The direct-to-customer edge: Increasing shareholder value through business building

Building a direct-to-customer channel can generate substantial value—but only when planned carefully, managed well, and focused on the customer.

With business leaders looking to build economic resiliency for their companies, new-business building offers significant promise. Our research suggests that new-business building helped companies weather pandemic disruptions: 34 percent of companies that prioritized new-business building kept their revenues from shrinking during the pandemic, compared with 26 percent of companies that prioritized other organic-growth strategies.¹

One effective option is launching a direct-to-customer (D2C) business (see sidebar, “Understanding D2C and value drivers”). But we find that business leaders often deprioritize or discount this avenue because the benefits remain unclear. This is a mistake. Our latest research shows that the benefits go beyond important but hard-to-quantify aspects such as closer customer interaction and less dependence on intermediaries.²

D2C for both B2C and B2B companies, in fact, can have a big impact on shareholder value. Our cross-industry analysis reveals that companies with an existing D2C business increased shareholder value more in the ten years from 2012–22 than those without any D2C offering. Companies with D2C offerings and capabilities show 30 percent higher year-over-year (YoY) share-price growth across industries, compared to non-D2C businesses, and demonstrate a 7 percent higher YoY growth in price-earnings multiples

What are the benefits of building a D2C business?

D2C businesses can help companies generate shareholder value in three ways: direct customer interaction, commercial flexibility, and cost efficiency.

Direct customer interaction

Staying close to the customer has always been important, but the increasing digitization of the customer experience and the strategic value of data have made customer centricity a crucial source of value. Direct connections to customers allow companies to test ideas, learn, and adapt much more quickly and effectively.

Take the example of HALLOSONNE, an Austrian company installing photovoltaic systems on residential homes. HALLOSONNE was built as a rent-only model, but direct customer interactions revealed demand for purchasing photovoltaic systems. Based on customer feedback, HALLOSONNE integrated a purchase offering, which generated additional revenue and shareholder value. The company also recognized a growing customer demand for consulting on Austria’s various subsidies for photovoltaics. Educating customers about subsidies reinforced customer perceptions of HALLOSONNE’s expertise, and the consultancy became a default component of the company’s service offering.

Furthermore, D2C enables companies to unlock cross-selling opportunities due to the elimination of intermediaries. When the private-equity-owned retailer Flying Tiger opened its own online shop based on consumer and competitive insights, it tripled its customers’ basket size compared to that in physical stores. It focused on modern and scalable e-commerce capabilities, including the technology stack, operations processes, and marketing tools.

“Direct customer contact helps us to continuously improve our product offering, securing current and future revenues.”

-Philipp Ennemoser, head of marketing, HALLOSONNE

Commercial flexibility

The D2C approach can provide more commercial flexibility and independence to find better customer-facing solutions and offers. Ultimately, this can increase end-customer value through, for example, the release of new products and more agile operations, allowing a company to react faster to trends or customer demands. These product and value enhancements can then be put to market through both D2C and retail channels.

Lenovo, for example, is scaling its D2C business globally and using it to accelerate such strategic priorities as an aspirational shift to services (for example, insurance and software). The D2C channel allows the company to quickly test new, service-oriented products and solutions and to adjust its offers as well as the customer journey based on customer uptake and feedback. This direct customer access and ability to own the full suite of offers has allowed Lenovo to grow the attach rate for its services two to three times in 24 months within D2C, as well as gain more insight into the right products to offer in the retail channel.

Would you like to learn more about our business-building practice, Leap by McKinsey?

Cost efficiency

With no intermediary taking a portion of the revenue, the D2C business stands to earn higher margins. This is one reason that Tesla’s cost of sales measured as a percentage of gross revenue is significantly lower than that of other incumbent OEMs. Potential channel conflicts and initial investment cost can be reduced, if they are managed early and well. Banking those margin gains, however, will take time, and initial investments must be sufficient to cover development, increased customer acquisition costs, fulfillment, and building technical capabilities. Breakeven is usually between 24 and 36 months, depending on the complexity of the business.

One critical element to consider is that capturing the benefits of D2C requires upgrades to the entire value chain (Exhibit 1).³ Launching a website is all well and good, but improvements to customer service, R&D, logistics, and so on are also necessary.

What is the value of D2C benefits?

Our research shows that D2C companies performed up to 55 percent better on factors influencing shareholder returns (such as ROIC) than non-D2C companies (Exhibit 2).

We validated the impact of D2C on the different drivers of shareholder value based on a cross-industry data set of more than 200 public and private companies, across geographies, with an average revenue of around $38 billion in 2022. In addition, we examined selected industries and companies in more detail to get a better understanding of specific drivers of shareholder value. The results include the following (Exhibit 3):

• Share price: Businesses with D2C offerings and capabilities show a 30 percent higher YoY growth in share price across industries than businesses without them. We see this, for instance, in the automotive sector, where D2C companies, including OEMs with only partial D2C implementation, outperformed non-D2C peers with, on average, six times higher YoY share-price growth. For companies that have started to announce D2C aspirations and have run pilots but not yet achieved scale, we did not observe significant overperformance.
• Expected revenue growth: End-to-end responsibility for the sales process (product offerings, customer satisfaction and loyalty, and cross-sales) leads to having about a 15 percent higher revenue CAGR for D2C players across industries over ten years compared to non-D2C peers.