What is the D2C model? Its pros and cons
Before understanding the D2C model let’s first understand the wholesale model.
The wholesale model is when a company sells its products to wholesaler companies who then sell the products at their own price in their stores across the geographical region.
D2C is a model whereby a company sells all of its product products directly to the customer through its online website or its stores.
There are 4 benefits of the D2C model
- Profit Margin
Let's say company X have a cost price of product $80 and sells to a wholesaler company for $100. And then further the wholesaler sells the same product for $120 to the customer. So in this case both the company and the wholesaler are earning a profit of $20 per product.
In the case of the D2C model, the company sells the same product for $110 and earns a profit of $30 for each product.
2. Brand Control and Pricing
During the holiday season, the wholesaler retail stores put discounts on products which attract customers to purchase them.
While the company sells its products through online websites it can maintain a consistent pricing of the products which maintains the premiumness of the brand.
3. Customer Relationship and Data
When a company sells its products to wholesalers the only information the company gets is
Which products were sold?
Which state did the sales happen in?
When the company sells the products through its website the company gets data about customers' preferences, customers ages, genders, locations, interests, professions etc. which helps them to create personalized ads for specific customers.
4. Greater Control over Product and Brand
When the company's products are in the wholesaler retail stores the salesperson doesn’t have enough knowledge of the product.
Get Ribisha Junghare’s stories in your inbox
Join Medium for free to get updates from this writer.
Whereas when the company has its retail store the salesperson knows the product and can explain the details of the products to its customers.
Now you must be wondering D2C model is the best for the company because of its huge profit margin and also having data which helps the company to customize its products, and produce better inventory management and customer segmentation insights for better marketing.
And how on earth this model can have cons.
Well, the truth is the D2C model has some cons and here it is.
- Impact of recession
During the recession time because of high inflation customer tends to buy cheaper products. And obviously in this case customers would choose to go to wholesaler retail stores to buy products.
2. Challenge of inventory and supply chain stocks
As the company opens its retail store it has to open its inventory to store the products.
When it comes to the wholesale model the the wholesaler decides where to keep his inventory stocks in this case the company doesn’t have to fear about stockouts or overstocks of the products.
3. Operational Cost
When the company opens its own retail and inventory stores they have to pay the rent bills.
Only if the company had sold its product to the wholesaler market they wouldn’t have to pay for such hefty rents. They could have saved much more money.
4. Reach problem
Now as the company products are not selling during recession time then the company have to come up with some idea to sell its product.
However, when the company reach out to wholesale markets, they refuse to accept company products because they have already given space to other companies.
So having a middleman i.e. wholesaler is not bad. In uncertain times i.e. recession which we can’t predict the company has to bear huge losses and this middleman can help to prevent losses.
One such example is the company Nike which adopted the D2C model and now they are going in losses. Want to know more about click on the link below
Credits:- https://www.youtube.com/watch?v=G_LdttkVQmI
Thank you! I hope you learned something
