When it comes to selling products to consumers, there are many different strategies a business can utilize to be successful. Two popular sales strategies used in the marketplace today are the Direct-to-Consumer (DTC) business model and the Private Label business model. Both have pros and cons, similarities and differences, and can be used alone or simultaneously to ensure the success of businesses in the marketplace.
In this article, we will discuss:
- What is Direct-to-Consumer?
- What is Private Label?
- What are the similarities and differences between Direct-to-Consumer vs. Private Labeling?
What is Direct to Consumer?
The direct-to-consumer (DTC) sales model occurs when brands sell their products to consumers without other companies in between. Instead of using “middlemen” (distributors, retail stores, or other channels), DTC businesses primarily use their own website, social media, or physical storefront as a means of selling their products.
By cutting out the middleman, the Direct-to-Consumer model ultimately gives the DTC business the following benefits:
- Control over information – Full control over Customer Retention Management (CRM), sales, and customer support data. This control allows Direct-to-Consumer businesses to make better-informed decisions about business and marketing strategies going forward.
- Items are cheaper and can go faster to market – Direct-to-Consumer brands can release products targeted to a niche audience on a smaller scale and smaller budget. Because no other companies are demanding a piece of the action, it doesn’t have to trickle through market channels and can immediately go out to the customer.
- Product personalization – Direct-to-Consumer business models allow for more customization or personalization of products. You control the supply chain, which results in items that truly attract customers by appealing to them.
- Higher profit margins – Direct-to-Consumer businesses experience higher profit margins due to their ability to control their own pricing. Since DTC businesses do not have to compete with other brands at the point of purchase, they are free to set their own (often higher) price points.
Adding to the flexibility and popularity of the Direct-to-Consumer model are the multiple ways for brands to connect with their ideal buyer without relying on traditional retailers. Here are a few examples:
- Shipping directly to consumers
- Pop-up business model
- Partnering with select retailers
- Flagship storefront openings
- Monthly subscription deliveries
What is Private Label?
In the private label sales model, products are typically only available at a specific retailer or eCommerce site rather than being sold at any store willing to sell them.
Contrary to popular belief, medium- or small-sized businesses are not the only ones to find the private label market model attractive. In fact, big companies like Amazon, Walmart, and Target are also hopping on the private label products bandwagon. These big-name stores sell their own private label, branded products next to the other national brands they carry, and see significant returns on their investment.
Private label retailers operate similarly to store brands or house brands because they’re often priced lower than national brands. This lower pricing makes them more appealing to customers looking for both value and quality. However, this isn’t always the case in today’s marketplace. Private label brands from well-known names like Amazon often generate customer loyalty, even if they come with a higher price point.
These big-name private label brands also benefit from the shoppers they can innately attract. And, since they control product placement in their own marketplace or store, they can quickly introduce customers to their private label goods by putting them right in front of the shopper.
Big platforms can accomplish this brand awareness using strategically placed banner ads, product suggestions, and/or special offers. Using their own platforms in this way saves them money on ad spend and creates easier name recognition.
Direct to Consumer vs. Private Label: How Are They Similar and Different?
Both Direct-to-Consumer and Private Label business strategies aim to sell their own branded products directly to consumers. The critical differences between the two are the methods of distribution and marketing. While all DTC brands are private labels, not all private labels are DTCs. Many private label brands only sell on one or more marketplaces and rely on popular channels such as Amazon to generate demand for their products. These private labels don’t do a lot of marketing outside of the marketplace, as they aren’t looking to grow a traditional brand with a strong social media or overall brand experience like a DTC brand would, they are just looking to utilize their placement in the marketplace to sell their own private label products. Since they own the brand, they will get 100% of the buy box sales.
While many DTC brands also sell on marketplaces such as Amazon, they are also looking to build more of a traditional brand presence and experience through social media, their own website, brick and mortar stores, and more.
A Direct-to-Consumer brand puts their products directly into the hands of their customers, without a middleman or third party. This approach can require a more significant and long-term investment in their online store or physical storefront operations. They may need marketing to increase brand awareness and more energetic sales efforts to meet customers’ expectations. On the plus side, the Direct-to-Consumer model gives businesses freedom from competing brands at the point of sale, resulting in higher profit margins.
Private label brands, including Amazon Basics, have the advantage of a well-established presence. They’re already a trusted brand with a loyal following and can access premium product placement without the premium price tag. The downside is that the private label model often places products alongside competing items that may have a lower price point and/or more recognition in those product categories.
To take advantage of either of these business models, you need cash flow options. If you use Shopify to build your eCommerce store, Payability offers funding options that don’t require credit checks. Based on your sales performance history, we might approve you for an advance on your sales, giving you the liquidity you need to reinvest in inventory or advertising. If you qualify, you can get funding in as little as one business day.
If you sell through marketplaces such as Amazon, Walmart, or Newegg, we’ll work with you too, with capital advances based on future sales and accelerated daily payouts. We know getting cash flow going can be difficult, especially when you’re just getting started or trying to expand. As always, there are no credit checks and you can get funded in just 24 hours.