D2C model and AI that supports it: Customer interaction is the key to the individualized era
The keyword “D2C” is getting a lot of attention. “D2C” stands for “Direct To Consumer”. It refers to a business model in which products are sold directly to consumers.
For many years, I have been actively involved in supporting projects for product development of bags, jackets, pants and shoes from various makers around the world through crowdfunding. I witnessed them emerge as a direct sales brand through their crowdfunding success and got to understand the necessity and inevitability of the times in which D2C is being born.
D2C model and individualization
The changes in the market giving rise to the D2C model are related to the phenomenon of “individualization” of consumer needs. I mention “individualization” briefly in my paper for the journal of Service Society in Japan, Serviceology, titled “Data-Centered Innovation and Collaboration.”
For example, the other day, I found a bag that matched my preference when I was accessing a social networking site with my smartphone, and I bought it right away, encouraged by the fact that it had free shipping. I later found out that the bag had been made in a small artisanal workshop in Switzerland. Although none of their craftsmen probably understands Japanese, it is now easy to explain products in Japanese using multilingual e-commerce services. The goods are sent from a warehouse in Hong Kong, not Switzerland, and that kind of shipping service makes it possible for you to get free shipping as if you were buying the goods from a domestic store.
In the past, consumers were only able to purchase products that were actually in stock at stores that they could visit physically. Such geographical, spatial, and time constraints existed, and one had to push one’s own needs and preferences within those constraints to fit into a sort of mold．But now people can find, directly access and obtain what matches their preferences by using services around the world, anytime and anywhere, without having their needs altered by space and time constraints. In the midst of such progress, the needs have gone beyond the level of diversification to a level of individualization.
In today’s world, beyond simply being connected anywhere and anytime via the internet and smartphones, creators are able to deliver goods to consumers very quickly. Depending on the country/region and language preference of the visitor, the language displayed on the website is changed, and the most appropriate warehouse is selected among warehouses around the world based on global demand forecasting.
Even if the creator’s website is only in a foreign language, today’s users can use the power of AI (machine translation) in their browsers to review information and make a purchase regardless of languages.
Unknowingly, manufacturers and consumers around the world are transcending traditional sales channels to connect directly end-to-end on a global scale. The D2C model can be seen as a natural consequence of that change.
Benefits of D2C model
The difference between D2C and the traditional manufacturing and sales model is that everything from the launch of the brand’s website to informing customers, advertising, marketing and purchasing is covered digitally.
The big advantage of it is the opportunity to create a direct consumer touch point and hear their voice/feedback. It also gives you an idea of who your customers are. You will let their customers know your brand, your story, and the background of your products and manufacturing. Then you will know what kind of customers will buy products from you and what the market you face really looks like. Through them, you can make improvements for further growth.
In addition, for manufacturers that have been using existing manufacturing and sales models, adding a D2C model can strengthen brand loyalty, enhance engagement with customers who are loyal fans, and build community. Invite your existing and potential repeat fans to your D2C channels and events. You deliver better quality and support, personalized service to each customer, and in some cases, a place for customers to connect with each other and build strong relationships.
More importantly, the D2C model serves as a vehicle for new product development. Through direct dialogue with customers, sometimes including workshops, you try to uncover the latent needs of loyal customers, quickly test and introduce new products, and make trial of creating products together with customers. Those are great ways to gain insight into the future direction of the company.
In traditional sales channels, profit margins were low and it was difficult for the brand to control the process. By understanding the precise needs of consumers through direct communication, you can also gain control and increase profit margins by uncovering the potential of your brand, as well as customer loyalty and engagement. Above all else, understanding needs is key.
Analyzing needs with AI and making the most of it
In the following talk, I have previously described a case where the company thought about offering a new product by grasping the needs of its customers.
The next challenge for us was to capture the hidden needs of our users. One of what we’ve done is the creation of fashion websites by AI. First, we made AI collect and analyze user data of search and browsing to identify their needs that they themselves were not aware of, and then we created product pages based on this analysis. The marketing team checked the quality to make sure that new product pages match the image of products. In other words, AI made a hypothesis of customers and the marketing team complemented it later. And sales more than doubled over the conventional approaches. This was a dramatic turning point for us. Analyzing data with the help of AI and communicating directly with consumers to get their feedback and improve services based on that data will be an important part of D2C.
Commonality with Exploration & Exploitation model
The other day, I wrote about a new trend called Exploration & Exploitation as a business model in which people and AI grow together.
In today’s vertical B2B solutions, a sort of winning pattern is to explore and drill down into the real needs of leading customers, and then rapidly implement them into AI platforms to leverage them at Internet scale.
In fact, D2C model will also allow you to explore needs by directly interacting with loyal consumers, and will leverage it on the Internet platform (using the power of AI to a great extent). Then your business will grow differently than the traditional sales does. In this sense, you will notice that it has the same, Exploration & Exploitation, structure.
D2C model is more than just a direct sales approach; it is an attempt to talk directly with consumers and make great products together. In a sense, this is a movement that aims to create a more valuable market by taking advantage of the advances of the modern internet and AI. With a structure that also leads to the E&E model, this move will be a pivotal trend over the next few years. The positive connections between producers and consumers will be an indispensable guide to a prosperous and fulfilling future.
