Is Direct-to-Consumer (D2C) the only way to go in 2024? 

It is not a surprise that many small and medium size companies start their businesses by implementing a Direct-to-consumer (D2C) strategy. Probably this is the smartest way to go if you want to test your product in the market, understand your customer’s needs and build brand awareness fast. In fact, during the last decade, the D2C approach has shown remarkable growth and even established brands have started to adopt this model.  

So, if you have an innovative product and want to scale up your business fast, D2C is a good way to go. Just be careful to not get stuck with this approach as this is what most companies miss out on when they start. Even if the D2C approach has many benefits, many new brands face numerous problems due to the pressure of rising costs of digital advertising and the supply chain. The market is becoming more and more competitive and you don’t want to be left behind. 

This is where the B2B approach comes into play. The B2B approach is one of the most cost-effective methods to scale fast. You may need to wait longer, as the process takes more time compared to D2C, but in the end, you want both short-term and long-term results to be successful. 

In this article, we explore the power of D2C and B2B, as well as the differences between D2C and B2B strategies and illustrate why you need both to expand your business faster and smarter. 

Let’s dive right in. 

D2C Business Model

The D2C business model has gained popularity in recent years due to technological developments and social media, enabling businesses to reach and engage with consumers more easily. D2C companies often prioritize customer experience and relationship-building, as they are the primary point of contact with the end consumer.

D2C meaning

Let’s start with D2C’s definition. D2C or direct-to-consumer is a retail sales strategy where a business can build, market, sell, and ship its products directly to the customer. This means that there isn’t any middle channel between the company and the customer. 

What is D2C?

A D2C approach is a low barrier to entry strategy. Many companies use a D2C strategy in the beginning, as they can market and sell their products directly to customers through digital channels and quickly gain traction. But the truth is that the D2C approach offers much more than that. The most important aspect is the fact that companies have more control over their business including their marketing and sales activities. Below we will explain the pros and cons of D2C in more depth. 

But let’s first check some examples. 

Have you ever purchased any products from Nike, Apple, or Loreal? If yes, then you have probably bought them from one of their retailers such as MediaMarkt or big supermarket chains. This is how consumers used to engage with brands- mainly through retailers. 

Over the last decade, the D2C model has initiated a shift in the paradigm above by eliminating the mediator (i.e. retailers). Some of these companies, like Nike and Apple, have integrated the D2C approach through their brick-and-mortar retail stores, but this is not what we refer to as D2C. Specifically, the brands with a D2C model sell via e-commerce and promote their products through social media to their end customers. In this way, customers can learn, purchase and engage directly with the brands. 

Gartner conducted research that showed that 55% of customers prefer to buy from brands directly and 40% of customers mentioned that they are willing to purchase from D2C companies within the next 5 years. Another interesting insight is that in the US it is projected that local D2C brands will reach $44 billion in sales by 2023 and more established D2C brands will reach $138 billion in sales. 

Pros and Cons of D2C Strategy

Before start implementing a D2C Strategy it’s important for businesses to consider the pros and cons.

Pros of D2C

Control Over the Customer Journey

First of all, one of the biggest advantages of a D2C approach is that businesses can keep track of the entire customer journey. From the initial stage of awareness to the last stage of loyalty, companies can monitor customers’ preferences. By understanding their customer behavior, companies can create customer segments and subsequently personalize their messaging and marketing efforts tailored to their customers’ needs. 

Higher Profit Margins 

Another benefit of the D2C strategy is that you do not have costs from intermediaries. These intermediaries could be distributors that keep a commission each time they buy from you. So, if you do not have a good margin, distributors will not be able to keep the prices competitive for customers.  

Flexibility

As the market is dynamic, sometimes the market conditions change. It is thus essential for companies to be flexible. The D2C approach is ideal in this instance, as companies can quickly adapt their strategy according to the market needs. Since they don’t have partnerships with distributors or retailers, they have the flexibility to experiment with new products, try different pricing strategies and create multiple marketing campaigns without any constraints. Thus, this flexibility can provide companies with a competitive advantage.

Brand Awareness

One of the fundamental principles of marketing is the importance of building brand awareness. A D2C strategy can be proven critical to this process, as owning the customer relationship and focusing on delivering a great customer experience play a key role. That’s because companies can build a loyal customer base and most importantly differentiate themselves from their competitors.

