What Are Direct to Consumer Business Models?
Direct to consumer business models allow companies to sell their products directly to customers, bypassing traditional retailers.
For example, instead of selling your products on Amazon, you could set up your own website and sell directly to your customers.
One of the most common examples of a D2C model is the subscription business, where companies sell products or services on a recurring basis directly to their consumers.
There are three main D2C subscription businesses:
🛒 Replenishment businesses
This model ensures that customers always have essential items like toiletries or household products.
Companies deliver these products on a regular schedule, so customers never run out. It’s a convenient way to keep supplies stocked without needing to reorder.
For example, Grind has built a cult following as an affordable alternative to Nespresso coffee pods, where they directly deliver new pods to their customers on a regular schedule:
Their success has, in part, been driven by the benefits of having a D2C business, which allows them to connect with their customers in authentic ways.
🥗 Meal prep businesses
This subscription service delivers pre-portioned ingredients or fully prepared meals directly to customers’ doors.
It saves time on grocery shopping and meal planning, making it easier to enjoy healthy meals without the hassle of preparation.
For example, Hello Fresh has become a popular choice for customers who want to have regular meals delivered straight to their homes.
By working directly with the brand, they benefit from a more personalised service, fresher ingredients, and often lower prices compared to traditional retailers.
🚜 Community Supported Agriculture (CSA) businesses
In this model, customers subscribe to receive fresh, seasonal produce directly from local farms.
It supports local agriculture and provides customers with a consistent supply of fresh fruits, vegetables, and other farm products.
Subscribers appreciate knowing where their food comes from and contributing to sustainable farming practices.
For example, FarmFarmCSA allows customers to purchase a share of the farm’s harvest through a subscription.
By working directly with the farm, customers receive fresher produce, often harvested just before delivery.
The Benefits Of Direct To Consumer Businesses
Direct to consumer businesses have become a popular choice for many entrepreneurs and companies, and it’s easy to see why.
With the rise of online shopping and changing consumer preferences, direct to consumer models offer unique advantages that can help businesses thrive in a competitive market.
Here are the main benefits you can expect when embracing a direct to consumer sales approach:
👍 More control over your brand
When your products are displayed alongside other products in an intermediate store, you often don’t get to decide how they are presented or marketed.
They may get placed in the wrong aisle or alongside other consumer brands that don’t fit well with your own brand’s image.
This distorts your overall brand perception and makes it difficult for customers to tell what your brand stands for.
By choosing a direct to consumer model, you have full control over your branding.
This allows you to create a cohesive brand identity and tell your story in a way that resonates with your audience.
👍 Better profit margins
If you work through an intermediary, you’ll typically have to share a portion of your sales revenue with them, which can eat into your profits.
For example, if you have a subscription meal prep business that sells its meals for an average of $10, you could make your meals available in local grocery stores.
However, they would likely need to be sold for around $15 to $20 to account for the markup at retail stores and cover their costs.
By adopting a direct to customer business model, you can keep this additional profit instead of giving it to intermediaries.
Here’s a real-life example of Purple Carrot meal kits being sold at a supermarket for $19.99:
Source: Pinterest
This means that while you can reach a broader audience through grocery stores, you might have to sacrifice some of your profit margins.
👍 Building real relationships with customers
When someone else sells your products, you miss out on making a personal connection with your customers that might encourage them to return.
On top of this, you won’t receive immediate feedback on your meals, understand their preferences, or engage with them on a personal level.
If someone walks into your store and visits your website, they can get a unique experience of your brand, its values, and what you stand for.
This creates an emotional connection that fosters loyalty and makes customers feel valued.
When customers feel this connection, they are more likely to return for repeat purchases, recommend your meals to friends and family, and engage with your brand on social media.
👍 Staying agile and adaptable
With a direct link to your customers, you won’t be slowed down by intermediaries or third-party logistics.
Here’s how a D2C business model enables your business to be responsive to change:
- Direct feedback loop: Selling directly to consumers allows you to gather immediate feedback, helping you identify trends and areas for improvement.
- Control over inventory: In a D2C model, you’re in charge of your inventory, which means that you can respond quickly to changes in demand.
- Faster decision-making: By not selling through intermediaries, you can streamline your supply chain, which will reduce delays in decision-making.
If your business can quickly adapt to change, it will be able to avoid pitfalls like excess inventory, lost sales opportunities, and missed trends.
👍 Getting insights from customer data
When you work through an intermediary, you may not get access to detailed customer data and insights that can inform your business decisions.
Selling directly to your consumers lets you gather information about their behavior, preferences, and purchasing patterns.
This will help you answer questions, like:
🚀 Which day of the week do my customers prefer to buy my products?
🚀 What demographics do my customers belong to?
🚀 How do customer purchasing patterns change during promotions or sales events?
🚀 What are the most common customer inquiries regarding my products?
By analyzing this customer data, you can make strategic decisions that better meet your customers’ needs.
The Challenges Of Direct To Consumer Businesses
While the benefits far exceed the drawbacks, there are still some challenges to consider when operating a D2C business.
