20 minutes to read

D2C ecommerce: understanding the benefits and opportunities

3 March 2023 Stefan Hövel and Ralp Hübner

Everyone’s talking about direct-to-consumer ecommerce, aka: D2C ecommerce. Ever since the corona pandemic, it is on the radar of every medium-sized business. In this article, two D2C veterans, Stefan Hövel and Ralph Hübner, explain what D2C is all about and where they see the industry heading in 2023.

Why is there so much buzz around D2C ecommerce?

There are at least two key reasons for this trend. Firstly, many companies are now recognizing its potential. Secondly, this area is quite demanding and complex, especially for manufacturers. It not only requires significant capital investment but also detailed planning and management attention. This means that there are various perspectives, opinions, motivations, as well as procedural and systemic challenges that need to be thoroughly understood and discussed.

We have been pursuing a direct-to-consumer (D2C) strategy for more than a decade, across various roles and industries. Although sales opportunities, technologies, and tools have evolved, the fundamental questions and challenges have remained constant. Currently, we are engaging with companies and their stakeholders on some of the most important and exciting questions, such as:

What is D2C?

D2C stands for "Direct-to-Consumer" and refers to the strategy of selling products or services directly to consumers, bypassing intermediaries such as retailers or wholesalers.

Let me now answer your question because it needs to be scrutinized more closely. In fact, it's critical for companies to ask themselves at the outset what this "direct approach" can and should achieve. Nowadays, in addition to selling products directly to consumers, many manufacturers also focus on generating their own customer insights or devising a working customer retention strategy, also known as recurring revenue or CRM. Manufacturers are striving to become more independent of retail while also learning how to make their brand, product range, and services more customer-centric to remain relevant. In other words, manufacturers are working diligently on their D2C approach because they believe it's the only way to keep up with the times and position themselves for the future.

It's equally important to discuss what the "C" in this term means. The term "direct-to-consumer" is often used since consumer brands such as Nike, Adidas, Bosch, and various well-known FMCG brands (fast-moving consumer goods) are frequently discussed. However, the term "direct-to-customer" is equally correct and potentially even more intriguing from a technological and agency perspective. This is because many B2B manufacturers also aim for a direct approach to better serve their tradesmen, service providers, and other users and buyers.

What are the hottest trends in D2C ecommerce right now?

Marketplaces and social commerce are among the most talked-about D2C ecommerce trends in the market. As a result, many brands are actively exploring ways to use established platforms, as well as new ones, for their D2C approach.

Especially this year, during the lockdown, many manufacturers realized (often the hard way) how well or poorly their shops or processes operate under stress. Consequently, they are now seeking to improve in this area. There's a greater willingness to listen to the requirements, and there is an acknowledgment that a sound product range policy and excellent usability are as crucial as solid technology. What most have learned, in particular, is that there are issues with the backend and fulfillment structures.

We believe that manufacturers who think beyond their "product" in a D2C sense by creating digital ecosystems, services, or content are the most exciting. Peloton is a prime example of this. Strategically, this is challenging to implement, and technologically, it's quite demanding since there are no pre-configured modular solutions available for creating unique digital ecosystems. This is where genuine USPs and innovative solutions emerge!

What challenges do established manufacturers face in terms of building their D2C sales channels?

The list of challenges is extensive, and each manufacturer has their unique hurdles. However, the following aspects are almost universally encountered:

Technical solutions and processes need to be developed; often, websites are substituted with online shops, and content must be restructured.
New customer insights and data must be gathered, the customer journey understood, and new mentoring tools are required.
Existing marketing approaches must be expanded, new social media expertise created, and a consumer-focused CRM designed.
Theoretical and actual conflicts with their own trading partners must be resolved (which, it's worth noting, manufacturers still rely on today).
The complete D2C purchasing process, logistics, returns, and service level must be developed, new service providers added, and managed.

In addition to these technological issues, the company's organizational structure, and hence its culture, must also transform. Suddenly, you're "right there" with the end consumer.

