Have you ever wondered how a product reaches a consumer? Do you know the Maggie you purchase from your local Kirana store goes through the channel of distributors before it reaches your doorstep?
The reason why we asked these questions is that in these questions lie the answer to what is the D2C business model.
D2C or Direct-To-Consumer
A D2C or direct-to-consumer business model is a business model where a company produces goods in its own facility and sells directly to consumers using its own distribution channel. In short, using this business model company eliminates middlemen.
Usually, a product reaches a consumer via a channel of distributors which include agents, wholesalers, distributors, and retailers. So, a product goes through the standardized journey of producer-wholesaler-retailer-consumer.
And at each level, there is a profit margin. So by the time a product reaches the shelf of your local Kirana store, its price has increased a lot more than its price at the production facility.
It is in this awe of cutting costs of middlemen, companies opt for the D2C business model. Where a company is a producer, company is a distributor, and company is the sole gainer of profit margins. And above all, consumers get products or goods at relatively lower prices.
Dilemma of D2C Business Model
D2C seems a win-win situation for both? But, only a few companies adopt this model!
The major reason being difficulties in managing a distribution channel, unable to create demand in the market and extra-cost of establishing distribution facilities, and hiring huge staff for the smooth functioning of the distribution channel.
But brands like Warby Parker, Glossier, and Casper and Harry showed the world the magic of the D2C business model. Profit margins in this business model are high, one can understand its customers’ needs better as feedback is coming directly from customers, target its customers better, and offer a higher degree of personalization in its product range.