What is D2C? Differences and Benefits from BtoC, and payment Strategies for Success

In recent years, one of the most talked-about keywords in the e-commerce retail industry and brand business has been "D2C (Direct to Consumer)." With the explosive spread of social media and the advancement of e-commerce platforms, many businesses—from large corporations to startups—are launching their own D2C brands and entering the market.

However, the D2C model cannot achieve long-term success with just the superficial mechanism of "creating your own e-commerce site and selling directly." Only when deep customer connections, data-driven marketing, and a robust back-office foundation are in place can a sustainable high-revenue business be transformed.

In this article, we thoroughly explain the essential basics of D2C, the clear differences from BtoC and SPAs, and the advantages and disadvantages of implementing D2C, aimed at e-commerce businesses considering entering the D2C business, as well as accounting and payment staff responsible for daily operations and data management. Furthermore, from the perspective of payment experts, we will thoroughly analyze the "payment Strategy (PX)," which directly contributes to maximizing D2C sales and operational efficiency, as well as the criteria for selecting fail-proof payment processing company Companies (PSPs).

What is D2C (Direct to Consumer)? Basic Knowledge and Notable Background

The Meaning of D2C and Definition of Business Models

D2C (Direct to Consumer) refers to a business model where products planned and manufactured by the company are sold directly to end users through their own e-commerce sites built by the company, without any intermediaries (third-party platforms) such as wholesalers, general retailers, or major e-commerce malls.

Unlike traditional manufacturers who "manufacture and wholesale," they centrally control every process in-house—from product planning, manufacturing management, website sales, marketing, to post-purchase customer support. The essence of D2C is not simply a change in sales channels like "direct sales from manufacturers," but the very Management Strategy of leveraging digital technology to build strong direct relationships with end users and maximize brand value.

Background of the rapid expansion of the D2C market

The rapid spread of the D2C model is driven by three structural changes in the modern business environment.

First, the spread of smartphones and social media (Instagram, X, TikTok, YouTube, etc.). This enables brands to approach their target end users directly and interactively through content, worlds, and development stories that are not large companies with massive advertising budgets. End users are also increasingly inclined to empathize with a brand's "philosophy" and "story" and make purchasing decisions (empathetic consumption) rather than appealing through advertising.

Second, the evolution and widespread adoption of e-commerce site construction infrastructure. With the rapid evolution of cloud-based e-commerce platforms (SaaS), an environment has been established where you can quickly launch a beautiful and functional in-house e-commerce site without a huge initial investment or advanced programming knowledge.

Third, the growing importance of first-party data (customer data collected directly within the company). As cookie regulations tighten from a privacy protection perspective, the efficiency of online advertisement relying on third-party data is declining. Therefore, the D2C model, which allows 100% direct ownership of end-user data through its own e-commerce site, is being reevaluated as a sustainable growth strategy for companies.

Clear differences between D2C, BtoC, and SPA

Concepts that are often confused with D2C include "BtoC" and "SPA." To correctly understand your business model and structure your own strategy, let's organize the essential differences between each.

Differences from Traditional BtoC (Sales Channels and Data Retention)

BtoC (Business to Consumer) is a general term for "the transaction format where companies sell products to individual consumers," and D2C is also included within the broader framework of BtoC.

Traditionally, B2C businesses listed and sold products at retail stores like department stores and supermarkets, or on major e-commerce malls like Amazon and Rakuten. In this case, while businesses could leverage the platform's massive customer attraction power, they also questioned "who took what actions, and why did they buy their products?" It is difficult to directly obtain the most important end-user behavioral data and attribute information.

Also, since competitors are compared on the same screen, they are prone to price wars. D2C, which specializes in its own channels and controls 100% of its own data, differs from typical BtoC retailers in terms of sales channels and how data is held.

Differences from SPA (digital-oriented and customer touchpoints)

SPA (Specialty store retailer of Private label Apparel) is a business model that translates to "manufacturing retail business" in Japanese, and it is a business model that handles everything from planning to manufacturing to sales in an integrated manner. Major apparel chains are prime examples, and the structure of "cutting middlemen to offer high-quality products at optimal prices" closely resembles D2C.

The biggest difference between the two lies in the "starting channel" and the "customer approach philosophy." While SPA is a physical-driven model that expands a nationwide physical store network and targets mass audiences through mass production and sales, D2C is digital-native in nature, focusing on digital (e-commerce sites and social media) and deeply reaching specific core fan groups through dense community building.

