Direct-to-Consumer Business Model for Small Businesses and the Role of Analytics

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A customer shops online from a home computer. Direct-to-consumer business models that businesses use to reach their customers bring in more than $100 billion in e-commerce sales in the United States annually, according to market and consumer data website Statista — and business from this approach is growing rapidly.

In 2020, when the COVID-19 pandemic drove most sales online, direct-to-consumer e-commerce rose to more than $111 billion, Statista reports, compared to around $77 billion in 2019. By 2023, direct-to-consumer e-commerce is projected to rise to nearly $175 billion.

The direct-to-consumer business model, also known as D2C or DTC, eliminates intermediaries such as wholesalers and retailers. Direct-to-consumer businesses go straight to customers to sell their goods and services. The direct-to-consumer model is particularly well-suited for small businesses, including those just getting started, because it requires only the creation of a product and an online presence to build a brand.

While the approach can include physical or digital sales, today’s marketplace for direct-to-consumer businesses is primarily online. Even before the pandemic, in 2019, the Interactive Advertising Bureau (IAB) heralded the “digital brand economy.”

The primarily digital focus of this business model enables businesses to easily gather data from customers while interacting with them directly. This data can provide valuable insight that small businesses can use to enhance products and personalize marketing.

What Is the Direct-to-Consumer Business Model?

Although it has drawn new attention as online-only companies have emerged in the 21st century, the direct-to-consumer model of business has its roots in 18th-century home milk delivery. Then, as now, the goal of the business model was to avoid the costs of middlemen, such as those providing transportation, by selling and delivering goods and services straight to the consumer. The model lowered prices for consumers and increased profits for farmers and manufacturers.

By working directly with consumers, businesses also found they could form personal relationships with customers that fueled loyalty — often even if the price consumers paid was no lower than what other types of businesses charged.

Key Characteristics of the Direct-to-Consumer Business Model

Today’s direct-to-consumer companies have built on the foundation of this early model, taking advantage of emerging digital technologies to build self-sufficient businesses. These technologies make it even easier to cut out the middleman, simplifying marketing strategies for small businesses and allowing them to market and ship their goods and services directly to customers.

Direct-to-consumer start-ups like Warby Parker eyewear and Harry’s shaving supplies, for example, operate exclusively online. Following this business model, even new ventures and small organizations can seamlessly connect with customers and fulfill orders, while also taking advantage of marketing strategies that broaden their audience. Harry’s, for example, started in 2013 by selling only one type of razor directly to consumers — and in 2019 sold its business for $1.37 billion.

The Role of Data and Analytics in the Direct-to-Consumer Business Model

As the name implies, direct-to-consumer businesses have direct access to data regarding their customers, including their preferences and buying habits. The rise of business analytics and the advancement of various analytics tools has been a boon for direct-to-consumer businesses, allowing them to quickly and easily collect and interpret consumer data.

The insights businesses glean from this analysis can provide a greater understanding of their customer base, allow them to tailor marketing strategies — a key element of business analytics — and streamline operations.

Better Understanding of Customers

Businesses that sell directly to consumers can quickly gather data that is generated by their interactions with customers, whether that’s through sales of certain products or engagement on social media. Through data analysis, businesses can determine customer preferences and interests — and make decisions on products and services accordingly.

Targeted Marketing Strategies

Easy access to consumer data also can inform marketing strategies for small businesses looking for ways to enhance and customize their outreach efforts. Using consumer data, businesses can develop customer profiles and personas that reprsent target demographics. This information can be used to personalize marketing materials and promote brand awareness with high-intent shoppers. Additionally, including data in a customer relationship management (CRM) system can allow for targeted marketing.

More Agile Business Operations

Working autonomously helps direct-to-consumer businesses pivot quickly to address changing consumer demands. They can uncover trends through data analysis and respond swiftly, as opposed to a chain store that must alter factors that take time, such as adjusting shelf space allocation.