Cons of D2C

High Competition

Selling your products online is easier said than done. Even if it’s relatively easy to create a webshop and social media channels for your brand, you need to be aware of the high competition. Consider that you are competing against retail giants such as Amazon and Walmart. Besides the fact that they are well-known companies with high credibility, they have also mastered the customer journey. From their website structure, and ease of navigation to recommendation systems and fast shipping, they have a strong advantage. 

Increased Responsibilities

Another disadvantage of D2C is that you need to take care of marketing, sales, and customer service in addition to the manufacturing, supply chain, and shipping of your products. For small and medium brands this could have a negative impact on their overall performance. That’s because it is too hard to have everything under control at the same time without spending thousands on personnel, service providers, agencies, etc. 

Limited Market Reach

By following a D2C approach you may also struggle to reach out to a broad customer audience. If your product is not placed in big retail stores you will lose a big percentage of potential customers that still prefer to purchase products in physical stores. 

Lack of Customer Trust

Customers tend to buy products easier from brands they trust. So they may be hesitant to purchase from D2C brands that they are not familiar with. Hence, they may perceive them as less reliable or trustworthy compared to well-known retailers. 

D2C Examples

1. Sonos

Sonos is a leading producer of high-quality wireless speakers, soundbars, and home theater systems. The company offers its products directly to consumers through its website.

2. Peloton

Peloton is a popular fitness equipment company that offers a range of exercise bikes, treadmills, and accessories. The company sells its products directly to consumers through its website.

3. Ring

Ring is a home security company that offers a range of video doorbells, security cameras, and other products. The company sells its products directly to consumers through its website.

4. Bose

Bose is a renowned manufacturer of high-quality audio equipment, including speakers, headphones, and home theater systems. The company offers its products directly to consumers through its website.

5. GoPro

GoPro is a popular brand that produces action cameras, accessories, and software. The company sells its products directly to consumers through its website and retail partners.

D2C and B2B

Direct-to-consumer (D2C) and business-to-business (B2B) are two distinct sales models that companies use to sell their products or services. The main difference between D2C and B2B is the target market they cater to. 

D2C is focused on selling products or services directly to the end consumer, bypassing traditional retail channels. On the other hand, B2B businesses target other businesses as their customers, selling products or services in bulk quantities. Another difference is the sales approach. D2C companies use marketing and advertising to reach their customers directly, while B2B companies typically use a sales team to establish relationships and negotiate deals with other businesses. 

Additionally, D2C companies have full control over the customer journey, while B2B companies often have to work with multiple decision-makers in the purchasing process. Ultimately, choosing between D2C and B2B depends on the type of product or service being sold and the target audience.

We already analyzed the D2C business model, so let’s dive into B2B now. 

What Are You Missing Out On as a D2C Brand?

The D2C approach advantages are many and may seem enticing, but if you want to scale up fast and at the same time build a long-term strategy, you need to go one step further. This is the moment you need to consider what a B2B approach can offer. It’s important for D2C brands to weigh the pros and cons of their approach and consider incorporating elements of B2B to maximize growth and success.

B2B  Business Model

The B2B business model, also known as business-to-business, refers to companies that provide goods or services to other businesses rather than individual consumers. This type of model can be found in a wide range of industries, including manufacturing, technology, and finance.

B2B Meaning 

In fact, B2B stands for “business-to-business.” It refers to the transactions and relationships between two businesses, rather than between a business and a consumer (B2C). In B2B transactions, one business sells products or services to another business, often in large quantities or for commercial use.

Think of the B2B approach as the key to accessing thousands of potential customers at a global level. What you need to do is to find partners with expertise that can sell your product in new markets. Unlike the D2C strategy, B2B requires a mediator. In other words, your company sells products to other businesses and then they take the responsibility to market and sell them to customers. These businesses may include (wholesalers, distributors, retailers, etc.)

How Difficult Is It to Implement a B2B Strategy?

For many companies, a B2B strategy implementation can be a complex procedure. The difficulty derives from the fact that in a B2B context, companies primarily focus on building relationships with other businesses, such as wholesalers, distributors, and retailers. But in order to build a strong relationship with another business, you need time, good strategy and the right preparation. You can check this article to learn how to start conversations and build relationships with distributors like a pro. 

However, if you think about the advantages a B2B strategy offers, it might be worth your while. 

Pros and Cons of B2B

Before start implementing a B2B Strategy it’s important for businesses to consider the pros and cons.

