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Direct-to-Consumer Business Model vs Traditional Retail Business Model

Direct-to-Consumer Business Model vs Traditional Retail Business Model

Length of the supply chain

Direct-to-Consumer Business Model Traditional Retail Business Model
Supply chain is shorter in D2C business model with no intermediaries like wholesaler and retailer. It, therefore, reduces the time for the product to reach the customer. Traditional retail model has intermediaries like wholesalers and retailers. Hence, the supply chain is lengthier.

Impact on the relationship with consumers

Direct-to-Consumer Business Model Traditional Retail Business Model
Brand’s relationship with customers is strengthened as the middlemen are removed. It also boosts long-term customer relationships. It is tough for brands in the traditional retail model to directly interact with end customers as there are middlemen.

Two-thirds of consumers today expect the ability to connect directly with brands. - Interactive Advertising Bureau research, 2019.

Control over Branding

Direct-to-Consumer Business Model Traditional Retail Business Model
D2C allows brands to really take their branding to the next level as they are now directly selling to customers. Offers can be given even at an individual level. It provides an enhanced control over the marketing of their products. Retailers advertise the brand’s products in their stores. Their branding guidelines limit the marketing control of brands.

Almost half of manufacturers said direct to consumer sales increased brand awareness and have boosted leads and sales for their channel partners. - Forrester Study.

Utilizing Digital Space

Direct-to-Consumer Business Model Traditional Retail Business Model
D2C brands rely heavily on digital traffic to make their sales. Their digital advertising is heavily targeted. Brands that use a traditional retail model may or may not have an online presence. Majority of their sales happen through store traffic.

The vast majority (85%) of respondents (brands) said they will invest further in Facebook during the second half of 2020. Other digital channels such as Instagram, Amazon and TikTok also rank high for new spending among direct-to-consumer brands polled.- Forbes, Totem media study.

Pricing Models

Direct-to-Consumer Business Model Traditional Retail Business Model
D2C Brands usually use a subscription-based pricing for their business. It creates a consistent revenue stream that is focused on customer retention. Brands using traditional retail models always have an element of uncertainty in gaining consistent revenue. The disconnect with customers can really impact customer retention.

The subscription e-commerce market has grown by more than 100 percent a year over the past five years. - Mckinsey, Thinking inside the subscription box: New research on e-commerce consumers, 2018.

Collecting Customer Data

Direct-to-Consumer Business Model Traditional Retail Business Model
D2C brands can easily analyze data collected through direct sales. This enhances the understanding of the end-to-end customer journey. It is tougher to collect relevant data. This could impact the brand’s understanding of the customer.

Personalization

Direct-to-Consumer Business Model Traditional Retail Business Model
D2C brands can hyper-personalize their products to service various types of customers. Brands in traditional retail models cater to a mass market. Hence, they cannot focus on personalization of products.

By 2020, 51% of consumers expect that companies will anticipate their needs and make relevant suggestions before they make contact. - Instapage, 68 Personalization Statistics Every Digital Advertiser Must Keep in Mind, 2019.

Identifying unmet customer needs

Direct-to-Consumer Business Model Traditional Retail Business Model
D2C brands can actually get direct feedback from customers. They can ask shoppers about their unmet needs. Brands in traditional retail models are not involved in direct sales. Hence, it becomes difficult for them to identify and act upon unmet customer needs.

82% of manufacturers surveyed said selling directly to consumers improved their customer relationships, and 76% reported that it improved customer experience. Forrester Research.

Profit margins

Direct-to-Consumer Business Model Traditional Retail Business Model
The lack of middlemen increases the profit margins of D2C brands. It is a cost-efficient and effective way of acquiring customers. Brands in traditional retail business models incur more costs due to middlemen and their commission.

27% said they can focus on items that yield the best profitability while letting the manufacturer fulfill orders for lower-volume inventory items. - Forrester Research.

Potential Losses on new products

Direct-to-Consumer Business Model Traditional Retail Business Model
D2C brands find it easier to do product innovation. With comprehensive data on consumer preferences, they can easily pilot new products. The potential losses are less for D2C brands. There is a greater chance of potential losses for brands using traditional models as they are servicing a mass market

14% said they see a benefit in letting the manufacturer test the success of new products before passing them along to retailers. - Forrester Research.