Other Benefits of the Direct-to-Consumer Business Model

The direct-to-consumer business model can make it easier for small companies to compete with larger corporations by eliminating the costs associated with working with vendors and allowing for more targeted branding. Among some of the other benefits of the direct-to-consumer business model are:

Independence from Intermediaries

Because they don’t rely on intermediaries such as chain stores to sell their goods, direct-to-consumer businesses can save money. Those savings can yield greater profits for businesses and increased savings for customers.

Greater Control Over Branding

Direct-to-consumer businesses don’t have to rely on intermediaries to promote their product or service. Often, these intermediaries promote a variety of products from numerous clients. Instead, direct-to-consumer companies can focus on how best to build their own brand.

Branding for Small Businesses

Small businesses that use a direct-to-consumer business model can employ a variety of strategies to build their brands. These approaches range from the traditional — like offering outstanding service — to the digital — like creating Search Engine Optimization (SEO)-friendly websites.

Many methods of branding for small businesses are data-driven, using information about consumer attitudes and behaviors to shape and evaluate actions. Some top small-business branding strategies include the following.

Building an SEO-Friendly Website

Creating a business website that’s optimized for traditional, typed searches as well as voice searches is an important first step in creating awareness and promoting a company. Tips for elevating a website’s SEO include:

Providing high-quality content, including blog posts, on trending topics related to the product or service
Compiling data about words and terms that rank highly in online searches related to what the organization is selling
Incorporating those keywords into the website’s content
Evaluating data about how the site’s pages rank in searches and adjusting content accordingly

Posting on Social Media

Another branding strategy for small businesses involves using social media to promote a product or service. Organizations that want to make the most of social media to promote their brand should:

Evaluate which social media platforms its customers use most frequently, from Facebook and Twitter to Pinterest and TikTok
Post content on those channels that is consistent with the company’s brand ethos
Stay active in posting and commenting on social media channels
Include photos, videos and relevant hashtags to attract attention to posts
Offer rewards for people who follow the business on social media
Monitor social media mentions to evaluate the success of campaigns and develop future plans

Businesses can automate functions related to posting to social media as well as monitoring activity and collecting data. Some popular tools for automating these processes include:

Hootsuite
Semrush Social Media Toolkit
Social Pilot
Sprout Social
Tweetdeck

Using Online Reviews

Requesting online reviews from customers is an important part of branding for small businesses, providing a valuable data point that businesses can use to assess their standing in the market. A 2022 report from marketing tools website BrightLocal shows that 77% of consumers always or regularly read online reviews when researching businesses.

Additionally, the report shows that 75% of consumers feel positive about a business if they see a written review that describes a positive experience with it. These reviews are critical to improving SEO rankings as well as to establishing the seller ratings that some advertisers allow businesses to include in paid ads.

Small businesses also should respond to customer reviews. Of the consumers BrightLocal surveyed, 89% reported they are highly or fairly likely to buy from businesses that respond to all reviews.

Offering a Referral Program

A small business can attract new customers by establishing a referral program, offering rewards to those who recommend the company. This strategy can be especially beneficial for new businesses still working to establish a reputation.

Telling the Brand Story

Sharing the story behind a small business’s development can help elevate its presence in the marketplace. Including an extensive section about the company’s background on its website adds authenticity and makes the brand more memorable.

Establishing Subject Expertise

A business can draw attention to its work by establishing its leaders as experts on topics related to its products and services. Channels such as blog posts, media interviews and podcasts can help a company showcase its knowledge.

Providing Outstanding Customer Service

Improving customers’ experience in working with a company can yield repeat business as well as referrals to potential new buyers who may make a purchase. Small businesses also can solicit feedback and gauge customer satisfaction to inform decisions about products and services.

Social Media Marketing Strategies for Small Businesses

An often crucial component of a direct-to-consumer business model, social media presents small businesses with a number of marketing opportunities, many available at little or no cost to the company. By implementing social media marketing strategies, small businesses can directly connect with potential customers and build relationships with them.

The connections businesses make with customers through social media can provide a wealth of valuable data that they can use to inform business strategy and decision-making.