Pros of B2B

Increase Brand Recognition

While in a D2C context, the level of exposure you get mainly depends on your marketing strategy and budget, in a B2B context your partners do the promotion for you. So, you don’t have to spend money and time on marketing and sales. In addition, most companies that follow a D2C strategy, sell their products mainly online or in small local shops. But, imagine working with distributors who collaborate with big retailers on new continents. Your product will be placed in brick-and-mortar retail locations, meaning that you automatically unlock new markets and you can make your brand visible to a wider audience. In this way, you build faster brand awareness without spending thousands on ads and promotions. 

Higher order value and volume

Moreover, distributors and wholesalers do not buy single units. The volume and frequency of purchasing products are much bigger for B2B buyers compared to consumers. For example, it is not uncommon for distributors to order big quantities on a regular basis (weekly or monthly). But we cannot say the same for consumers. It is highly unlikely for end customers to buy products in large quantities from the same brand frequently. 

Loyalty creates predictable revenue

When you implement a B2B approach, you need to start building long-relationships with your partners. This means that eventually there will be a mutual understanding that if the product is good and you both follow the agreements you have set, your relationship with your partners could last for years. Eventually, this will enable you to forecast your revenue and manage the production of units more efficiently. 

Why Do You Need Both

Did you know that successful brands that have transformed their business to B2B have now more than 80% of their sales coming in from B2B partners, such as distributors and retailers? 

That’s why the most successful brands have adopted both strategies. So, if you have already begun to sell hundreds of units daily to customers by implementing a D2C strategy, why not find business partners that have access to hundreds of potential customers in new markets? 

Cons of B2B 

Longer Sales Cycles 

B2B sales usually involve a longer sales cycle than D2C sales. This is because B2B transactions often require more research, negotiation, and decision-making among multiple stakeholders.

Higher Costs

B2B sales often require more resources and time, resulting in higher costs for businesses. B2B companies may need to hire specialized sales teams, invest in expensive marketing strategies, and negotiate complex contracts, all of which can be costly.

Complex Sales Process 

B2B sales involve a complex sales process that may require multiple approvals and negotiations. This can be a challenge for many businesses to close deals and can also result in longer sales cycles.

Higher Risk

B2B transactions typically involve higher risk due to the larger financial investment and longer-term partnerships. That’s why B2B companies may also face a greater risk of non-payment or default by their clients.

B2B examples 

1. JLab Audio

JLab Audio is a San Diego-based audio company that offers high-quality audio products such as headphones, earbuds, and speakers. They have a B2B strategy that targets schools, universities, and educational institutions.

2. Acer

Acer produces laptops, desktops, monitors, and other computer peripherals. Acer has a strong B2B presence and works with businesses to provide them with customized solutions for their specific needs.

3. Targus

Targus specializes in laptop bags, cases, and accessories. Targus has a B2B strategy and provides customized solutions to businesses looking to equip their employees with high-quality laptop accessories.

4. Wacom

Wacom is a Japanese company that specializes in digital drawing tablets and styluses for creative professionals. They have a B2B strategy that targets businesses and organizations in industries such as design, animation, and gaming.

5. VAVA

VAVA is a consumer electronics company that focuses on developing and selling high-quality audiovisual products. Their product line includes projectors, soundbars, headphones, and more. While they have a strong D2C presence through their own website, they also have a B2B strategy in place to sell their products through wholesale channels and to partner with other businesses to offer their products.

Conclusion 

The D2C approach is an effective way to test your product in the market, meaning your pricing, packaging, and functionality. In this way, you can improve it and make adjustments based on your customer’s needs and establish brand recognition fast. In recent years, the D2C model has experienced tremendous growth, with even established brands adopting it.

Although D2C has its advantages, such as control over the customer journey, increased profit margins, flexibility, and brand recognition, it also comes with downsides like intense competition. So once you have started to have great sales numbers, you can consider integrating a B2B approach as well. 

Today it’s much easier than it was some years ago. You can enter new markets within months, without a lot of capital and costly trade shows. You can read the difference between trade shows and Tradesnest here.

Overall, it’s crucial for businesses to assess the advantages and disadvantages of both approaches before determining which strategy to pursue.

If you have an innovative product and you want to switch your D2C strategy to B2B, reach out to one of our specialists at Tradesnest.com. We help emerging brands within the consumer electronics industry find the best distribution and retail partners in over 80 markets.