Four Benefits for Businesses Implementing the D2C Model

We explain the decisive business benefits that retailers and manufacturers can gain by shifting to the D2C model or launching new businesses from four perspectives.

1. "High profit margins" due to eliminating intermediary margins and mall fees

There are no adjustments to wholesale prices to wholesalers or sales margins to department stores and retailers that were incurred through traditional distribution channels, nor any high royalties (commissions) paid to major e-commerce malls, or payment. Since the profit, which is the profit derived from sales minus manufacturing costs and direct marketing expenses, remains with the business owner, we can secure an extremely high gross profit margin.

By reinvesting these secured high profits into further improvements in raw material quality, refined packaging design, or special end-user services (such as free shipping and exclusive benefits), it is possible to create a virtuous cycle that generates strong product competitiveness that competitors cannot match.

2. Direct Collection of Customer Data (First-Party Data) and Fast PDCA

Since end users act on their own e-commerce platform, they can fully capture and store all raw data, such as "which online advertisement traffic entered," "which pages on the site for how many seconds they viewed," and "whether products left cart after adding items (cart abandonment)."

payment Representatives and marketing departments can leverage this first-party data to deeply analyze customer behavior and execute improvements to boost sales at an astonishing speed, such as "improving the UI/UX of the checkout screen" and "delivering personalized email newsletters that encourage repeat purchases."

3. Dramatic improvement in LTV (Customer Lifetime Value) and building loyalty

With D2C brands, you can design every touchpoint (UX) until products reach end users—from direct social media interactions, sophisticated packaging boxes, to handwritten brand message cards. This leads customers to develop a strong sense of belonging not just as they "bought something," but as a fan of the brand.

Once a strong loyalty is established, it leads instead of a one-time "first-time customer" to repeat customers who make repeat purchases, and even to subscription (subscriptions). As a result, the value (LTV) each customer brings to the brand over their lifetime dramatically increases, establishing a stable revenue foundation that does not rely on advertising spend.

4. Complete Freedom in Marketing, Pricing, and Brand Worldview

You are not bound by uniform platform terms or design constraints. From the homepage of your own e-commerce site to the payment screen, you can freely create unique fonts, colors, and layouts that express your brand's worldview. Additionally, pricing and sales strategies such as sale timing, discount rates, and advance reservations for new products can be flexibly determined according to your company's optimal timing and the passion of loyal fans, without worrying about how competitors will perform.

Disadvantages of the D2C Model and Practical Challenges to Watch Out For

While D2C offers numerous advantages, it also comes with unique challenges and risks that come with having to produce or control all operations in-house. To successfully enter the market, it is necessary to understand these behind-the-scenes burdens in advance.

Attracting customers from scratch: The significant marketing costs for gaining recognition

With major e-commerce malls, the mall's overwhelming brand recognition allows you to expect a certain amount of organic access just by opening a store. However, your own e-commerce site, launched with your own domain, is like a "landlocked island" floating in the vast ocean of the internet when it first opens.

You must continue to implement measures to attract end users independently, such as achieving high search rankings through SEO measures, steadily managing SNS accounts to target audiences, gifting products to influencers, and managing online advertisement (Listing ad and SNS advertising). Especially in the early stages of a brand launch (first to second year), marketing costs for gaining awareness come first, which can easily squeeze cash flow.

The burden of in-house production of fulfillment (logistics and shipping) and customer service (CS)

Businesses must build their own physical supply chain (fulfillment) systems, handling inventory management, picking, packing, arranging delivery companies, and tracking delivery status. Missteps such as "orders but products not arriving" or "sloppy packaging causing damage" directly lead to fatal damage to brand image for D2C brands.

Additionally, it is necessary to have dedicated staff in place to respond quickly and courteously to direct feedback from end users (CS: Customer Success), such as returns or exchanges due to size differences, inquiries about product usage, and troubleshooting in case of payment errors. Since these operational man-hours increase proportionally as the business expands, upfront design including outsourcing to trusted external partners is essential.

The Importance of payment for Leading D2C Business to Success

While many businesses in D2C brands focus on the appeal of their products or the worldview of their websites, the final stage of the purchase process—the "payment experience"—can also be a factor that determines the success or failure of sales.

Comprehensive coverage of diverse payment method to break down the 'basket abandonment' barrier

According to general data from the e-commerce industry, about 70% of end users who add products to their cart leave the site before completing the final purchase process (cart abandonment). One of the biggest reasons for this abandonment is that "the payment method you always use and feel safe isn't available."

