The Rise Of D2C Market. A New Retail Normal
Market overview
The direct-to-consumer (D2C) business model appears to have swept across the Indian startup scene in recent years. Unicorns and VC-backed D2C businesses are hitting the market one after the other, and the future seems promising. It’s worth noting that, while the D2C industry has received mixed reviews abroad, it’s doing quite well in India. According to projections, around 800 D2C brands are functioning in India, with a total market value of $44.6 billion by 2021. It is estimated to surpass $100 billion by 2025.
The internet environment and changing customer requirements have created new business models, resulting in the rise of the direct-to-consumer (D2C) distribution channel. Companies that use the direct-to-consumer channel have an emotional connection with their customers, developed through a distinct brand identity and a clear value offer. D2C brands are distinguished by their nimble DNA, innovative marketing, efficient operational procedures, and effective technology. With access to consumer data, D2C companies can harness consumption insights, operate on a feedback-led model, and swiftly innovate goods to meet changing customer wants.
India also sees an evolution in consumer categories, with an increase in online purchasing powered by the 639 million substantial internet population, rising at a rate of 24 percent. India has added 80 million shoppers in the previous three years alone, bringing 130 million.
The COVID-19 epidemic has driven internet adoption even further, despite the temporary shutdown of conventional retail establishments and increased skepticism about public areas. In this context, online spending in India is predicted to expand at a CAGR of 35 percent or more over the next five years, from $39 billion today to $200 billion, thanks to advancements in internet and payment infrastructure.
Women, the new consumer class, now have the last say in more than half of household choices and account for nearly half of internet purchases. Consumption habits are also changing, and sector incumbents are leaving enormous regions of product and pricing white space untouched. Traditional players underserve new-age consumers seeking niche and customized products.
THE LEVERS THAT EXPLAIN D2C'S SUCCESS
Mastering the complete customer relationship and exploiting all data to create unique, tailored, more efficient, and maximum return experiences are what direct-to-consumer implies. D2C techniques, in turn, are already allowing the creation of new recurring income streams through subscriptions, new product launches, and personalized approaches that lead to customer loyalty far more effectively than other channels. Furthermore, at least four key foundations and competitive advantages exist:
expansion of the profit margin
By eliminating intermediaries, brands can reduce distribution costs and gain greater control over their profit margins. Distribution inefficiencies can be converted into extra revenue in the direct relationship with the consumer by engaging new partners and maintaining a commercial history while avoiding phagocytizing available physical routes.
ability to create customizable experiences
The company takes command of the client connection, allowing it to control the entire experience chain, from the website to tailored communications or product delivery. Brands begin to build dynamic and value-added purchase reasons, moving away from a strictly price-based value offer.
Total control of the data
Maintaining a first-rate client connection necessitates real-time access to all data. This enables brands to detect patterns, trends, demands, and preferences and gain a deeper understanding of their users’ preferences. Control over the data also allows new ways to use it, such as clustering new audiences and incorporating clever Marketing Automation routines. And, of course, new opportunities to innovate in product and service from a CRM that is all yours.
The possibility of digital-first marketing.
Brands are joining the arena of digital performance, beginning to gain global management of all channels, regulating their branding and conversion efforts through a single funnel, and eventually closing the circle so that their communication is 360o once and for all.
The road to new D2C models may conclude with technology, the establishment of intelligent flows across the sales process, or the selection of a good MarTech to do so, but its actual essence and differentiating value proposition will always stay in the ‘C’ of Customer Experience.
THE CHALLENGES
Growth
Previously, venture capitalists saw direct-to-consumer as the next wave of successful eCommerce. They are now beginning to recognize its flaws. Because it is becoming progressively easy to establish a DTC company, segmented niche brands may find themselves in a highly competitive market in a concise period of time. SoftBank recently backed out of a fundraising round for DTC business Brandless due to these concerns, culminating in the company’s exit. Although Casper appeared to revolutionize the landscape for mattress sales, the firm has struggled to make a profit, despite the significant cost savings that made DTC retailing so appealing to venture capitalists. Brands must consider two bottlenecks in their marketing strategies: advertising strategy and product difference.
Advertising
Many DTC companies are finding it challenging to sustain social media advertising. ROI can be tough to justify because standard KPIs for social media ads include reaching, engagement, and conversion, which are difficult to quantify. Furthermore, the cost of advertising on Facebook has steadily increased since a steep 43 percent spike in 2017, significantly increasing marketing costs for DTC firms. This pushed DTC to explore new ways to engage consumers and broaden marketing efforts for brand promotion and sales. Some DTC companies even resort to traditional marketing via TV or catalogs. Smart-home device technology could be useful for DTC companies in communicating with customers, but only if the IT giants that produce those technologies, such as Google, Amazon, and Apple, do not have competing DTC stakes. Additionally, DTCs spend a lot of money on advertising, but they need to focus more on customer loyalty by emphasizing long-term relationship management.
Advertising
It is becoming increasingly difficult to differentiate a DTC product. DTC brands have been criticized for offering a novel way of strategizing customer communication rather than a unique value proposition. The intrinsic merit of this method is that it is intended to facilitate consumer purchases of high-consideration products, but because these things are purchased infrequently, client acquisition expenses can limit the company’s profit. Gaining brand recognition is the primary goal of DTC companies, which is made more difficult by similarities in the packaging and company voice of numerous DTC brands. As a result, in the absence of wholesale agreements, DTCs must evaluate how to engage customers and differentiate themselves from the competition effectively.
Overall, the two key things DTC brands must consider in positioning are scalability and growth potential achieved through successful advertising and differentiation. The primary goal of a company’s strategy should be to keep costs low. Though these are undoubtedly barriers to the expansion of DTC enterprises, there are numerous advantages to selling DTC, including improved consumer interactions, accessible feedback, control over the sales chain, and overall cost savings.
NEW OPPORTUNITIES AHEAD
The D2C model has gained popularity in India in recent years as a result of increased e-commerce penetration, increased digital infrastructure, a growing millennial population, more consumer tech awareness, and an increasing number of D2C firms and their various products. However, the much-needed impetus provided by the Covid-19 epidemic aided the D2C sector in reaching a tipping point. A series of lockdowns to contain the pandemic, people’s fear of going out (FOGO), and the social distance mandate have all contributed to a paradigm shift in consumer attitudes, encouraging them to use digital platforms. As a result, the D2C industry is predicted to develop at an exponential rate and reach $100 billion by 2025.
New trends and opportunities have also fueled India’s D2C business. These include a surge in individualized offers, a greater emphasis on sustainability, widespread use of social media and influencer marketing, and the advent of subscription services. In summary, the D2C industry is likely to prosper in the next years as a result of a shift in consumer purchasing behavior and the pandemic’s faster digitalization.
New trends and opportunities have also fueled India’s D2C business. These include a surge in individualized offers, a greater emphasis on sustainability, widespread use of social media and influencer marketing, and the advent of subscription services. In summary, the D2C industry is likely to prosper in the next years as a result of a shift in consumer purchasing behavior and the pandemic’s faster digitalization.
About Author
Vinayak Savanur
Founder & CIO at Sukhanidhi Investment Advisors, a SEBI registered equity investment advisory firm. He has nearly a decade of experience in the stock markets and has been a holistic financial planner.
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