The retail and e-commerce market has been turned upside down. The reason? Vertical commerce. This form of business involves brands selling directly to customers online. This eliminates the need for retailers, distributors and wholesalers, and the brand itself takes responsibility for the production, distribution and sale of the goods. Why does this business model work so well?
To know why D2C is so popular, we need to take a closer look at these consumers. A growing percentage of consumers were born into an era when internet and technology occupy a central place in daily life, the so-called Generation Z.
Generation Z (and X) grew up with high expectations of a buying experience. This high standard is due to the rise of e-commerce. Traditional retail sales are therefore less popular than vertical commerce with Gen-Z, because they cannot meet expectations.
Because Generation Z has a high standard when it comes to a buying experience, someone from this generation will also switch brands easily. However, according to research (Hackernoon, 2019), a customer turnover reduction of 5% can make a company 25% to 125 % more profitable. A authentic and personal brand can therefore be decisive for the future and success of a brand.
The following observation should be an eye-opener for traditional retailers: Emotionally connected customers bring in four times as much value as customers who shop based on price and convenience. At the moment, retailers and e-commerce companies are not responding sufficiently to this, which means there is a lot of growth for D2C companies in the near future.
More profit margin
An additional advantage of D2C companies is that they have a much higher margin, on average twice as much as traditional retailers (Balderton Capital). This is due to the fact that they sell directly to the consumer, without the intervention of other parties who reduce their profit margin.
On top of that, you can gather much more information about customers when you use direct sales. This, in turn, is a much better way to encourage repeat purchases.
Are there no disadvantages to D2C compared to retail? Yes, there are. Logistics costs can be very high in a D2C model. So there must be serious volumes to really benefit from a D2C business model.
For a look around our office: check our Instagram!