Additionally, social media is an important source of information for many would-be customers about where to buy. The Global State of Digital 2022, a report from Hootsuite, shows that more than 44% of internet users rely on social media to research brands.

Developing a Social Media Plan

Once a business is familiar with the basics of using social media in marketing and is ready to post to channels regularly, it makes sense to develop a plan. Companies should start their planning by establishing goals for their social media activity. They also should determine which metrics to track to gauge their success, such as the number of new customers or social media connections that yield sales.

Businesses should research their competition to determine what’s working — and not working — and take inspiration from their favorite brands.

Planning also should include the development of a social media calendar to help ensure posts appear at the appropriate times. Hootsuite recommends that 80% of posts should include information that is informational or entertaining and 20% of posts should contain sales and promotional content.

Implementing a Social Media Plan

Social media marketing strategies for small businesses should include some best practices that can increase user interest and engagement. Those activities include:

Conducting live video sessions that provide a closer look at the business and connect customers with employees
Incorporating user-generated content, such as photos or videos that offer positive comments about the business, and encouraging users to share or comment on them
Engaging micro-influencers (those with between 1,000 and 100,000 followers) to build on the deep relationships they have with their followers
Participating in social media communities, such as relevant Facebook and LinkedIn groups, to stay up to date on topics of interest to potential customers
Taking a stand on social issues that reflect the ethics and ideals of the brand and its community
Purchasing paid ads on social media to ensure the business is reaching the right customers

Email Marketing for Small Businesses

Email is another way that small businesses can connect with customers to build credibility and increase sales. Sending emails to specific audiences is a cost-effective marketing tool. A 2021 report from email marketing solutions provider Litmus showed that every $1 spent on email marketing yields $36 in return.

Benefits of Email Marketing

The benefits of email marketing for small businesses center on its reasonable cost as well as the targeted connections that are so valuable in the direct-to-consumer business model. Following are some reasons why small businesses should include emails in their marketing.

Receiving a high return on investment (ROI) — 3,600%, according to the 2021 Litmus report
Targeting specific segments of a business’ audience, an important benefit considering a 2021 McKinsey & Co. report showed that 71% of consumers expect personalized interactions
Achieving marketing goals easily and inexpensively, with automation making distribution simple and costs coming in at less than paid advertising
Providing direct contact with customers to offer a variety of information as well as links to other opportunities to connect, including social media
Building a readily available list of subscribers whose information remains accessible regardless of external factors such as a social media site shutdown

Techniques for Email Marketing

Effective email marketing for small businesses generally starts with the use of software to automate the distribution process. From building contact lists to writing eye-catching content, a variety of steps comprise the email marketing process. Those steps include:

Using Email Marketing Software

As businesses build their email lists, automating the process of building and distributing emails becomes increasingly important. A variety of tools can help companies perform functions such as:

Adding email subscribers
Creating email templates
Sending automated responses
Collecting email data for analysis, such as clicks on email links or actions that recipients took as a result of reading the email

Some popular tools for automating email marketing functions include:

Campaign Monitor
Constant Contact
Emma
Marketo
Mailchimp
Sendinblue

Building Email Lists

Companies can take a variety of steps to collect email addresses from current and potential customers. Among the ways that businesses can build email lists are:

Creating content, such as reports or e-books, that visitors to the business’ website can download by providing their email addresses
Offering opportunities on the company’s website for visitors to subscribe to receive emails
Including email sign-up links in other marketing tools, including social media

Focusing Email Campaigns

To achieve the personalization many customers desire, as McKinsey & Co. reports, businesses should segment their email distribution lists. To categorize email lists for sending customized emails, businesses may consider the following consumer factors:

Behavior, such as which benefits a customer is seeking or how frequently they use a product
Demographics, such as age or gender
Geography, such as region or country
Psychographics, such as lifestyle or interest

Writing Engaging Content

Email content that draws in recipients is critical, particularly when it comes to writing subject lines. Customer data solutions provider SuperOffice reported in 2021 that 33% of email recipients open messages based on the subject line. A few ways to engage readers through subject lines and in preview text that can appear in email inboxes are:

Keeping the subject line short so all of it appears on-screen
Avoiding sales-focused terms and phrases, such as “buy now” or “free,” which email systems often regard as spam
Asking open-ended questions to encourage reader interaction

Maintaining Distribution Schedules

Small businesses can meet the expectations of email subscribers by maintaining a regular distribution schedule. Keeping a calendar of emails can help a company stay on track with consistently sending emails. Evaluating email data can help businesses determine the best days and times to send messages to their subscribers.