These challenges can impact your operations and require good planning to overcome. Here are a few key hurdles you may encounter:
👎 More responsibility
One of the perks of working with intermediaries is that they take care of administrative tasks that you won’t have to worry about.
For example, supermarkets and e-commerce platforms come with built-in loyal customers, so you don’t need to build your own from scratch.
Their established customers can easily discover and buy your products while they’re out doing your weekly shopping.
However, if you’ve just launched your own website or opened a storefront, you’ll need good marketing strategies to draw in your first customers.
On top of this, you will also have to maintain the environment you operate in:
🧹 Physical store: This requires regular upkeep, including cleaning, restocking, and ensuring a pleasant shopping experience for your customers.
💻 Online store: For an online business, you need to manage website updates, handle customer inquiries, and optimize your site for search engines.
👎 Increased logistics to manage the supply chain
When you sell directly to consumers, you are responsible for processing the return requests, handling the shipping logistics, and updating your inventory.
However, when you work through an intermediary, they typically handle the return process. This means that your responsibility ends after you send them your products.
If you deliver products directly from your own website, you will also have to manage shipping and delivery logistics.
This involves coordinating with carriers, tracking shipments, and resolving any issues related to delivery delays or lost packages.
Source: Pexels
👎 You carry all the risk
If severe weather conditions damage a store that supplies your products, they will include your loss in their insurance claim.
However, if you’re in this position yourself, you will have to make a claim on your own insurance and dedicate hours of admin to fix the damage.
This means you’re not only managing the financial burden but also dealing with the logistical challenges of restocking and ensuring customer satisfaction after the disruption.
In addition, all operational risks, including product recalls or compliance issues, fall squarely on your shoulders, further increasing your workload and stress levels.
👎 Slower sales can be a hurdle
Once you launch your business, it will take time for customers to become familiar with your products and develop trust in your brand.
At the start, you might experience slower sales as potential customers take time to discover your offerings, evaluate their quality, and decide to make a purchase.
Additionally, without the backing of a well-established retailer, you may find it challenging to attract attention in a crowded market.
As a result, you may not be able to scale your business as quickly as you’d like, limiting your growth at the beginning.
👎 Missing out on traditional sales channels
We’ve all fallen prey to the aisle of temptation.
You head to the store for just milk and bread but somehow come home with not only those essentials but also delicious baked goods you spotted next to the bread aisle.
Little did you know that those baked goods were specialty items supplied by a local bakery that’s using the supermarket as an intermediary.
Source: Pexels
This is the advantage of traditional retail environments that encourage impulse purchases and create brand awareness.
Without the visibility of being in a physical store, your brand could easily go unnoticed by those who prefer in-person shopping experiences.
How to Start a D2C Business
Now that you have a good understanding of what direct-to-consumer businesses are and the benefits they offer, it’s time to dive into the steps to launch your own D2C venture.
Starting a D2C business involves careful planning, but with the right approach, you can build a successful brand that connects directly with your customers.
If you already have a product and you know your ideal audience, you can follow these steps to establish your D2C business.
1️⃣ Step one: Choose the right D2C model
Before launching your D2C business, you need to identify the subcategory that best aligns with your unique product and audience.
There are four main types of D2C business models. Take a look at the table below to see which one fits your business:
Your business might fall squarely into one of these quadrants. However, like the KSN Candle Co, you might find that your business is a hybrid version of these.
For example, you might have a physical store that also sells subscription boxes online, or you might give your customers a choice between subscription or one-off products.
Combining elements of different models can help you maximize your reach and appeal to a broader audience.
However, there’s nothing wrong with sticking to one model if it best suits your business needs and capabilities.
Focus on perfecting your chosen approach, and then consider expanding or diversifying as your business grows.
2️⃣ Step two: Set up your operations
Once you know what kind of business model you’ll pursue, you can get started on setting up your business. This usually involves the following steps:
✅ Create your website
Nowadays, regardless of your business model, having an online presence is essential. Without it, customers will struggle to find and trust your business.
Here are the most common options for setting up your website:
- Hire a company: This option offers professional quality and comprehensive services but comes with higher costs and longer timelines.
- Get a freelancer: Hiring a freelancer is more affordable and flexible, but the quality can vary and support is often limited.
- Do it yourself: Doing it yourself is cost-effective and gives you complete control, but it’s time-consuming and has a steep learning curve.
Make sure you consider search engine optimization techniques, such as keyword research and building backlinks, to attract more organic traffic.
It’s also important to have polished, professional copy on your website, so check for any spelling errors or typos.
While it might seem like an extra expense, hiring a photographer to capture high-quality images can significantly improve your brand’s perception.
If you need more guidance on setting up your website, have a look at our recent article that explains everything you need to know.
