D2C fulfillment has made leaps and bounds over the past few years, with the lockdown restrictions of the COVID-19 pandemic now plotting a course for a revolution within the ecommerce sector. In 2021, D2C sales are forecast to hit $21.25 billion – an increase of nearly 20% on last year.
With this space set to go nowhere but up, now could be a good time for merchants to consider launching their own D2C channels.
But what exactly is D2C fulfillment, and why are so many brands flocking to it?
In this post, we’re going to define D2C fulfillment, as well as the advantages and disadvantages of the D2C model that businesses should consider before jumping into the deep end.
D2C fulfillment (or direct-to-consumer fulfillment) is an ecommerce model where a merchant sells directly to the end consumer via digital channels, rather than using intermediaries in the form of retailers, wholesalers, or distributors to reach their target market.
D2C brands are responsible for managing their own inventory as well as the fulfilling and shipping of orders, which they can either do in-house, via drop shipping or by outsourcing to a 3PL to coordinate the process on their behalf.
While the pandemic has undoubtedly contributed to a surge in D2C growth, this acceleration is the continuation of an existing trend. As the cost of renting physical space goes up, an increased number of brands are choosing to launch digitally to avoid high overheads and reach a wider consumer audience.
Moreover, as consumer preferences shift towards convenience and ease of purchasing, D2C is set to experience the lion’s share of ecommerce growth, with 55% of consumers saying that they prefer to buy from brands directly rather than through other means.
However, it’s important to note that D2C offers challenges as well as opportunities for merchants. Read on to discover the pros and cons that you should be aware of when considering a direct-to-consumer fulfillment strategy for your business.
Pro: Cheaper entry into the marketplace
By eliminating the high and ongoing overheads that come with operating a physical retail location, new and upcoming brands face far lower start-up costs to get their businesses up and running.
In the D2C model, it’s entirely feasible for a brand to start selling and shipping product within just a few hours, due to the ease of setting up an online store using a platform such as BigCommerce or Shopify.
BUT: Difficulty in scaling
While it’s relatively easy to launch a D2C brand, the need for rapid scaling in response to increased order volumes is challenging to manage independently – especially if you start out as an in-house fulfillment operation with limited staff.
This is a particularly salient issue in the ecommerce sector, where valuable growth opportunities can appear virtually out of nowhere (as COVID-19 can attest to). It’s crucial to be able to strike when the iron is hot – something which is difficult to achieve without a nimble fulfillment operation that can meet sudden peaks in demand.
Pro: Higher profit margins
One of the most attractive elements of the D2C model for merchants is the ability to cut out the middlemen. Wholesalers, retailers, and online marketplaces can end up taking a substantial slice of the cake – which means fewer profits for your business.
By operating a fully centralized system for selling and distributing products, this allows your business to maximize revenue and invest more in your marketing and sales strategies.
BUT: Complex internal management
While having direct control over your operation is a positive from the standpoint of consistent customer experiences, it’s also a major responsibility – precisely because the buck stops with you.
At the end of the day, running a D2C brand is far more than just getting goods from A to B. It’s also about managing relationships with suppliers, inventory levels, payment portals, and meeting customer service needs (and far more besides!)
Managing all of these moving pieces effectively requires a strong organizational structure and internal expertise that might not be cost-effective for many D2Cs – meaning that your profit margins are likely to take a hit as you grow.
Pro: Direct control over your brand presence
As a D2C business that is in charge of distributing your products via your own channels, you get full control over the dialogue that your brand is having with customers. This level of transparency enables you to curate a consistent brand identity across the entire customer journey, from browsing your website to the moment of delivery, further promoting familiarity and trust in your offerings.
Whether it’s via your social media DMs, live chat, or email confirmation of order and delivery, these direct communication methods give you much closer proximity to your customers than the traditional supply chain approach typically allows for. This gives you access to valuable insights on what customers want most from your brand – and the flexibility to act on them quickly.
BUT: Increased competition
There is a natural and obvious side-effect of D2C’s lower barriers to entry – more and more brands are doing it.
As the marketplace grows more saturated, it becomes more difficult for your business to stand out from the crowd – especially for branded merchants whose products can be bought from multiple vendors across the web.
When your product range no longer provides a unique selling point, having a distinct brand identity and value proposition becomes essential to build a loyal customer base. And with customer acquisition costs rising as a result of an overheated marketplace, there’s always going to be winners – and losers.
By partnering with a nationwide omnichannel provider like PLG, you’ll gain all the advantages of D2C fulfillment in addition to advanced support for navigating those trickier areas we’ve mentioned. Our dedicated ecommerce platform Whiplash offers real-time inventory management and seamless integrations with all major ecommerce platforms give your business unparalleled insight into your operation for the best end-to-end customer experience.