Advertising for Small Businesses

Technology has created opportunities for advertising for small businesses that allow these smaller organizations, including those using the direct-to-consumer business model, to compete with larger companies in audience reach. Traditional advertising — in outlets such as newspapers and billboards — still is an option. But for many small businesses, digital advertising offers the greatest impact for their ad budget.

After all, in April 2022, there were 5 billion internet users around the world, representing 63% of the global population, according to Statista. A 2022 report from marketing consultancy Kepios shows that internet access has more than doubled in the last 10 years, and people aged 16 to 64 spend an average of just under seven hours each day online.

Additionally, online advertising offers opportunities to collect data that can inform future advertising efforts and other marketing strategies. A business could measure the number of users that click on a website’s ad and take the action that ad is promoting, for example.

Types of Online Advertising

From business websites to social media platforms, the options for placing online advertising for small businesses abound. Among the types of online advertising are:

Native advertising — Useful information for visitors to a business’s website, like that offered on a company’s blog
Display advertising — Images and videos posted to a website
Search Engine Marketing (SEM) — Advertising that features a title, description and call-to-action that appears when online users search for relevant keywords
Social media advertising — Paid advertisements on social media platforms
Mobile advertising — Online advertising with a design that is compatible for display on mobile devices such as phones or tablets

Trends in Digital Advertising

Small businesses that are devising strategies for advertising should keep some key trends in mind regarding online usage and advertising performance. The following are some ways in which internet advertising is shifting.

Value of Audio Content

The emergence of audio media, such as podcasts, is providing new opportunities for businesses to present helpful information and to purchase advertising. A report from Edison Research shows that 80 million Americans aged 12 and older were weekly podcast listeners in 2021. Nielsen reported in 2022 that podcast ads increased brand awareness by 14%.

Use of Social Media Ads

The prevalence of consumers using social media to research brands, as reported by Hootsuite, shows the value of advertising on one or more of these platforms. The percentage of social media users who made purchases through these platforms in 2021 is further evidence of the importance of social media advertising. Among 18- to 24-year-olds, for example, 55% made at least one purchase through social media, Statista reports.

Importance of Local SEO

Forbes reported in 2021 that in-person shopping is poised for a comeback following COVID-19 slumps. Small businesses, particularly those with brick-and-mortar locations, should pay special attention to local SEO, or searches optimized for local online search users.

Prevalence of Mobile Apps

Consumers are increasingly comfortable with using mobile apps, with 230 billion app downloads reported in 2021, according to Statista. Mobile apps provide businesses with several benefits, including a portal that can serve as a one-stop shop for customers and a method for improving brand recognition. Because of these and other advantages, mobile apps can be a smart choice for promoting products and services. Businesses can increase the value of apps by including in-app ads and purchases.

Rise of Short Videos

The prominence of social media platforms that feature short videos — including TikTok, YouTube Shorts and Instagram Reels — is pushing online users’ preference for videos that are no longer than 60 seconds. Animoto, the video service provider, reported in 2020 that 60% of online viewers were reluctant to watch a video they considered to be too long.

Putting Small Business in the Direct-to-Consumer Mix

The direct-to-consumer business model is a perfect fit for small businesses, thanks to its simplicity and its opportunities for customer connections and cost savings. The ease of gathering data from consumers also makes this model a wise choice for small businesses that are looking to analyze customer behavior to help grow their companies.

The online Master of Science in Business Analytics program at the University of Nevada, Reno can help aspiring small business entrepreneurs gain a better understanding of how analytics can inform business decisions and help fuel success.