The Rise of the DTC/D2C Business Model: What It Means for Brands and Consumers
The past decade has seen the rapid growth of a new business model – direct-to-consumer (DTC), also known as direct-to-customer (D2C). This model involves brands selling directly to consumers, without any middlemen like retailers or distributors.
The DTC/D2C model has disrupted several industries, from apparel and accessories to consumer packaged goods. Big brands like Nike, Warby Parker, and Dollar Shave Club have adopted this model to take control of their customer experience and relationships. At the same time, many new startups like Glossier, Away, and Hubble Contacts have built their businesses around the DTC model from day one.
So what exactly is driving this shift, and what does it mean for both brands and consumers? Let’s analyze the DTC/D2C business model in more detail.
What is the DTC/D2C Model?
The DTC/D2C business model involves brands interacting with and selling directly to their end consumers, instead of selling through third parties like retailers. This eliminates middlemen and allows brands to control the entire end-to-end experience.
There are two broad approaches to implementing a DTC model:
1. DTC-Only Brands
These are digitally native brands that sell to consumers exclusively through their own DTC channels like:
- Owned ecommerce site
- Mobile apps
- Social commerce on platforms like Instagram and TikTok
- Branded physical stores
Examples include Casper, Glossier, Away, and Allbirds.
2. DTC Brand Extensions
Established brands launch dedicated DTC channels to complement existing wholesale distribution. This may include:
- Ecommerce site for DTC sales
- Flagship brand stores
- Pop-up shops
- Branded content and communities
Examples include Nike, Levi’s, and PepsiCo.
Key Drivers of the DTC/D2C Model
Several cultural, technological, and marketplace shifts have fueled the rise of DTC/D2C brands:
Digital Commerce Enablers
- E-commerce platforms like Shopify and Magento make it easier to set up online stores
- Payment gateways like Stripe facilitate digital payments
- Fulfillment technologies enable direct shipping even for small brands
Social and Content Marketing
- Social media allows discovery, engagement, and community building
- Influencers drive awareness and trust
- Content marketing builds affinity and loyalty
Consumer Behavior Shifts
- Value consciousness: Consumers expect fair pricing, not inflated by middlemen
- Convenience: DTC channel allows finding, and buying from anywhere
- Personalization: Customers want products suited to individual needs
- Values: Customers support brands aligned with their social beliefs
Category Conditions
- High margins allow brands to offer attractive DTC value
- Differentiated products make emotional connections
- Fragmentation: No dominant player controls the distribution
These factors created the perfect conditions for the DTC model to thrive.
Benefits of the DTC Model
The DTC/D2C model brings several strategic advantages:
1. Higher Margins and Revenues
Removing intermediaries allows brands to:
- Capture more value by eliminating markups
- Improve margins through pricing power
2. Customer Data and Insights
Direct customer interactions provide data on:
- Demographics
- Preferences
- Behaviors
- Economics
These inform targeted marketing and product decisions.
3. Brand Control and Experience
Complete control over:
- Product assortment and merchandising
- Prices and promotions
- Customer support
This enables crafting a unique, differentiated brand experience.
Challenges of the DTC Model
However, DTC/D2C comes with its own set of execution challenges:
1. Heavy Initial Investment
- Building technology and operations capabilities
- Generating awareness amidst competition
- Achieving scale requires resources
2. Lower Discoverability
- No access to existing store and distributor audiences
- Harder for customers to find untested brands
3. Operational Complexities
- Managing complex fulfillment and logistics
- Providing excellent customer service at scale
- Technology and data integration across channels
4. Potential Channel Conflict
- DTC sales may cannibalize existing retail distribution
- Needs strategic channel management
DTC Strategies for Brands
For brands considering DTC, here are 5 proven strategies:
1. Start with a Niche DTC Experience
Launch a focused pilot offering tailored to a niche segment before going mass market.
For example, PepsiCo’s DTC proposition PantryShop.com sells bundles of snacks tailored to specific consumer needs like fitness packs and work snacks.
2. Lead with Digital, Enable Offline
Build your DTC presence around an e-commerce model first. Then enable physical retail for experience.
Warby Parker started online, before exploring pop-up stores and permanent showrooms.
3. Combine Content and Community
Create engaging content around your brand story and value. Build an online community for your ideal audience.
Glossier engages followers through beauty tips, product reviews, and an active Instagram community.
4. Leverage Influencers and Ambassadors
Partnerships with influencers, athletes, creators or micro-influencers drive awareness and credibility.
Fabletics leverages founder Kate Hudson and an ambassador program with mass appeal.
5. Structure Data-driven Omnichannel Experiences
Integrate data and experiences across digital and physical channels.
For example, Nike’s app allows reserving products online for in-store pickup.
The DTC/D2C Outlook
While still evolving, the DTC/D2C model is here to stay and grow.
For digitally savvy and venture-backed startups, DTC represents the optimal model to disrupt incumbents. For large brands, developing a complementary DTC channel is becoming an important growth lever.
Omnichannel capabilities will be key, as consumers expect seamless physical-to-digital experiences. Sustainable models that avoid excessive discounts and waste will also be critical for long-term success.
The DTC revolution has just begun and will continue to shape the consumer landscape for years to come. However, the brands that embrace this model thoughtfully will be best positioned to win customer loyalty and unlock growth.
