Direct To Consumer Vs. Traditional Retail: Can You Have It All?
The year 2020 changed the pace of our planet. While there has been a steady growth in the eCommerce market for years now, the COVID-19 pandemic left several impacts on small and medium scale businesses around the world. According to Locus, Direct-to-Consumer brands definitely are on the rise, the pandemic helped accelerate it. Yes, traditional retailers managed customers in the vicinity.
With D2C, online sales accelerated by 52%, says Forbes, Totem Media study. The study also discovered that traditional retailers suffered due to major dips in sales amid the onset of a global health crisis.
With the explosive growth of eCommerce brands like Alibaba and Amazon, along with their aggressive FMCG promotion, Kantar analysts’ studies show that Asia will spend a huge chunk of its grocery money online by 2025. Let’s take a deeper look at traditional retail and Direct to Consumer as strategies for growth:
D2C business model vs traditional retail model
In order to explore the D2C model, it’s essential to understand what it is replacing. The D2C model is replacing the traditional retail model wherein, manufacturers mark up their respective products as they are transported to stores, where it is marked up again. Then, the products are finally sold to the consumers. The traditional model divides profits, leading to most of the markups getting divided amid small businesses involved, shipping costs, employee wages and more.
The outcome of the traditional retail model: consumers end up paying higher prices. Nobody wins.
The D2C model on the other hand is all about selling to customers directly. This eliminates steps, reducing selling prices in the long run. The D2C model needs a manufacturer, advertising or website and the consumer; there’s nobody in-between.
Let’s explore which model is better:
- Impact on relationship with customers
The Direct-to-Consumer model builds the brand’s relationship with its customers. This removes all middlemen from the picture, building transparency and trust with the brand in the long run. The traditional retail model made it really difficult for brands to interact with customers directly. Moreover, with increased product rates, the relationship of brands with customers was always difficult.
According to Interactive Advertising Bureau research, two-thirds of customers today expect to hold the ability to connect with brands directly!
- Control over branding
The D2C business model has taken its control over branding up a notch. Since the communication with customers is direct, brands roll out offer-based campaigns, enhancing its control over marketing products. Traditional model, as mentioned above, has several stakeholders, breaking the communication mode between the manufacturer and consumer. Brand guidelines are limited in this case due to such a long chain of brand communication.
According to the Forrester Study, about 50% of manufacturers revealed that the D2C model helped not just increase sales but enhanced brand awareness and boosted lead generation for channel partners.
- Utilization of digital space
The D2C business model heavily relies on digital traffic in order to make sales. In this case, digital advertising is extremely important. Traditional business models may or may not rely on digital advertising. The reason being, most of its sales happen through retail stores.
Amid the pandemic. Forbes Totem media study revealed that about 85% of brands in the study said that they heavily invested in Facebook ads. Other popular channels for paid advertising included Amazon, Instagram, TikTok and others.
- Pricing models
D2C models work with subscription-based pricing most of the time. This way, it’s win-win for both customers and businesses. The pricing model D2C follows streamlines customer retention.
Traditional models, on the other hand, do not have the means to connect with its customers or offer subscriptions. This builds a wall between the customer and manufacturer, making revenue inconsistent.
- Personalization & customer data
D2C brands mostly function online, making it easy to collect and analyse data. This way, customer journey is enhanced, in ways like hyper-personalization and more.
Traditional retail business models do not support much of the D2C model strategies. Their data is limited, impacting the understanding manufacturer has of customers. This reduces the possibility of personalization of products as well.
- Profits & innovation
When it comes to the D2C model, the likelihood of making profits increases due to no middlemen in the picture. The model proves to be efficient and effective. Since these brands rely on comprehensive data, innovation becomes easy and in most cases, successful. Due to the D2C model and its aggressive data analysis, customers’ unmet needs are identified, making innovation successful.
Traditional models, on the other hand, are mostly risky. The middlemen reduce profits for brands and with no comprehensive data disposable available, innovation gets difficult.
The Forrester research reveals that 14% find it beneficial to allow manufacturers to test the success of new products rather than just going forward with them. Data helps.
If you have not observed, the D2C model cuts off small business associations, affecting the economy in the long run. D2C models require big scale investments which brands like Amazon only hold. The D2C business model holds short-term benefits more than long-term ones. While the traditional model holds long-term benefits more than short-term.
As of now, we need to find a frictionless way to strike a balance between the two business models. Yes, the D2C business model holds promise but it restricts small businesses. Let’s find a way to build a balance between both traditional and direct-to-consumer models with brands like Vinculum. Reshape your brand today!
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