be costs like establishing an ecommerce wing, improving websites, posting online advertisements, and other investments that may cut profits.

The modern form of direct-to-consumer business is different than many of the traditional models that enterprises have commonly used for decades. It has become popular largely due to the rise of ecommerce. Below, we'll explore some of the ways that the D2C model differs from traditional sales models.

If there’s one model that the direct-to-consumer model shares the most in common with, it is the business-to-consumer or B2C model. The B2C model is when businesses sell products to consumers. An example would be a shirt company that sells its products to a person online. So technically, under that definition, D2C is a form of B2C. This is true, but D2C is a more specific form of B2C. Find more B2C ecommerce examples in our blog.

B2C companies can sell products that they don't create. There are plenty of B2C companies that aren't selling products that they've made or marketed. A retailer follows the B2C model. The key difference is that in D2C, the company that makes and owns the product is the one selling it. The D2C company is in charge of every aspect of the process. While technically, every D2C company is B2C, not every B2C company is D2C. 

The difference between a direct-to-consumer business and the C2C model lies in who sells. A C2C model, also known as consumer-to-consumer, is a market where consumers sell  things to each other. This can be things like a second-hand online marketplace or classified ads, where consumers sell products or services to each other. An example of a C2C business would be eBay. With D2C enterprises, it is the business that is selling to the consumer.

Lastly, we have the B2B model to look at or the business-to-business model. This is when an enterprise is focused on selling a product or a service not to consumers but to other businesses. Many enterprises have built their success on selling to other businesses rather than focusing on consumers. An example of a B2B company would be an enterprise that sells business development software to other organizations. 

B2B and B2B2C examples differentiate from B2C in who is being sold to. In B2C, the business sells to the consumer, while in B2B, the business sells to other businesses. With D2C, as we've mentioned, it is much more similar to D2C, as the end-user is the consumer. But D2C separates from B2C because there is no intermediary between the business and the consumer. 

The direct-to-consumer model began to pick up once the internet opened the door to its potential. While many businesses have been selling directly to consumers since the dawn of the industry, the current form of this model revolves around ecommerce, and in the 1990s, this began to take off.

But even though direct-to-consumer businesses have experienced success for years, we are now living in the golden age of the medium. The D2C model has been elevated by COVID-19 when consumers could not shop from brick-and-mortar retailers, and those habits have persisted. According to Influencer Marketing Hub, the percentage of global consumers who regularly make D2C purchases online has climbed from 49% in 2019 to 64% in 2022.

This type of growth appears sustainable, especially when factoring in the modern consumer’s preference for this form of transaction. According to Invespcro, 55% of consumers prefer to buy directly from a brand rather than multi-brand retailers. Omniaretail shows that D2C ecommerce market size in 2023 is estimated to reach $182.6 billion.

The future for the direct-to-consumer model appears incredibly bright. Brick-and-mortar enterprises are slowly dying down, and today's consumers want to know the brands they buy from. This is something that broadly benefits D2C businesses.

Understanding how D2C companies function is important. This model may confuse those unfamiliar with ecommerce and the current industry trends. But ultimately, it is relatively simple to grasp. 

D2C stands for a model that could be compared to a retail model where producer sells its products to consumers. With a retail model, the manufacturer creates the product. The product would then go to a wholesaler, who sells the product in bulk to retailers. The product is delivered to the retailer through a distributor. When someone purchases the product, it is sent to the customer from the retailer or its distributor.The enterprise whose product it is advertises, packages, and distributes it directly to the consumer purchasing it. 

The enterprise is accountable for handling the end-to-end of the entire product, from creation through distribution to the consumer. The brand owns the fulfillment process rather than handing it off to a third party.

When enterprises consider implementing the direct-to-consumer model, familiarity with ecommerce is crucial. The way modern consumption is heading, ecommerce appears destined to continue eating into the brick-and-mortar retail market, which has allowed D2C to break into the mainstream.

eCommerce D2C is just the D2C model but built on ecommerce platforms. Enterprises rely on ecommerce, the online buying and selling of products and services, for customers to purchase their products directly. This standard format powers the D2C model and is a crucial aspect of how this industry functions. 

Without ecommerce, the D2C model relies on enterprises using a brick-and-mortar strategy. For many businesses, this is not viable. Brick-and-mortar requires businesses to have significant capital to rent a storefront, and the reality is that brick-and-mortar is on the decline. More than 100,000 brick-and-mortar retail stores closed from 2017-2020, according to Shopify. And while there is still a place for brick-and-mortar in the economy, most businesses would prefer to run their D2C strategy through ecommerce.  

