The Impact of D2C Brands on the E-commerce Industry in 2023

Direct-to-Consumer (D2C) refers to an eCommerce strategy where direct manufacturing, marketing, and selling of products or services from the organizations to customers takes place without the involvement of retailers and middlemen. The D2C business model holds many competitive benefits over traditional business models.

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Benefits of D2C

1. Control over customer engagement

Traditional supply chains involving interaction between manufacturers and retailers left little room for communication between the organization and the customers. Thus, there was no or negligible amount of control over customer engagement. With the D2C business model, the organizations can send a customized email, text message, or a quick response from customer service to avail the products or services, making the customer feel included. This level of customer satisfaction can help organizations turn customers into invaluable inbound marketing assets.

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2. Control over the brand narrative

Though there are various eCommerce platforms where products of different brands are clubbed together, various organizations are opting out of the giant platforms to retain their individuality. For a brand on such a large platform, the message of the organization becomes less effective and the brand image gets diluted. There are now official websites and mobile apps of different organizations from which customers can directly connect and buy products or services. Direct selling to customers ensures the right product quality and pricing is delivered.

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3. Innovative opportunities

As per the D2C strategy, organizations have the freedom to bring in more innovative products or services in the market, unlike traditional supply chain management. Along with manufacturing, the organizations can try different tools to entice customers into purchasing their products or services. These may vary from subscriptions, buy now-pay later, trial products to complimentary services. Further, the organizations may look for broadening product assortment instead of offering limited options to customers. They can even go global to target the right customers in the right market.

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4. Higher profits

With D2C brands, organizations can directly reach the customers and eliminate the involvement of middlemen. This helps them to earn huge profit margins by cost elimination of entities in the supply chain. Traditionally, a middle-man involvement led the organizations to earn a profit on the markup from cost to gross sales. However, with the introduction of the D2C strategy, products or services can be directly sold at the same price. This helps positively impact both the parties involved in the process.

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5. Understand customer demographics

The D2C strategy helps organizations have direct interaction with their customers considering there are no retailers or middlemen. The organizations can create awareness of their products or services among the customers and gain feedback. This two-way communication leads to gaining insights into shopping trends, buying habits, and brand experiences of the customers. The real-time statistics can help the organizations perform better and come up with innovative solutions to address the customers’ needs, wants, and desires.

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How D2C is shaping the eCommerce industry?

The D2C business model has brought a new outlook to the traditional marketing tools by reaching out directly to the customers. This has paved the way for various innovative products or services to reach a broader customer base.

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1. Customer retention

Though the introduction of vaccines has given hope to face the adverse effects of the pandemic, the D2C eCommerce platform is not likely to bear any losses in the near future. The eCommerce industry is facilitating different ways to retain customers by giving offers, discounts, and reductions in the prices of products or services. At the same time, it is necessary for organizations to invest heavily in areas where they get direct customer engagement to encourage customers to make purchases frequently. Organizations need not run paid advertisements or paid promotions to reach their target customers with the right platforms. Customer retention towards eCommerce platforms can be gained with appropriate strategic choices.

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2. Need of social commerce

During the pandemic, customers switched to eCommerce platforms to purchase nearly everything from necessities to luxury commodities. With a boom in social media, customers prefer to study reviews and ratings before they decide to buy  Also, social media acts as an excellent platform for entrepreneurs or “homepreneurs” to showcase their innovative products to the segmented niche. According to a report by Bain and Company, entrepreneurs will yield a gross merchandise value of $16 - $20 billion by the year 2025.

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3. Replacing retailers

Digitalization has urged organizations to conduct their business online through official websites and mobile apps. The delivery rates becoming cost-effective are pushing the organizations to cater to a wide range of audiences. They are adopting the D2C business model owing to its benefits in the eCommerce industry. This business model has resulted in removing retailers and middlemen in the supply chain, thereby reaching the customers directly. Organizations are now able to understand the needs of their customers better and offer them products or services accordingly. They have understood the power of emails, apps, and social media to enhance customer engagement and this has helped them earn huge profit margins.

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4. Introducing AI tools

Offering personalized recommendations about products or services has become important for organizations to make the customers feel valued. With the emergence of AI-based tools, there has been a rapid evolution in offering personalized services as a part of the business model. This helps in easier and faster customer conversions, enhanced customer services, improved customer engagement, and increased profit margins.

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5. Circumstances-driven experiences

Organizations are quickly adapting to the sudden challenges erupting in the market and are finding ways to provide a better customer experience. Many understand the necessity of incorporating D2C strategy in their strategies to build innovative products or services. Thus, the circumstances-driven experiences prepare organizations to beat all odds and flourish their business in the eCommerce industry.

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D2C trends

With online shopping at its peak today, the D2C industry is looking forward to setting an eCommerce industry benchmark. There have been many speculations regarding the future trajectory of D2C, some of which we discuss below:

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1. Personalized experiences

Personalized experiences are not just confined to adding the customer’s name in the email or text message but also relate to giving relevant suggestions and recommendations. Today, customers expect D2C brands to fulfil their needs specifically. With customization, organizations are making efforts to ensure their customers feel special and valued. Providing suggestions based on their web activity and past shopping history help D2Cs to gain high customer engagement. Further, organizations are creating a financial and emotional connection with customers, helping them widen their customer base.

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2. AI-based chatbots

Living in a digitalized era, customers always look for real-time solutions to their problems. Here, the best and effective tool that has helped organizations improve their customer service is AI-based chatbots. As a D2C strategy, these chatbots are designed to interact with customers online naturally and humanly. Further, they have helped to reduce the costs incurred in employing live chat representatives. Though the implementation of chatbots is cost-effective, only 33% of consumers globally agree that these virtual assistants help them solve their problems.

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3. Brand stories through videos

Today, customers prefer watching the brand stories through videos, thereby making video marketing techniques an ideal means for promotion. Before purchasing any product or service, customers prefer to learn about the effectiveness of a brand. D2C brands readily adapt video marketing to engage customers online by providing them with a seamless digital-first experience. Branding through videos might seem to increase the video budget of the organization, but it also acts as an “eCommerce entertainment” for customers.

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4. Omnichannel

Smartphones and Internet connectivity are the two significant factors that have contributed to eCommerce popularity. As products are available 24/7 with the home-delivery option, people of almost all generations have switched to online shopping. The statistics obtained from the survey of BigCommerce states that less than 10% of Gen Z buy products from brick-and-mortar stores while only 31.04% and 27.5% of millennials and Gen X respectively prefer buying products from physical stores. Thus, as a D2C strategy, a hybrid model has emerged where customers enjoy both digital and real-life shopping experiences.

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5. Subscription business model

One of the D2C trends is the rise of the subscription business model. According to this model, the customers and the organizations both are in a win-win situation. Customers get convenience, value for money, and exclusive perks such as loyalty points, discounts, and free shipping. Further, customers can get notifications for purchasing products. This direct interaction helps strengthen customer relations, encouraging them to make frequent purchases. McKinsey’s study revealed that subscribing to D2C brands has helped them grow over 100% each year.

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6. Emerging RaaS platform

RaaS or Retail-as-a-Service platform is an emerging tool for supporting the growth of D2C brands. Today, many retail service providers depend on Amazon, the giant eCommerce platform, to reach customers. With RaaS, organizations have started to expand their services and give a tight competition to the functionalities and capabilities of Amazon. For instance, Shopify provides a complete network covering shipping and distribution, while cloud services offered by Microsoft assures cashier-less checkout and smart store functionality.

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