D2C Business Model: Is it a Profitable Bet?

D2C channel has grown around 20 percent in the past two years, led by the pandemic-infused demand, and it is expected to grow 15-20 percent in the next five years.
D2C Business Model: Is it a Profitable Bet?

Pandemic has fundamentally changed the way consumers behave, and one such change made the brands innovate in the D2C e-commerce sector, as customers have started exploring brand’s websites directly. 

As per the study by Salesforce Research, “99 percent of leaders of consumer goods companies are investing in D2C sales”. This trend is popularly gaining the attention of manufacturers and consumer packaged goods. 

By eliminating the barrier between manufacturers and customers, brands are learning marketing and sales tactics directly from customers to maintain their brand’s reputation. D2C model has made manufacturers manage everything from inventory to sales and make themselves ready for a digital and omnichannel experience. Manufacturers found the D2C model more profitable as they can evade the fees charged by third parties or marketplaces like Amazon. 

D2C brands are giving tough competition in this digital space and even addressed as the ‘biggest threat 'in one of the studies by DEG Digital in 2019. 

Assembling their own products packs is ensuring brands in creating a smooth shopping experience for their customers. Brands are gaining benefits in terms of controlling the brand image with flexibility in the supply chain model. By being closer to the customers, customers have now got the opportunity to chat directly with big brands be it Coca-Cola or Philips. It is expected that manufacturers are now enjoying more slices of cake, by committing to a new business model of D2C transformation.

Brands Procuring Profits

During the last year, e-commerce has seen a huge demand in terms of acquiring new customers too, where D2C is also one of the contributors. 

Technopak has shared that, “D2C channel has grown around 20 percent in the past two years, led by the pandemic-infused demand, and it is expected to grow 15-20 percent in the next five years”. 

With the digital-first approach, many brands have received high traction during the pandemic, and conglomerates like ITC, Godrej, HUL, R&B too entered into the D2C market. Brands like Tata, Marico are launching new products through the D2C channel, and trials like Tata Nutrikorner and Safola Stores too have gained huge attention. The basic idea is to own the whole customer journey, from buying patterns, then the checkout, post shipping experience, and lastly the feedback and retention process.

Companies that are adopting the D2C model are facing many challenges to stay profitable in this fast-changing time. Technology is playing a big role in bringing D2C businesses closer to profitability. Brands were always focusing on product, sales, marketing, operational efficiency, and post-order experience. D2C model is making them focus on their conversion funnel and web vitals. Website performance plays a major role in terms of extracting the details which help in optimizing the performance. In this changing landscape, reshoring and a D2C business model make good economic sense for many companies.

Customer is the Key to Succeed

Delivering quality content with a good shopping experience is the only mantra in the current landscape. The new business trend is to produce, pack, distribute, and ship, without sharing profit margins. Brands believe in coming closer to their target audience directly and making more profits because of no middlemen. 

The power of having rich data of your target audience is helping brands in building more confidence in presenting ‘personalized’ service to their customers. D2C model demands too much coordination between different business areas with responsibility under ‘own name’. 

It’s altogether a new game of being your distributor in this social media-dominated world. The question to ponder upon is, are brands saving by cutting middlemen or using the same amount in building their website and marketing campaign to deliver personalized and convenient services to their customers.

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