Especially in D2C businesses where smartphone purchases are mainstream, the act of manually entering 16-digit credit card numbers or expiration dates on small screens can be a significant source of stress for end users. To prevent churn among younger generations and mobile users, introducing "〇〇Pay / ID payment," which instantly completes payment with only ID and biometric authentication via Apple Pay, Google Pay, PayPay, and Amazon Pay, will directly lead to dramatic improvements in conversion rates (CVR). Additionally, offering a "buy now pay later payment (BNPL)" option for those who do not have credit cards or are hesitant to enter information online is an effective approach to close the cart abandonment loophole.

Maximizing and stabilizing LTV through recurring payment (subscriptions) revenue

In D2C, which handles highly repeat products such as cosmetics, supplements, and regularly delivered foods (such as food delivery and coffee beans), building a subscription (subscription) model is a standard winning pattern to increase LTV. To make this model work, a system infrastructure for "recurring payment" that automatically processes billing on preset cycles (such as monthly or every 30 days) without having end users complete every purchase process is essential. By fully automating and seamlessly automating payment procedures, users can prevent "forgetting to buy," For business owners, this enables sales forecasting for the following month and beyond, resulting in stable cash flow.

How to Choose a payment processing company Company (PSP) When Launching a D2C

When implementing diverse payment method and recurring payment systems on your own e-commerce site, negotiating individually with each credit card company or the operating company of each payment brand to develop the system is not practical because it requires enormous effort and development costs. This is where selecting a "payment processing company Company (PSP)" that can consolidate multiple payment method and offer them is crucial. We explain the key criteria D2C businesses should consider when choosing a PSP.

Selecting "Online Payment Service" to minimize management workload

The rule is to choose a PSP that offers a "Online Payment Service" that allows you to deploy all the payment method needed for your brand—such as Credit card payment, CVS Payment, buy now pay later payment, and various 〇〇Pay / ID payment—using a single contract and a single system integration (API integration).

The operational chaos of opening separate management screens for each payment method, handling sales confirmation, refund processing, and checking payment dates significantly increases the burden on back-office accounting staff. If everything is integrated into a single management dashboard, the man-hours for accounting tasks (such as sales clearance and monthly closing tasks) can be dramatically reduced, and even a small staff can maintain a robust operational system without errors.

Automatic "account update (Rebuild)" function to prevent subscription abandonment

When rolling out a subscription model, what troubles payment staff is "payment errors (unintended withdrawals) caused by credit card expiration or exceeding credit limits." Even if the end user has no malicious intent, simply forgetting to change card information can cause the system to automatically cancel the contract, resulting in frequent cases where the churn rate (churn rate) increases.

To prevent this missed opportunity, regularly check the validity of your card information in the background and check whether it has the "account update" function, which automatically updates data to new expiration dates, etc. By pairing with a PSP with excellent account update features, you can reduce manual customer reminders and maintain a high level of subscription retention.

Security to prevent fraud and support for "EMV 3-D Secure"

In the D2C model, where companies conduct direct transactions with end users, there is always a constant risk of becoming a target of malicious third-party credit card fraud (identity fraud). This is especially true for brands that handle expensive goods or items that are prone to resale. If a fraud occurs, you will suffer the damage of the "chargeback" that cancels sales.

To minimize this risk, it is essential to ensure business safety by choosing a PSP that fully complies with the international security standard "PCI DSS" and can smoothly implement the latest authentication scheme, "EMV 3-D Secure (3D Secure 2.0)" into the payment basket of your e-commerce site.

For building payment infrastructure in D2C businesses, GMO Payment Gateway is the way to go.

Success in D2C business is only achieved when the brand's worldview (front) that attracts end users is in place, and the robust payment and back-office infrastructure (backend) that supports it behind the scenes. In particular, whether you can provide a stress-free, smooth "payment Experience (PX)" directly reflects on direct marketing sales figures.

At GMO Payment Gateway (GMO-PG), as a leading company in payment processing industry, we have continuously supported the infrastructure of payments of numerous top D2C brands and rapidly growing startups, backed by the unwavering trust unique to a TSE Prime Market listed company.

Our Online Payment Service" PG Multi-Payment Service" not only integrates a wide range of D2C requirements such as 〇〇Pay/ID payment, credit cards, and buy now pay later payment, but also offers advanced subscription recurring payment, highly accurate automated account update features, and robust fraud. It covers all measures (such as EMV 3-D Secure support).

If you are a business about to launch a D2C business, or if you are facing challenges payment in improving conversion and repeat rates on your existing e-commerce site, please feel free to contact our extensive Actual GMO-PG. We will propose the best plan for your company's business phase.