e-Commerce • 13.03.2023
e-Commerce
Impact of Direct to Consumer (D2C) within e-commerce
25 november 2021
In the coming years, e-commerce will continue to grow exponentially and increasingly replace traditional sales. This has been true for years in the consumer market, but more and more in the business sector.
In its Future of Sales research, Gartner predicts that by 2025, 80% of B2B sales will take place through digital channels.
This development presents opportunities in the business market, but also challenges. One of those opportunities (and challenges) is for traditional B2B players to deliver directly to consumers. In this article, we delve into the Direct to Consumer (D2C) phenomenon and its advantages and disadvantages.
The difference between B2C and B2B eCommerce
B2B e-commerce includes trade and sales between companies. Think of the delivery of goods by wholesalers and manufacturers to retailers, SMEs and also self-employed individuals. A B2B shop is often characterized by specific functionalities that are not found in the average consumer shop. Think of price agreements at account level, bulk sales, recurring orders, credit limits, multiple delivery addresses and complex business processes. In addition to the digital relationship through the shop, there is often an offline relationship as well.
B2C-commerce (Business to Consumer) focuses on sales to consumers. Think of large webshops like bol.com, Wehkamp, Coolblue, but in fact any webshop where a consumer can order. Consumers buy in small quantities and for most shops the customer relationship is completely digital. In this market it is mainly about marketing, service, price and customer experience.
In practice we see many similarities and many differences. In both cases the buyer wants to be able to easily search, add products to a shopping cart and finally order. But in B2B commerce, the underlying functionalities and processes are often much more complex and the user experience for the user of the webshop is just a secondary consideration. The idea is that purchases in a business context are made more with the mind than with the heart.
For B2C shops this is completely different. It starts with the generation of traffic and continues throughout the entire customer journey. Customers have to be seduced step by step into making a purchase. Brand perception, all Cialdini's influence principles, usability, integration with social media, personalization and conversion rate optimization (CRO) are daily fare for every self-respecting organization that runs a successful consumer shop.
Gert van Vliet
Delen
Direct to consumer: Cut the middle man
The distinction between B2B e-commerce and B2C e-commerce is a logical continuation of the traditional world. The path from manufacturer to consumer is through wholesalers and retailers. And these parties want to buy low and sell to the consumer at the highest possible price.
But why should manufacturers settle for a low margin? They can also sell their products directly to the consumer by choosing a Direct-to-Consumer strategy (D2C). The margin is then entirely for the manufacturer.
The idea is logical and simple, but there is a lot involved to be able to do that successfully. Substantial investments in both the process, the knowledge and the technology are required to be able to compete with B2C players who already have a long-standing lead. In short, there are pros and cons to this strategy.
Benefits of a D2C strategy
Adding a D2C strategy obviously has benefits. We list some of them:
Higher margins
Manufacturers want to make as much profit as possible. Every link between the manufacturer and the consumer takes a bit of the margin. So selling directly to the consumer yields higher margins for the manufacturer.
Better customer relations
Customer experience is key! Consumers easily switch to the competition if they are offered a better customer experience. In a D2C shop, only your brand needs to be taken into account and the entire customer journey can be optimized for your range and your target group.
Better understanding of customer needs
Brands that do not interact directly with their customers have little or no insight into customer data. This data is necessary to find out what the needs of consumers are. This data can be used to better respond to the market. By managing the customer relationship themselves, brands are able to adjust their offerings and increase sales by making personalized offers based on past purchases.
Assortment faster online
D2C gives more control over the assortment and related information. Add products online directly, without having to wait for actions from intermediaries. In addition, the entire product range can be offered, where intermediaries often only want to buy a selection. Finally, manufacturers determine their own actions and promotions, without being dependent on intermediaries.
Challenges of a D2C strategy
In addition to these benefits, the D2C strategy also brings in a good number of challenges. We list a few of them.
