Distinctions of the Three D2C Business Models


Scott Badger

Whether you are a veteran D2C marketer or a newcomer to the industry, choosing your business model is the first decision you make that will lay out the path of your go-to-market strategy.

At the ground level of business planning, you can choose one of three options that will determine the distribution of responsibility and profit over the life cycle of your product.

Each choice represents a specific point on what I refer to as a risk-reward continuum, and each is preferable for specific business objectives, though all have far-reaching implications.

Sometimes the road toward success is one we must travel alone. Being your own D2C marketer is a high-risk, high-reward situation, and many choose it because of their own sales, manufacturing or D2C expertise. Whether you have chosen this path or it has chosen you, owning all aspects of the business can result in a product marketing campaign most closely aligned with your vision with unmatched financial rewards.

Ownership still poses the greatest capital risk, and lack of funding can decrease opportunities for even the best products. In an industry in which a high percentage of product marketing campaigns fail, being your own marketer requires strategic leadership skills and intuition, financial support from the outset, manufacturing and supply chain management experience, and the ability to negotiate your own deals and manage your service providers. Even if this is your route, take time to validate your plan with an experienced D2C marketer.

License Out
On the lower end of the risk-reward continuum, a direct marketing company attains a license for your product and takes over all aspects of marketing, selling and distributing your product within a defined channel, multiple channels and/or a geographic territory. These experienced marketers are chosen because of their high success rates, available capital, infrastructure, and ability to push a successful campaign into a worldwide product launch. In exchange for the rights to your product and intellectual property, the licensee typically pays out a small percentage of the revenue generated from the sale of the product in the form of a royalty. No–to-low sales mean no-to-low royalties, so you must be comfortable with the realities of locking up your IP with no guarantee for positive cash flow. The upside? Marketers typically avoid any upfront, at-risk capital to launch and scale what could become the next Snuggie®-sized success.

Licensees come in all shapes and sizes and are ideal for those who have a great product but don’t have the direct marketing experience or access to marketing or capital. As a product owner your product should have distinct benefits and a unique selling proposition with legally defensible marketing claims, and intellectual property protection. Once you have tested your product and secured IP protection, the next step is seeking out a reputable direct marketing company that specializes in building high-performance campaigns and has documented success in your product category.

Partner with a Full Service Experienced Firm
Partnering is often best for those product owners who have moved beyond the initial stages of ideation and planning but need further funding, guidance or assistance. For those not desiring to staff up but seeking the unique knowledge of industry veterans with proven experience, partnering with a full service consulting firm or its equivalent is a sensible choice for its added balance of risk and potential profitability.

At the root level, full service firms can help you build a D2C roadmap. For those product owners and marketers past the starting gate, these firms can “sanity check” the path you’ve set out for yourself to ensure it is headed toward a profitable end.

Product is of course still the driving force behind success in the D2C industry, but choosing the wrong business model can cause even a revolutionary product concept to fail to grow, or worse, leave you empty-handed. Each business model has its share of risks and rewards, but a thorough review of expectations, strengths and weaknesses will help illuminate the path you need to take.