Direct-to-consumer

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Direct-to-consumer (DTC) or business-to-consumer (B2C) refers to selling products directly to customers, bypassing any third-party retailers, wholesalers, or any other middlemen.[citation needed] DTC brands are usually sold online only and specialize in a specific product category.[citation needed] Some direct-to-consumer brands have opened a limited number of physical retail spaces in adjunct to their main e-commerce platform in a clicks-and-mortar business model.[citation needed]

History[]

Direct-to-consumer became immensely popular during the dot-com bubble of the late 1990s when it was mainly used to refer to online retailers who sold products and services to consumers through the Internet.[1]

This model dates back to before modern transportation and electricity. People consumed mostly locally due to large geographical distances, which they could overcome either on foot or by horse, but both usually took them days. Therefore, they established relationships with closest goods and service providers and this is how Direct-to-consumer model first looked like.

With farmers as a business, it could be argued they had a small but loyal pool of customers and operated on a small scale. The relationships were tight and healthy, because the switching costs for customers were pretty high, as said, due to geographical barriers and small number of competitors. Furthermore, there was much more space for personalization of business processes as farmers (among others, such as shoe repair master) knew exactly who their customers were and what they wanted.

But as various faster modes of transport emerged and as villages expanded to cities, everything became much more interconnected. Before that, customers didn’t think about buying from businesses from distant foreign villages but later started to think about what pays off more to them, especially if local food/service providers thought their businesses cannot be disrupted by no one else and dropped their guard. Consumers asked themselves whether costs of buying locally are still so much lower then the costs of buying from a foreign farmer with better food. They asked themselves whether it is not worth spending additional resources on transport to get their shoes fixed so that they last long without tearing apart, compared to fixing them every other month at local shoe repair? This is how Direct-to-consumer model eventually became much more dynamic and wider.

As cities continued to spread and as new modes of transport kept emerging (steamboat, first cars, trains …), plus taking into account expansion of road infrastructure and inventions such as electricity and everything that came after it, consumers were able to choose among wide variety of goods and service providers, most of which they could reach with way lower costs than before. Respectively, the relationships between business and consumer changed. They were not based on personal ties between the two, but rather on characteristics of transaction and what it meant to each of the parties (quality and/or convenience of the good/service for customer and profit and/or good word for the business). This means that a citizen who hasn’t had their hair cut in months won’t go to one particular barber just because they know them and want to boost their business, but more because of the quality of the service they provide.

The emergence of the Internet severely disrupted the Direct-to-consumer model. Many different types of goods and services were now not few blocks or kilometers away, but rather few mouse clicks. Additionally, the number of the same product/service providers increased even more, making the differences in their performances narrower. Now, the businesses had to put additional effort to win customers, who had power in their hands and to whom businesses had to adapt even more. Extra effort was needed on the field of marketing (consumer/market analysis, reshaping of 4P’s, etc.), CRM and so forth, to stand out from competition and secure as much sales as needed to keep the business alive, as switching costs for consumers have reached all-time low. This is how Direct-to-consumer model slowly acquired shape that we know today.[citation needed]

Advantages and disadvantages[]

The principal advantage of Direct-to-consumer is its focus on customers, which provides stronger brand loyalty. Good relations with the customers are a necessity in this situation and bring more loyal customers and keep a high retention level.[1] Direct-to-consumer enjoys lower costs compared to physical retail, as it has reduced the number of different business components like employees, purchasing cost, mailing confirmation, renting or establishing a physical store.[2]

This concept sells the products directly to the customers without the need for intermediaries and by that remove third party clients in the middle of the process. More, it made business administration easier, without complicated recording of inventory, shipments or business transactions. It also enables smaller companies to become competitive with successful and large companies as well as grow faster through this model. They can be competitive in terms of price, availability of the products and quality since costs are lower.[3]

The main risks in the online Direct-to-consumer are expanding liability risk, cyber risk and more complex supply chain. Firstly, selling directly to customers exposes a business to risks that are previously or normally bore by distributors such as wholesalers and retailers. For instance, the business has to concern themselves with shipping, labelling, or cybersecurity. The latter is one of the main risks of running a Direct-to-consumer ecommerce firm, due to the sensitivity of handling consumers’ data. Data privacy and security became one of the priorities, especially in online businesses. The main concern is not only higher exposure to security breaches but problems such as selling personal data etc. Finally, conducting e-commerce Direct-to-consumer business increases the complexity of the supply chain itself, which might pose additional difficulties for the firm itself. For example, changing business from B2B to Direct-to-consumer means that instead of selling to only a few distributors you now have to sell the products to many individual customers. This means that the company is now in charge of delivering products to their customers' doorsteps which increases the complexity of the distribution chain and poses additional risks.[citation needed]

See also[]

References[]

  1. ^ a b Business-to-Consumer (Direct-to-consumer), May 20, 2019
  2. ^ Advantages and disadvantages of Direct-to-consumer Study for Business, October 15, 2018
  3. ^ Advantages and disadvantages of Direct-to-consumer Study for Business, October 15, 2018
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