The D2C Business Model in E-Commerce — Its Advantages as well as Disadvantages
In this article, I would like to talk about potential problems associated with the D2C business model — i.e. Direct To Consumer- in the e-commerce space. Specifically, we will take a closer look at the following issues:
- What is meant by D2C?
- What are the advantages of D2C?
- What are the disadvantages of D2C?
- Should I consider D2C for myself?
- What is meant by D2C?
D2C is basically nothing more than a form of business relationship. Similar to what you know from B2B or B2C. Only this time it is about the D (=Direct) and the C (=Consumer). What is meant here is the independent sale of goods directly to consumers. Unlike B2C, as we know it from Amazon, for example, no marketplace is used here where you offer your products or services, but you take everything into your own hands. A classic example of this is the company’s own web store, where everything from ordering to shipping is handled by the company itself.
What are the advantages of D2C?
The control is 100% in your own hands. However, this is also one of the main disadvantages from my point of view.
By this I mean that we can decide for ourselves how to provide traffic, how to design our sales platform/webshop and what possible funnel strategies we set up in the backend area. Everything is left up to us. At first glance, this sounds very tempting. However, if you let this fact run through your head several times, one thing above all should become clear: If we can control everything ourselves, this also means a multiple increase in the amount of work required to implement the respective tasks that are essential for a web store with a D2C orientation.
In fact, one of the main advantages in the D2C area is self-control with regard to all processes. Starting from customer acquisition to sales conversion optimization to the corresponding backend funnel strategy.
What are the disadvantages of D2C?
Imagine you decide to go the more traditional route and want to sell your products through a marketplace. Here we all know Amazon. Amazon already offers you a decent amount of buying power. They let you play along as a product owner, so to speak, by offering you the opportunity to sell your products via their platform. Above all, the “traffic” factor should not be ignored here. Because Amazon automatically provides you with its traffic as soon as you sell through it. Of course, you can also take care of generating additional traffic to your product detail page yourself, but in principle, Amazon takes over this part to a large extent — for the sake of simplicity, we will leave out the factor of possible competition and the associated loss of traffic at this point. The big disadvantage that arises here is obvious:
- We have to generate traffic ourselves
- We have to take care of a conversion-optimized webshop ourselves
- We bear the full responsibility from the beginning to the end
At this point, one could also say somewhat exaggeratedly: We are responsible for whether our store is successful or not — provided we sell a product that saturates a corresponding demand.
Should I consider D2C for myself?
There is no clear answer to this question. It’s a classic “it depends” answer.
If you have the possibility to carry out all necessary processes, which are essential for a successful webshop, on your own or to outsource them to appropriate persons, there is not much to be said against D2C. However, this conclusion should be drawn with caution. Because even if you assume that you can implement 80% of the necessary processes yourself and have to outsource the remaining 20%, the following two additional factors arise:
- Time
- Cost
The former (time) and the latter (costs) usually go hand in hand. We are responsible for setting up a store ourselves. Of course, this costs a lot of time and, above all, a lot of know-how — at least if you want to do it properly. If you don’t have the time, you have to outsource the work to others (agencies, freelancers, etc.). This, in turn, is associated with corresponding costs. We must not forget at this point that we are only talking about the creation of a webshop. However, once you have mastered this task, you have to take care of the second Herculean task:
- The generation of traffic
Another essential point that must be taken into account. Because even if we have created a solid, conversion-optimized webshop: Without traffic, there are no sales. But it does not require the generation of any traffic. That would be too good to be true. We need buyer traffic. Traffic that is actually interested in our products and has the intention to buy. This minimizes the possible target group we want to address and makes this task even more difficult.
However, if we have reached the point where we have created our own store and implemented our marketing tasks in such a way that we generate buyer traffic, which in turn results in active sales, then we have made it, haven’t we?
Not quite, if it weren’t for the fulfillment process. After all, the goods still have to be picked, packed and shipped in addition to the corresponding order. In addition, it must not be forgotten that there are still points such as customer support or own fulfillment. Things that also have to be taken into account.
Conclusion
If we start primarily with the disadvantages I described, the D2C model doesn’t sound “sexy” at first. But one should not judge too quickly. Because the main advantage of D2C, the complete control and thus independence, can outweigh almost every disadvantage. It sounds very tempting at first, when you read through the advantages of e.g. participating in a marketplace like Amazon. But there are also some disadvantages here, which I have not mentioned so far. Some of them are:
- We have to surrender to the marketplace and play by its rules
- We are in direct competition with other companies offering similar or even the same products
- We pay for the service (usually in the form of order fees, and if one chooses to be fulfilled by the marketplace — such as Amazon FBA — there are fees associated with that as well)
- We are completely at the mercy of the marketplace operator’s control
Especially the last point is extremely difficult to weight from my point of view. Just imagine, you build up a successful business with physical products over years via a marketplace — such as Amazon — and are excluded from one day to the next. In concrete terms, this means: Amazon kicks you out for various reasons. If this sounds too utopian for you, you can google the keyword “amazon closed seller account” and the like. You have to be guilty of something for this to actually happen, but in the end it is still up to the marketplace operator to decide if they want to keep you or not. If this scenario happens, you will have to deal with the following consequence:
Your entire sales channel is eliminated!
This sounds very harsh, but in fact this is the logical consequence if this scenario should occur and you do not have an additional sales channel.
For this reason, it can make perfect sense to have your own store based on D2C in parallel to your existing sales on marketplaces, for example. With this option, it is not possible to simply wipe yourself out of the market overnight.
At the end of the day, it is a very personal decision which of the variants you choose. Each has its advantages and disadvantages.
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