How will the D2C market develop in the coming years, especially with regards to the countless D2C start-ups?

We believe there are numerous developments on the horizon for manufacturers and brands. Firstly, everyone is moving towards a direct-to-consumer approach, which will require significant investment of effort, time, and money. However, with constantly increasing customer acquisition costs, particularly on social media, not all businesses will achieve their desired success. Moreover, the media landscape, particularly on smartphones, will look different in the next few years.

Additionally, manufacturers are placing greater emphasis on marketplaces, driven by sales as well as branding and marketing efforts. However, many will need to learn a valuable lesson: pushing and showcasing an individual product or product group on Amazon or Instagram is far simpler than differentiating an entire product range on a website.

This brings us to the D2C brands phenomenon, which has provided significant insights in recent years. These nimble, fresh brands are eroding the market share of established brands, some of them flying under the radar of market research. A good example of this is the cosmetics industry, where new brands emerge almost every week and are rapidly acquired by corporations. Successful D2C concepts are usually copied quickly, and with good sourcing conditions, the barriers to entry are reduced dramatically. Scaling is a great option when selling to consumers via social media platforms, and investors are more willing to pump money into promising concepts.

In contrast, many managers used to traditional business models may wonder if the old marketing rules are no longer applicable. Can fixed costs be shifted to a single product and still achieve marketing success? The world has become more granular and fluid, with almost all modules now available "as-a-service," rendering fixed costs obsolete. Even brands are no longer built to last forever but to fill a temporary niche on Amazon, a trend on Instagram, or an influencer's 15 minutes of fame. This reality should be a wake-up call for established manufacturers who must realize that there are several trends for which traditional brand strength and creative advertising claims cannot compensate.

A list of D2C ecommerce trends:

brands that match the zeitgeist (meaningfulness, sustainability, authenticity, free from relics of the past) – for example TEATOX or myRapunzel
brands that have a digital interface that yields big or relevant benefits – for example tylko or Original+
brands that are extremely focused – for example Whytes or everdrop
brands that like to occasionally break industry rules – for example bett1 or Wiesemann

How should brand manufacturers deal with these new D2C players? We think that, above all, they should be willing to learn from them. Even though there’s no one-size-fits-all recipe for success that can be applied to established brands and their offering, there are success mechanisms and blueprints that can help them develop their full potential – once they understand them.

Will classic ecommerce retailers (pure players) die out?

Industry experts have long predicted that the pure-player landscape will shrink due to the insights gained from the era of platforms and D2C. Although it's unfortunate that we have become accustomed to these shops, marketplaces will continue to grow. Only the large or specialized pure players that can handle real economies of scale or large volumes will be able to offset the rising costs of customer acquisition and technology. However, these vertical champions are likely to disappear as numerous D2C start-ups, drop shippers, and other enthusiasts invest lots of time and their own resources in pursuing their goals.

What benefits does the consumer have when purchasing D2C from a brand in future?

In principle, the service performance of D2C is initially identical to that of a retailer in the US. You get a product, pay for it, and by law/contract, you have agreed service and warranty claims. The price may be higher than in retail, but a few "goodies" usually make up for the premium price point. Soon you will no longer be able to identify significant differences in fulfillment because fulfillment service providers are usually already working for retailers and manufacturers in parallel.

The significant difference, and ideally, the benefit in our opinion is the life-cycle management that merely works better when it takes place directly between the manufacturer and the consumer. For example, when you purchase a purse or phone case, you'll be pleasantly surprised when the brand offers you an attractive replacement option two years later. If you buy a multifunctional food processor, you'll be happy to receive weekly recipes as well, like for the Cookit by Bosch. If you buy digital appliances, you'll need updates, like for all smart devices. If you decide to buy from a sustainable brand, you'll likely also be interested in other sustainable products. If you buy FMCG products, you may need a subscription, as with YFood, for instance. If you have children, you'll be excited to get age-appropriate toys or clothes - accompanied by genuinely child-oriented features and sustainability solutions that are more than just marketing stunts, such as Woom Bikes, for example.

