Historically, the route from manufacturer to consumer has been a long one, with products passing through the hands of wholesalers, distributors, and retailers along the way to consumers. Each touchpoint has their own sets of restrictions—and takes cuts of the profit.
But during the pandemic—with supply chains disrupted (a trend set to continue in 2024), quarantines in place, and everything gone wonky—consumption shifted online. Retailers scrambled to scrape together curbside and delivery options. Manufacturers sat biting their nails as they waited for delayed supplies to arrive. There were many instances in which it became easier for manufacturers to just set up an online store and move product directly from production to consumers.
It has become a move driven not just by wider macroeconomic factors and supply chain forecasting, but also by customers themselves. According to Statista, DTC sales rose from just under $77 billion in 2019 to nearly $213 billion in 2023. Customers love their DTC brands.
Post-pandemic, many manufacturers who went DTC have maintained their online stores, while many more are getting into the game. Let’s take a look at the motivations for and benefits of doing so, the challenges that come along with this shift, and how to address them.
Why are businesses turning to direct-to-consumer manufacturing?
In a direct-to-consumer manufacturing model, consumers purchase goods directly from a manufacturer rather than through a wholesaler or retailer. This may come in the form of a subscription or a la carte, from a brand that is dedicated entirely to DTC, or from one that pairs a DTC arm with a more traditional retail model.
The general steadying in the US manufacturing industry has contributed to the rise in DTC manufacturing business models. After decades of decline, industrial manufacturing in the United States outpaced that of the rest of the world in 2022.
Reshoring has become a solid trend among large manufacturers, including Apple, which revealed in January of 2024 that their suppliers have steadily reinvested in relocating production from China to the United States, to the tune of $16 billion shifted. The closer the production hub is to its fulfillment centers and customers, the fewer the go-betweens, and the more consumers and manufacturers alike benefit from DTC models.
What are the benefits of direct-to-consumer manufacturing?
The ability to connect directly with customers is an obvious benefit of DTC manufacturing, but the many ways these benefits manifest are not necessarily so.
Lower costs, lower prices, mitigated risks
Cutting out the go-betweens means price reductions that can be passed on to customers. A more direct line to customers also reduces the cost of starting up a new business or product line.
For established manufacturers who already have a brand and digital presence, standing up a new product line can be as simple as adding a new page to their website, then socializing that new product across the web. For startups, testing out a new product idea with a DTC model corrals the costs into that of standing up a website, with products produced on demand. Big or small, old company or new, this helps mitigate the risk of product launches and market expansions, creating a faster path to market.
Better experiences and higher conversion rates
When manufacturers sell directly to customers, they’re much closer to the customer data generated in the exchange.
Selling directly from their online store, manufacturers have eyes into the entire customer journey, from the marketing channels that brought them in to where they browsed and clicked, what they added to their cart, how long it took them to check out, and when and how they ultimately decided to make the final call on a product.
With owned first-party customer data in hand, manufacturers have deeper insight into how to market their products, what channels to sell on, and even the market appetite for a product itself. This helps them sell with more confidence, garnering customers with higher average order values and longer term value.
Direct customer engagement
Selling today is just as likely to happen on TikTok as it is on the shelves of an in-person retailer. Social selling is a force to be reckoned with, connecting buyers through the brands and influencers they trust directly into the products they need. The DTC model allows manufacturers to be where their customers are, threading the knot between marketing and production.
Total control of your business
From production to marketing and distribution, owning every step of the process means having maximum control. It’s no longer “produce it and hope the retailer believes in the product enough to give it a nice spot on the shelf.”
DTC manufacturers control branding, pricing, and strategy. This lets them more quickly pivot in the face of rapid market shifts, changes in customer demand, the sudden appearance of a new competitor, seasonal trends, and unexpected sociopolitical economic events.
Challenges for manufacturers going DTC
Becoming an expert in everything
Having control over it all also means having to do it all. That can be a challenge, particularly when operating outside of your zones of expertise.
Manufacturers accustomed to co-marketing with their retail partners will need to go it alone. For manufacturing startups, this can be a bit of a trial by fire, and it’s important to get a good internal team or agency partner in place to help with the logistics of a cross-channel marketing operation.
However, having control over the marketing also opens up the ability to lean hard into the brand voice. This is where you see standouts like Dollar Shave Club, which is frequently held up as a marketing case study in voice and persona.
Besides marketing, DTC manufacturers also must become their own distributors, including every step of fulfillment and shipping. Getting this right is essential for ensuring a great customer experience—and the bar is high, with speed, cost, and convenience of delivery being the most crucial. Flexible returns are also important, meaning manufacturers must master the tangle of reverse logistics.
Competition with established brands
Many big box stores—such as Costco with Kirkland Signature, Amazon with Amazon Basics, and Whole Foods with 365—offer their own product lines that undercut other brands in pricing.
Take Kirkland Signature, which generated $50 billion in sales in 2022, offering products that were often 20% cheaper than even other established CPG brands, such as Campbell Soup, Kellogg, and Hershey. When heading into the DTC market, it’s important to research the playing field and carve out a specific niche, such as low-cost versus premium. Know your angle as well as your “why” for getting into DTC.
The need for greater efficiency
As with any kind of reduction in overhead, efficiency is crucial to any successful DTC manufacturing operation. Industrial manufacturing is ripe for optimization, automation, and digital transformation, leaving lots of room for opportunity for those who do. Establishing automated flows, whether in the back office or on the manufacturing floor, is crucial. AI-powered technology, whether in robotics or in automated data capturing and processing, can help. Establishing self-serve processes for marketing and sales can also cut down on time and labor.
Managing separate platforms for B2B and DTC
For manufacturers that sell on separate B2C and B2B ecommerce platforms, workflows are complicated enough as it is. If adding a DTC arm means adding a third platform with a third workflow, these complications only increase as you try to patch together sales and inventory data for all channels.
But this is less of an issue with DTC manufacturing itself, and more with decentralized workflows. One easy solution is to centralize on a single platform—a transformation made possible by shifts in the B2B ecommerce market to align more with B2C in terms of customer demands.
As an increasingly millennial B2B buyer base moves into positions of power, they’re bringing all of their B2C buying expectations with them. In fact, surveys have found that 44% of millennial B2B buyers act as the primary decision-makers in their companies. That means it’s worth it to cater to millennial and Gen Z preferences, such as a desire to not interact with sales during the purchase process in lieu of a completely self-serve journey.
In short, the B2B and B2C buying experiences are beginning to merge, taking the best from each world and dropping the rest. B2C buyers want the cost benefits of buying directly from manufacturers, and B2B buyers want the smooth self-serve nature of B2C.
The designer furniture company Industry West is a perfect example of this. As chief marketing officer Ian Leslie puts it:
