Direct to Consumer Brands Guide

27 Aug, 2020

In eCommerce, there are so many ways for sellers to achieve success. You have drop shipping, arbitrage, and even private white label selling. Most eCommerce store owners have even shifted to direct to consumer brands. 

We’ll explain in detail what direct to consumer is shortly. What we’ve noticed in recent years, there are major retailers and brands that have tested the waters with DTC. What if there were direct to consumer brands that have followed the Amazon business model? 

Considering that a lot of fingers are being pointed at Amazon for the cause of many businesses on Main Street coming and going, there are some businesses that are seeing an opportunity that not everyone else is seeing? As the old saying goes “follow the money”. Even some big-name brands are surviving because they are adapting to the times. 

Unfortunately, there are some stores both big and small that fail to adapt and soon crumble. Are there DTC brands that can succeed by adopting an Amazon-style business model? That will depend on many factors. For now, IO Scout will explain what DTC is and discuss why it’s important for businesses. 

What is Direct to Consumer (DTC)? 

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The name is self-explanatory. You are selling items to the consumer who buys them. This can be done through their website or their physical retail location. 

Here’s something you might be surprised about: you won’t find DTC brands being sold in major retail stores (i.e -- Walmart). And you won’t see them on online retail sites like Amazon either. If there is one thing that both Walmart and Amazon have in common: it’s they don’t do DTC. 

To give you an example, let’s say you have a business that sells handcrafted goods. It’s in your brand to make custom, personalized handcrafted items. And you only sell them via your website. 

Does it have to be sold online? Not always. You can have a physical retail location or both. 

What is Direct to Consumer model?

The direct to consumer model doesn’t include any middleman. There is no other supplier other than the brand itself. So if you are a DTC brand, you’re the one supplying or manufacturing the items. And you sell the items themselves. 

It’s all done with your own personal branding. You don’t need to work with different suppliers or any kind of third party company when it comes to production and the like. They sell their goods exclusively through their store and do not sell anywhere else (online or offline). 

The key here is exclusivity. You can exclusively purchase a product online or through their store. There is no other place BUT their website or retail location. 

While Amazon is technically not a DTC business, they do have items that they sell using their own brand name (i.e. -- Amazon Fire Stick, etc.). Wal-Mart has the Great Value and Equate brands that are exclusive to their stores, but it’s not DTC. Get the idea?

Is Amazon direct to consumer? 

As mentioned before, Amazon is not direct to consumer. Despite selling some of their items under their own Amazon name, they still sell plenty of items under so many different brand names. Of course, there are sellers who purchase different kinds of items via arbitrage or FBA. 

Therefore, Amazon is not a pure DTC brand. That’s because it’s a superstore that sells almost every consumer brand under the sun. Furthermore, there are other things that “disqualifies” Amazon from being considered a DTC brand. 

For example, there are plenty of suppliers that will fulfill the Amazon orders. Not to mention, there are suppliers around the world from arbitrage sellers to Alibaba suppliers that will ship items to Amazon fulfillment centers. Amazon doesn’t manufacture almost all of the items that they sell through their site. 

We can say the same about major retailers that are not DTC. However, large brands like Nike can be considered DTC brands. However, they do sell their items in stores other than their own outlet stores.

How Many Direct to Consumer Brands are There?

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As of today, there are more than 400 direct to consumer brands in the United States. While the number seems a bit paltry, you can expect it to grow over the next few years. Compared to a couple of years ago, the sales between D2C brands and their customers have doubled. 

Considering the stats, the jury is still out about whether or not there are more consumers that will find a go-to D2C brand. But it is feasible that a D2C brand can survive even today. What it comes down to is your coverage area and the customers you serve.

Thanks to the power of the Internet, you can open your store to shoppers across the country and the entire world. If you opt to operate your store exclusively online, then you may have plenty of customers who can stumble upon your site and purchase what you’re selling. The hard part would be the digital marketing end of the business. 

While digital advertising is considerably cheaper than traditional means, you may need to spend a lot more money if you want a large number of people to see your ad. The good thing about digital ads is that you can set the demographics and other sales behavior to laser focus it on buyers that are your ideal audience (hence increasing your chances at more sales). And you can set the ads to where a specific geographical location can see it. 

If you are a D2C brand that decides to open up a physical retail spot, then your customer base may be limited to your local area (unless you decide to incorporate an online model along with it). The important thing to note is that if you want to survive as a D2C brand, you’ll want to make sure that you’re selling products that no one can find anywhere else but Amazon (assuming you go that route). Once again, the key to D2C success is exclusivity.

Why direct selling is important?

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Direct selling is important due to the following reasons: 

  • Exclusivity: As mentioned before, you’re only getting the product you’re receiving from only one place. Plus, it can be exclusive to one part of the world. As in you can’t find it anywhere else but that geographical location. If it’s an item sold online, it’s the only website to buy it from
  • Low start-up costs: As D2C brand, startup costs will be low. Not to mention, you’ll be starting out with a small inventory that only you can manufacture and supply. The good news is you won’t be making any vendor deals at all. So you spend less money on the essential items like what you use to manufacture the items and anything you need to process the sales. 

For processing sales, it can be as simple as investing in a card processing software like Square. You can connect it to your POS system or use a mobile device (assuming you’re starting out). Payment processing is easier than ever before. 

If you are doing online sales, you can possibly set it all up and not have to spend anything more than $100. It can be a basic Shopify website and a PayPal account. You can make upgrades and purchase Shopify add-ons as you grow. 

  • Repeat customers: There is nothing more exciting than repeat customers. Especially when you have a product that they can use over and over again. And your store is the only place to get it. 

If you have a product that is renewable, you will definitely get the upper hand by offering it to interested customers. And they’ll pay you handsomely for it every week, month, year, etc. 

Are there limitations when selling strictly DTC?

The short answer: yes. There are limitations when selling as a DTC brand. Among those limitations, the most major of them all is distribution. 

DTC brands put the items in the hands of the customer. No need for any third-party entities. So the DTC brand will need to handle everything from manufacturing to shipping.

There are other limitations that exist in DTC. These can be due to customers not feeling comfortable with leaving their vital information (like their shipping address, credit card information, etc.). Also, the shipping and return policies can differ from one consumer to another. 

So you may lose some customers because they disagree with such policies. It’s just the nature of the business. There will be those who may not trust you (just yet) compared to Amazon. 

Why would Amazon be more trustworthy compared to a DTC brand just starting out? The keyword: trust. Even though Amazon serves as a middleman, more people trust Amazon more because it’s recognizable and the social proof is through the roof. 

This kind of trust can be really hard to build up over time. But if you are successful in selling the right products, provide excellent customer service, and more then your customers will trust you enough to tell their friends and family. Building that trust can be done. 

Not to mention, Amazon is more than likely the only eCommerce platform customers have ever used. They are comfortable with shopping on Amazon because they’ve done it so many times. They know of Amazon’s protection policies and the like. 

Direct to Consumer Brand Benefits

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If you are selling DTC, you can experience all kinds of benefits. You can even sell your DTC goods via Amazon. You don’t even have to sell on Amazon, to begin with.

For example, here are some benefits you can experience assuming you sell on Amazon as a DTC brand:

  • You can reach customers more effectively: When it comes to US shoppers, you can effectively reach customers as a DTC brand. Most of the time, new product searches are done on Amazon before Google. Sure, you can use Google for everything else. But for products you can buy, Amazon is the go-to place. 
  • Your positive reviews can leverage more sales: As such, positive reviews will give you plenty of trust and social proof. Sure, it may be hard to do at first. But if you really want to be creative, you can suggest your customers to leave a review if they are happy with the product. Reviews can also play a huge role in purchasing items not just online, but brick and mortar stores. 
  • Amazon can play a role in bringing more traffic/sales to your brand: If you leverage Amazon, you may see a good number of sales come from the site. One brand that is DTC states that nearly a third or more of their sales came from Amazon. There are some DTC brands that are making six figures a month because of selling their items exclusively on Amazon. 
  • Cheap advertising costs: As mentioned, digital advertising is easier than traditional advertising. With Amazon, it’s quite cheap. And it will drive plenty of traffic to your product page (or Amazon store). Typically, the traffic you get is mostly paid traffic. But you can generate sales on Amazon thanks to organic traffic because of the amount of trust Amazon receives from their shoppers.

Keys to Consider before Deciding to Sell on Amazon

Before selling on Amazon, it’s important to consider some of the following:

  • Reviews: One of the main driving forces to selling items on Amazon consistently are the reviews. The more positive reviews a product has, the better the chance it can sell over and over again. Most of the time, the quality of the item is mentioned more than all other aspects like the shipping time, packaging, and so on. Keep in mind that negative reviews will often turn other people away from buying your product and may end up buying something from your competitor. Again, that’s the nature of the business. 
  • Seller Feedback: Seller feedback is based on their performance. Unlike reviews, quality doesn’t carry much weight. Responsiveness, shipping, packaging, and customer support are more important. This is where you need to be honest about things. You’ll need to tell the customer the truth about the shipping, packaging, and whatever else they need to be assured of. Don’t make claims that you can’t back up with proof. 

Seller Central vs Vendor Central

We’ll be taking a look now at how Seller Central stacks up against Vendor Central. Both are two separate entities where you can choose between one or the other. However, that is no longer the case since Vendor Central is now “invite-only”.

Here’s how the two stack up against each other:

Seller Central

  • Profit margins are higher: Seller central is the perfect option if you are selling items that are $10 or less. The margins are better and shipping costs are lower. 
  • Improved analytics: You can be able to view your numbers in regards to sales. The problem with Vendor Central is that you don’t get access to a wide variety of analytics and stats.
  • Open to almost everyone: If you are serious about selling on Amazon, then Seller Central is the best option. One of the things you need to make sure of is whether or not you like in an “Amazon-approved” country.

Vendor Central

  • Amazon acts as a distributor: Amazon can act as a distributor for your products. They can actually purchase a bulk number of products and sell them on their site. If you are a seller, then your sales will be more of a one-off thing.
  • Marketing tools: If you are a member of Vendor Central, you can have plenty of marketing tools to work with. You can use plenty of sponsored ads so you get more visibility and more traffic to your product pages. 

What DTC Brands Need to know about Successfully Selling on Amazon

Compared to sellers who have prior approval for selling brand name products, it can hurt them more than help them. But as a DTC brand, you can have a bit more of an advantage. However, there are some things you need to know to keep yourself ahead of the game:

  • Be the first product people see: When people search for a product, you want to position yours as the one people see first. They can choose to give it a closer look or skip over to another product (they may eventually come back and choose your product in the end).
  • Be one of the first few to market: Marketing matters. Embrace the channels that you use, especially Amazon. Market and advertise accordingly (and with consistency). Your success will be assured if you use your marketing chops and adjust accordingly if nothing is working. 
  • Monitor the performance of your product: It’s always a good idea to watch the numbers of how your product is performing over time. In the event if you notice some changes in the traffic, it can be due to one or many factors including competitors selling the same product, being overelaborate with content, or your ranking is slipping. Any number of things can happen.
  • Keep on testing and re-testing: As mentioned before, testing is an important part of success. Whatever is working, don’t be afraid to double down. If there isn’t anything working, make adjustments as much as possible until something helps you achieve that success. 

Final Thoughts

Direct to Consumer brands are likely going to pop up over time. But it won’t be as rapid paced. Some of them will be taking their time on how they can approach the market and what tools they need to use (assuming they are going online). Whether they are going the traditional retail route or online, there is success to be had in the DTC side of commerce (or eCommerce).