The D2C business model is gaining momentum at a great pace. By eliminating middlemen, D2C brands offer unique products and personalized experiences directly to consumers. The D2C sales sector has grown exponentially, with companies like Warby Parker, Dollar Shave Club, and Casper leading the charge. The US D2C e-commerce market alone exceeded $128 billion in sales in 2021. The Indian D2C market is projected to surpass USD 60 billion by 2027, growing at a CAGR of 40%.
What is the D2C Business Model?
D2C, or Direct-to-Customer business model allows brands to sell their products directly to the customers without having any middlemen involved. For example, Away, a famous D2C brand, sells suitcases, bags, and accessories. Their high quality products and effective D2C marketing strategies have made them a well known name in the industry.
The D2C business model has transformed the retail industry by allowing brands to sell their products directly to customers. Several factors have contributed to this shift, primarily technological advancements (modern CRMs, e-Commerce platforms, digital marketing etc.) that help D2C brands establish a direct connection with their customers.
The D2C model provides businesses with unprecedented control over their product offerings, marketing strategies, customer experiences, and promotions. By reducing or even eliminating the need for intermediaries, D2C brands incur significantly lower costs associated with wholesale markups, which helps increase their profit margins.
Additionally, a direct connection with their customer base enables these brands to better understand their audience's needs, enhancing customer satisfaction and increasing various selling opportunities.
What Role do Discounts Play in the D2C Market?
Discounts can profoundly impact sales in the D2C domain. They have the power to influence purchasing criteria and enhance the brand's user base.
D2C discount strategies can propel businesses to new heights and simultaneously give customers a chance to explore the brand's various offerings.
Let's understand some of the popular D2C discount techniques:
Percentage Discounts
The most commonly used discounts, percentage discounts, allow customers to buy a particular product with a price reduction of a certain percentage. For example, the skin and makeup brand Bobbi Brown’s website pops up with a 10% discount offer as soon as you land on the website. This is a great way to attract first-time customers.
Brands can also use percentage discounts during festivals, anniversary celebrations, and other special occasions.
BOGO: Buy One, Get One FREE!
This strategy allows customers to grab a free product when they buy another at a regular price. For instance, a clothing brand can offer a free scarf when a customer buys a pullover.
Offers like this attract customers, and BOGO often leads to a high number of sales.
Flash Sales
As the name suggests, flash sales last for a limited time. During this window, customers can buy products at a great deal. It is also a great technique for clearing out extra stock. Let’s take the example of a packaged food brand, having some extra stock. They can organize a 24-hour flash sale where customers can buy the items at a 50% discount for a limited time period.
This usually proves to be a win-win situation for both customers and the brand.
Volume Discounts
When a customer buys something in bulk, he/she gets it at a reduced price. One popular example is that of Warby Parker who offer 15% off when you buy two (or more!) pairs of prescription eyeglasses or sunglasses
Seasonal Discounts
Brands usually run sales around specific seasons (winter sale/end-of-summer sale) or holidays (Diwali mega sale). These discounts can significantly boost sales. In 2023, during Cyber Monday, Glossier offered 25% off site-wide. This allowed their customers to buy their favorite skincare and makeup products at a relatively lower price.
Subscription Discounts
The membership-based discount model, also known as subscription discount, offers a great proposition to both customers and brands. Customers need to be members or subscribe to some packs for a certain time period, and in return they get products at a cost-effective price. This allows brands to secure stable revenue streams. This discount strategy is also excellent for building customer loyalty.
For instance, HelloFresh offers 10 free meals and free apps for life to new customers.
First-Time Buyer Discounts
Offering discounts to first-time buyers is an excellent way to attract new customers and encourage potential customers to make their first purchase. Below is an example of how Blume offers a welcome discount on a customer’s first purchase.
Bundling Discounts
Bundling involves offering several products at a lower price than if purchased separately. This is a great strategy for selling less popular products along with the best sellers.
Take the example of beauty retailer Sephora. They offer a variety of beauty products in packages that not only increases their sales but also gives customers ample discounts.
Slashed Pricing Discounts
Strikethrough pricing, also known as slashed pricing, involves prominently displaying the original price of a product alongside its discounted cost. This visual cue works effectively attracting customers to make their purchase. The idea of purchasing something at a price lower than its original price makes customers feel special.
Let’s take a look at True Classic. It offers slashed pricing discounts from time to time, making it easier for customers to make a purchase.
Benefits and Challenges of D2C Discount Strategies
As a brand, you should consider using discount strategies in your broader marketing plan. These discounts help attract new customers, retain existing clients, and boost overall sales. You should also use a mix of various discount techniques. For example, offering seasonal discounts during festivals like Diwali and Christmas can be effective. At the same time, you can use first-time buyer discounts to attract potential customers.
However, you should be careful while using them. Regular discounts can narrow profit margins. Also, if a brand consistently offers discounts, customers might hold off on purchases during regular periods and wait for sales.
Therefore, it is necessary to maintain a balance to effectively use discount strategies.
Final Words
Thus, to build a successful brand, it is crucial to implement discount strategies. Successful D2C brands have effectively leveraged discount strategies to grow. Some examples are:
Warby Parker revolutionized eyewear by offering a Home Try-On program, allowing customers to try five pairs of glasses for free. This risk-free approach, combined with a referral program that provides discounts to both referrer and referee, helped build trust and drive growth. Their innovative strategy simplified online eyewear purchases and boosted customer satisfaction.
Casper disrupted the mattress industry with a 100-night risk-free trial and free returns, reducing online purchasing hesitation. Seasonal sales and a referral program, offering discounts for both referrer and new customer, further enhanced their appeal.
Therefore, start by selecting two to three discount strategies that best align with your overall marketing strategy. Implement them and evaluate the results. Then, repeat or change the discounting strategies.
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