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🕵️♂️ Why subscription websites are more challenging If you’re running a subscription business model, then your website needs to have additional functionality that will allow customers to make recurring purchases. This includes features like managing their subscriptions, updating payment information, and selecting delivery preferences. Moreover, your site should be able to handle various billing cycles and provide an easy way for customers to cancel or modify their subscriptions. All these complexities can be solved by using Subbly—an all-in-one, subscription-first solution that will have your D2C operations ready in no time. |
✅ Set up a merchant account
A merchant account will allow you to accept credit and debit card payments from your customers. This will depend on your location:
- Online store: you need a merchant account that integrates with your e-commerce platform. You need to make sure it supports secure transactions and facilitates payment processing through gateways like PayPal, Stripe, or Square.
- Physical store: You need a merchant account with a point-of-sale (POS) system that allows you to process card payments in person. You can get this from a range of providers, such as Square, Clover, or Shopify POS.
When choosing your provider, make sure you consider all the transaction costs and fees, including monthly fees and per-transaction fees.
Keep an eye out for additional charges for chargebacks or refunds, as these can significantly eat at your profit.
Source: Pexels
✅ Organize logistics services
Every direct to customer business model must consider shipping services, whether it’s for obtaining materials to create your product or for delivering the final product to your customers.
When setting this up, follow these steps:
- Assess your needs: Take a moment to figure out how much you’re shipping, what kind of products you have, and where you’ll be delivering. Once you know what you need, you can easily set up a shipping strategy.
- Choose shipping methods: Find shipping options that strike a balance between cost and speed. For example, if you sell perishables, prioritize faster shipping methods like overnight or two-day delivery to ensure your products arrive fresh.
- Select logistics partners: Team up with trustworthy logistics providers that have great online reviews and a proven track record for reliable service. This may include companies like FedEx or UPS.
With the right logistics, your business will be able to deliver your products—whether it’s to your physical store or your customers—on time and in good condition.
If you’re running a subscription D2C model, check out our detailed guide on managing the best logistics.
3️⃣ Step three: Launch your marketing campaign
As a direct to customer business, you must connect with your target market and communicate how your business will benefit them.
Before you launch your product or service, make sure you have good marketing strategies in place, as well as a clear understanding of your brand message and value proposition.
This way, you can effectively reach and engage potential customers through various channels, whether it’s social media channels, email marketing, or influencer partnerships.
Here are some tips on how you can create excitement around your brand:
🎉 Offer limited-time discounts or special promotions for early customers to incentivize purchases and create urgency around your launch.
🎉 Get your customers to share their experiences on social media; user-generated content creates a sense of community and authenticity around your brand.
🎉 Collaborate with other local businesses to cross-promote each other’s products or services, tapping into their existing customer base.
🎉 Host or participate in pop-up events or local markets to showcase your products and interact directly with potential customers.
🎉 Encourage word-of-mouth by offering existing customers discounts or freebies for referring new customers to your business.
When it comes to marketing, focus on practical strategies that are within reach, rather than getting swept away by big ideas that may not be feasible at this early stage.
| 🎥 Give YouTube sponsorship a try
One way to market your product is by partnering with a popular YouTube channel that’s willing to create a native ad for your business. For example, a YouTube channel called Geographics, which has over 1 million subscribers, is currently advertising Warby Parker, a home-delivery glasses service. The presenter, who happens to wear glasses himself, charismatically describes their service at the start of the video and explains how he believes it’s a great product: To add to this promotion, the channel then also pins a comment promoting the business at the top of their comment section:
In return, Warby Parker sponsors the video, allowing the creators to continue their work—making it a win-win for everyone. |
4️⃣ Step four: Focus on exceptional customer service
If you find an expired product in Walmart, you will instantly blame them for keeping it on their shelves—you won’t blame the company that made the item.
If your business uses the direct to customer business model, then you don’t have this luxury. Any issue your customers face will immediately be associated with your brand.
Therefore, you need to make sure you offer exceptional customer service. If you make one big mistake, you risk losing customers before they even have a chance to get to know you.
These are some important considerations you should keep in mind:
- Be there for your customers: Make sure support is available through phone, email, and social media so your customers can reach you via their preferred method.
- Respond quickly: Try to tackle customer questions and issues quickly. Fast replies show you respect their time and are dedicated to keeping them happy.
- Make it personal: Customize your responses based on each customer’s needs and history. This builds a connection and makes them feel truly valued.
- Keep it simple: Clearly explain your return, refund, and shipping policies on your website. Easy-to-understand processes help avoid miscommunications.
- Stay solution-oriented: If you can’t offer a refund, let them know what alternatives are available, like store credit or an exchange.
Ultimately, when your customers feel valued, they are much more likely to return to your business rather than choose your competitors.
In Conclusion
By choosing a direct-to-consumer business model, you can significantly speed up the growth of your subscription business.
To make this work, take control of your brand, build direct relationships, and gather valuable customer insights so that you can create a loyal customer base.
With a digital marketing plan and a commitment to exceptional customer service, your subscription business can only excel.
If you have an online or in-person subscription model, you could use Subbly to create your website and set up the perfect environment for your subscription services.
Head over to our features page to find out how your business can benefit from this—even in a hybrid capacity.