Using effective ecommerce platforms enables enterprises to handle every aspect of the sales process. With ecommerce solutions, consumers can select the product they want to purchase, input payment, and transmit those details to the business. The business will then have to handle fulfillment. But with ecommerce, enterprises can successfully implement a direct-to-consumer approach.

Using ecommerce platforms to power your direct-to-consumer company is ultimately advantageous to enterprises because it simplifies the process dramatically and makes the D2C model scalable and viable. However, there are still some pros and cons that businesses should be aware of before they commit to anything. Let's dive into what they are.

• Simplifies the Job for Businesses: An ecommerce solution should simplify managing a D2C model. Businesses will be able to have a system that enables customers to buy and sell directly from the merchant and a hub that records data on purchases. It makes running a D2C model accessible. 
• Creates Scalability: With an effective ecommerce platform, enterprises will find that they can scale their business to unmatched heights. As long as your distribution can handle a vast amount of customer orders, ecommerce platforms have infinite potential for sales and order management. 
• Customer-Friendly: A good ecommerce solution is a helpful asset for customers. It makes it easy to purchase products and offers an intuitive means of shopping. Most have search bars and other tools to help customers quickly find what they want. 

• Finding the Right Solution: Not all ecommerce platforms will fit your business's specific needs. It may require several attempts to find an ecommerce solution, and that solution might be expensive. But once you've found it, the benefit of an efficient ecommerce platform tailor-made to your needs is dramatic. 

The marketplace is flush with enterprise solutions that enable companies to adapt the direct-to-consumer model that has become increasingly popular in recent years. The platform best suited to your business largely depends on internal factors, like what your enterprise is looking for. However, while every business will have a different take on the best ecommerce solution, certain options stand out. 

Virto Commerce is an ecommerce platform that has been designed to help enterprises launch a D2C model that is flexible, cloud-ready, and can change to fit their needs. It can work either as B2B SaaS or an open-source customizable D2C platform. The solution has features like easy integration and merchandising/promotions that allow it to blend with businesses’ tech stacks and attract new customers. It is capable of helping D2C businesses operate an effective ecommerce operation that can grow with them.

Many companies worldwide have leveraged the strong margins and consumer connections of the D2C model, as well as the instant access and vast reach of ecommerce, to become high-performing, innovative operations and industry leaders. Let's look at some D2C ecommerce examples of businesses that have thrived using these strategies. 

• Dollar Shave Club: The Dollar Shave Club is a D2C subscription-based business that eliminates the retailer and wholesaler from shaving. Every month, they ship different men's shaving products to their customers directly. They own the fulfillment process, and their control over their business led to them being sold for more than $1 billion. 
• Oura: Oura is a company that sells a ring that tracks physical health metrics like sleep and fitness. They don’t have a diverse product list, but their single product has found huge popularity, and can only be purchased directly from the brand. They’ve leveraged social media to become a fitness phenomenon,
• Bombas: Bombas is a clothing brand that is primarily centered around socks. They have created a nine-figure business using the D2C model and have forged connections with consumers by showing a charitable side, donating products for every purchase customers make from them.

Not every enterprise needs to utilize a D2C model. Some companies prefer not to handle distribution, and like the exposure a retailer can provide. For others, it doesn't align with their product or service. 

But for many companies, employing D2C as your primary model or at least a secondary stream of revenue makes a lot of sense. There are many things to consider for businesses that want to use a D2C model. Three primary considerations are how you will cost-effectively facilitate the distribution process, track your marketplace metrics and how you will reach  customer experience KPI through marketing. Before you commit to D2C, it is important to ponder this.

The other major consideration is the ecommerce platform you will use to enable this model to function effectively. Organizations can choose from a range of ecommerce solutions, each offering something different.

The direct-to-consumer model has opened up a world of possibilities for enterprises. It has created a way for them to access the customer base they are targeting without the interference of a third party, improving their control and expanding their margins. As we move toward a future where ecommerce's reach continues to expand, it appears that the D2C model is poised to continue its growth and create exciting new opportunities for the organizations that center their sales model around it. To learn more about the model and which technical capabilities you are going to need, reach out to Virto experts who will help you to analyze your business and lead you to the best decision.