We are sure that you started to use online stores like Amazon more often to meet your basic needs during the COVID-19 period. Well, are you aware that you are actually using a middleman and paying more for the products you buy? However, if you prefer a vendor using the Direct to Consumer (DTC) business model, you could get a better quality service and buy the same product for less.
The Direct to Consumer model is preferred by more businesses day by day and offers many advantages for both the manufacturer and the end-user. Below, we explain this business model in detail and list both its advantages and disadvantages.
What is the DTC Business Model?
We can divide all businesses, whether physical or online, into two basic categories: those who sell directly to the end-user and those who have to use an intermediary. Online casino game developers are one of the best examples of the second category. The games you play on casino sites such as Vulkan Vegas are actually developed by different studios. However, these studios cannot offer their games directly to players – they have to sign a contract with a casino operator and use its website. In this example, the casino operator becomes the middleman between developers and players. The same goes for global sales platforms like Amazon: Amazon does not produce the vast majority of products sold on Amazon. This company is simply acting as a middleman and charging a fee in return. This fee, as can be expected, causes the product price to increase too.
In the Direct to Consumer model, the manufacturer makes its sales directly through its own website. It can add a page to the company’s website or set up a different sales site only. Whatever it prefers, the manufacturer exclusively markets their own products on that website and can reach end-users directly.
In this way, both the companies and end-users can get the following advantages:
- The manufacturer can get fast and precise feedback on their products. In this way, it can understand what changes to make or which products to focus on. In other words, the owner can decide the future of its company together with the end-users and offer a service that perfectly suits the market needs.
- The manufacturer does not have to pay the middleman a commission and can lower the prices. For the same reason, end users can purchase the same product at more affordable prices.
- End-users can reach the manufacturer directly in case of a problem: they don’t have to deal with a mediator.
The DTC business model is generally more advantageous than the wholesale model, but it also has some problems. Unfortunately, many of these problems are due to the DTC model’s nature, meaning they don’t have any real solutions. In this context, we can list the problems of the DTC model as follows:
- The end-user is limited in terms of product variety. Even for the basic needs, they have to visit different websites and place many orders. Whereas the wholesale model allows them to find everything they are looking for in one place.
- Manufacturers are forced to set a separate budget for delivery. The advantage of working with a middleman can take advantage of its delivery network. However, if you work alone, you have to use the standard commercial delivery services, and their prices are never as low as those offered to wholesale sellers.
So, Which One Is Better, the DTC or the Wholesale Model?
Truth be told, both business models have their pros and cons: neither can provide a perfect solution for end-users. However, we may not have to choose between the two shortly, as hybrid business models are becoming more and more preferred. In this new model, wholesale sellers offer more freedom for manufacturers and charge fewer commissions. Likewise, they allow manufacturers to set their own price ranges and not force them to make a discount on certain days. In return, they offer the advantage of using only their own delivery network but do not offer any customer support for customers’ problems. End-users will make the decision and determine the winner of this comparison, as always. However, we think that the hybrid business model will become much more common shortly: End-users will not easily give up the advantage of finding everything they are looking for in one place.