Let's be honest - only a few US retailers have ever sent out a newsletter or offered a service that was specific to our requirements or the life cycle itself. Manufacturers, however, can do that because they have first-hand customer data. And they should do it to differentiate themselves. They have to do it to assert their premium price point.

What must an ecommerce platform do to be perfect for D2C?

It’s worth having a look at the shop systems that are currently being used by D2C start-ups: SaaS solutions, cloud-based, flexible and modular, with few barriers to entry and set up in no time (at least the basic configuration). These systems are the alternative concept to previously known shop systems that involved lots of time, money and effort to finally set up after months of conceptualizing, only to discard them a few years later when a new release came around. We are, without a doubt, on the cusp of a new era: an era where every D2C start-up can be turned into a unicorn with just a single product. With shop systems that grow to meet users’ needs and whose extended features and marketing solutions can be added hassle-free with a visit to the app store.

But we still can’t overlook the fact that established companies certainly are somewhat skeptical about using an almost free SaaS shop in addition to SAP and Salesforce. This may hurt our self-image, it questions budgets and automatically raises the question: why does everything else take so long in the first place?

That’s why we see a tremendous opportunity for novel ecommerce solutions such as Shopware 6. They build a bridge that has never existed before. These shop systems will enable us to learn from small, agile brands to then conceptualise D2C solutions that best suit the existing requirements of an established company.

In principle, what must a shop system provide to be able to handle D2C from a manufacturer’s/brand’s perspective? From our perspective, it needs to provide a stage (such as a website) for the brand, it should textually describe product groups and also consider other specific aspects to do with products and services. In addition to pure product range features (like filters), it needs to contain valuable, specific navigators, selectors or even configurators. So basically, features that retail usually cannot offer. Last but not least, the shop system should enable real-time customer dialogue (chats), seamlessly connect with the CRM process and be a full-featured service hub.

If these criteria aren’t met, the brand (= manufacturer) misses out on the opportunity to differentiate itself and it becomes less competitive when compared to ecommerce pure players (= retailers). The same, of course, also applies to marketplaces which keep upgrading, but aren’t able to provide product group specifics.

Many retailers with Shopware shops are already active in the D2C segment. Here are a few examples:

Conclusion: the future of D2C ecommerce

The D2C trend is going to be crucial for brand manufacturers in the years to come. That's why many of them are looking for a new approach in this realm. But it won't be the same as before: technology and strategy are equally important in D2C. Technology needs to not only enable, but also promote flexible development of business models. In this context, D2C does not mean that you're "playing a singles game with the consumer." Instead, it means having a strong sense of cooperation with different partners and platforms involved in the value chain. D2C is not just a trend, it's the logical development of what's technologically possible and strategically doable, meeting the needs of today's consumer.

About the authors

Stefan Hövel – Manager, consultant, founder, expert in D2C marketing

Stefan has spent the last 20 years supporting several international companies in developing their digital strategies, innovations and ecosystems. As a managing director, manager and consultant, he was also involved in the digital transformation of direct sales companies and the development of direct brands and manufacturers’ D2C strategies. As a company founder, he supported several start-ups and NGOs as well. According to him, direct brands not only enrich the brand range, but will also create completely new markets and business models.

Stefan on LinkedIn

Ralph Hübner – M&A, consultant, founder, expert in D2C sales

Ralph has been consulting primarily international brand manufacturers for nearly 20 years now. Most recently, he focused on internationalisation, ecommerce and marketplace strategies. As a D2C expert, his goal is to find the right balance between direct and multilevel sales for every company, whilst developing the right mix of D2C activities. For medium-sized businesses, this also includes considering the founding process or acquiring innovative direct brands. In addition to his work as a consultant, he’s also involved in start-ups as a co-founder/advisor.

Ralph on LinkedIn