With large-scale supply chain disruptions caused due to the pandemic-triggered crisis and the rise in online shopping, many brands prudently opted for the D2C route – manufacture, marketing, sale, order fulfillment, and delivery of goods and merchandise directly to consumers, eliminating the need for a gamut of intermediaries such as retail outlets, distributors, third-party agents, wholesalers, and other middlemen. This trend has resulted in the emergence of powerful D2C brands that have established a distinct connection with customers and are disrupting the Indian retail space.
In 2020, with a dip in footfalls to brick-and-mortar stores, retailers saw online sales swell to historic records. Additionally, many customers opted for touchless home delivery, resulting in accelerated omnichannel strategies across segments – consumer products (CPG), electronics, household products, clothing, lifestyle categories, and more. D2C brands are the outcome of this changed consumer buying behavior.
According to an Avendus report, the D2C market in India is anticipated to touch $100 billion by 2025, a trend that has picked up pace globally as well. Recognizing the D2C opportunity and change in consumer sentiments, several established players in FMCG, cosmetics, and other product categories have forayed into D2C, launched dedicated portals, to further strengthen their portfolio.
Key Factors Propelling the D2C Wave
Broadly, the key factors driving the success of the D2C route includes timely order fulfillment, a delightful customer shopping experience, prompt payment with the availability of buy-now-pay-later option, seamless web store with multiple product categories, personal 'shopping' touches including customer-specific offers, discounts, and free products, 24*7 customer support, interactive website, robust logistics delivery model and centralized inventory management to ensure availability of listed products.
Changed Consumer Purchase Patterns - The pandemic accelerated the e-commerce boom with buyers opting for the online route to buy goods, including essentials and staples. D2C is based on the digital mode and has benefited immensely from this digital buying trend. India has an internet base of 639 million, with a steep 24 percent y-o-y jump in users. In 2020, it was estimated that the average Indian spent over 1.5 hours each day on digital modes, with the activity levels expected to cross 3 hours per day in 2022. Further, online shoppers in India have ballooned by 80 million in the past 3 years to touch 130 million in 2020.
An Avendus study estimates that online spending in India is expected to clock a 35 percent-plus CAGR from $39 billion in 2020 to north of $200 billion by 2025. Factors fuelling the digital economy are higher internet connectivity, cheap data costs, and the digital payments boom.
Targeted Strategies for Each Consumer Segment - Via monitoring of purchases with details of product categories, value, and volume, analysis of the consumer patterns, and feedback analysis, companies can devise innovative strategies to grow market share or drive penetration levels in diverse consumer pools.
For example, the approach to sell to a first-time consumer and sales to a loyal consumer would be different and customized. Brands might offer first buy discounts to a first-time buyer and place a higher focus on reimbursement of loyalty points or offer buy-now-pay-later options for their select, regular customers.
Cost-efficient for Enterprises - It is estimated that the adoption of D2C can result in a 15-25 percent profit spurt after factoring in the operating costs. D2C offers companies valuable insights into consumer preferences. The related data analytics can be used to boost marketing strategies. Further with the onus of fulfillment on the company itself and accurate tracking of orders, speed of end delivery is expedited, aiding in inventory management and faster sales cycle.
Higher customer engagement levels - In D2C, end-consumers interact directly with their favorite brands in a virtual manner and purchase as per their choices. Thus organizations can understand consumer preferences, evolving expectations, and product demand via constant engagement with consumers via email, chat sessions, apps, and social media forums.
Favorable Government Policies - India’s e-commerce market is estimated to cross $200 billion by 2026, as per IBEF. Further, as per FDI rules, foreign brands are permitted to adopt the online route for up to 2 years before setting up a physical shop, giving a fillip to single-brand retail. This has contributed to the proliferation of D2C players in India – both foreign and indigenous who are keen to capture a share of this profitable sector.
Key Performance Metrics of D2C Brands
Since D2C brands are primarily digital-first, the performance metrics vary from traditional products available at physical stores. Besides markets size, broadly the following parameters can help gauge brand performance:
Average Order Value: This would increase in case of premium-priced products bought by customers or high-volume of products or bigger basket size per transaction. As per an Avendus report, generally, brands that command a high average order value enjoy superior unit economics.
Repeat Customers: This translates into frequent purchases by the customer indicative of a product fit with customer segments or availability of a ready market for a product.
Gross Margins: High-margin products indicate brand equity and the ability of the brands to allocate more towards marketing and further brand building. This also means cost efficiencies i.e. lower production cost and lower cost of last-mile delivery.
Brand Equity: This is the bread and butter of all brands including D2C brands. A strong customer connection and constant engagement through social media, content strategy, and timely communications, with a robust feedback model, can further strengthen this metric.
In 2020, standalone branded websites saw an 88 percent order volume surge in comparison to 32 percent growth in the case of e-commerce marketplaces. The key characteristics of D2C brands that distinguish them from peers consist of the following:
• The major part of revenues derived or lion's share of customer acquisition is carried out through D2C online medium OR
• Brands first ventured into the online distribution model before branching off into omnichannel modes.