Competition
Switching to D2C sales means competing with B2C players who often have years of experience. Think specialized shops, but also digital giants like Amazon and bol.com. These platforms have an enormous reach and reputation and often offer competitive prices. This competition requires a different commercial strategy.
Marketing
The target audience and objectives are completely different. This requires a different way of doing marketing. For many B2B companies have limited marketing budgets and capacity, so this will be a big challenge. Also because in the meantime, B2B marketing needs to continue.
Logistics
Brokers often purchase large quantities. Consumers buy small quantities. B2B customers are often more patient and want their products delivered tomorrow. The fulfillment of orders is therefore different, so there is a good chance that it still needs to be set up. Don't forget things like return policy and customer service.
Flexibility needed
Change within a company requires flexibility. Not just in the logistics process, but also in choosing or adapting the right digital platforms and in setting up or adapting processes. Enough attention needs to be paid to this beforehand within the company to get all layers within the organization on the same page.
Overhead per product sold
The margins on an individual product are higher, but a consumer only orders one or two products. The order value is much lower than when delivering to intermediaries. Also, many consumers expect free shipping, the ability to return free of charge, and accessible customer service. All in all, this leads to much more overhead per product sold compared to mass sales to brokers.
Relationship with intermediate trade
Last but not least: politics. Many manufacturers have invested years in the relationship with the middlemen. Not surprisingly, these loyal allies will view such a D2C strategy with suspicion. Diplomacy and good agreements are needed to keep those relationships good.
D2C is not for everyone
While D2C can offer very clear benefits, it is certainly not a no-brainer. First of all, not every consumer product is suitable. If margins are low or the product is for sale on every street corner, it is highly questionable whether D2C can be successful. No one will want to buy toilet paper directly from the manufacturer. At most in a pandemic.
For exclusive brands, the opposite is true. The ultimate example in this area is Apple. The brand is almost a religion in itself. At Apple, brand experience, information provision, ease of use and commerce come together in a unique way. Something that persuades many consumers to buy the product directly from Apple, even if it is a few tens more expensive than on another platform.
The right D2C e-commerce platform
What the right platform is for the D2C strategy depends on specific factors within an organization. If a platform for B2B e-commerce is already in use, the first thing that will probably be considered is whether that platform is suitable. But if it isn't, will you look for a second platform or replace the current one with one that can handle both B2B and D2C?
In terms of functionalities, the needs of B2C and D2C are the same it is, after all, a consumer shop. The ideal platform offers a marketer plenty of opportunities to promote products, is optimized for SEO and includes integrations with Social Media, such as Instagram. Good integrations with popular Payment Service Providers such as Adyen or Mollie are also preferably available out of the box.
So the complexity is more in the overall strategy of the organization. From a B2B perspective, there are often substantial differences. Think of complex discount structures, buying on credit, bulk orders, multiple delivery addresses and so on. The greater the difference between the B2B processes and the B2C processes, the greater the challenge of finding the solution in a single platform. Even if there is already a B2B shop, it may still be a better solution to put a separate platform next to it.
However, with the traction of B2B and D2C commerce, we do see that more and more platforms have an eye for both propositions. The classic B2B platforms are adding B2C functionalities and the other way around you see the B2C players adding solutions for B2B.
An example of a platform that originally moved only on the B2C playing field but is developing strongly on the B2B front is Bigcommerce. This is an innovative e-commerce platform that uses an API-first architecture. It offers everything an organization could wish for in terms of D2C strategy, but also has a large number of B2B functionalities that are rapidly expanded. Because it is a cloud native SaaS, such new features are added automatically.
How Touchtribe helps with D2C
We help both B2B and B2C organizations with their commerce strategy. Organization that want to start with D2C we can help with mapping the technical challenges, advise on the possible solution directions and finally the implementation. This is not limited to technology. Because we are part of the Makerstreet collective, we offer expertise from service design, marketing and branding to technical realization and management.
Interested in whether a D2C strategy could be of added value for your organization? Then get in touch with us.
Gert van Vliet
Delen
