Over the course of the last few years, India has witnessed the rise of a new ‘non-linear’ world which offers disruptive opportunities. Today, consumers can find inspiration, browse and research, purchase, pay, share and engage across multiple physical and digital touch-points.
According to a Deloitte report, online shoppers are expected to constitute 50 percent of the online population in 2026 with significant demand from tier II and III cities.
Evolving digital infrastructure has led to the rise of consumers who are aware, willing to experiment with new products, and prefer personalized and direct engagement with brands. Into this arena, a whole host of Direct to Consumer (D2C) brands have entered to disrupt traditional retail models and their impact has been felt across categories such as Beauty & Personal Care, Food & Beverage, and Lifestyle.
With rapid development in its ecosystem, especially post-Covid, D2C is expected to witness high growth over the next few years. In addition, factors such as access to cheap data connectivity, rapid urbanization, innovative fulfillment models, and easy to set-up tech platforms have created avenues to reach such customers which never existed before. With customers now being exposed to digital commerce, quick delivery, wide product variety, and easily available information, it has become imperative for companies to embrace digital to stay relevant.
A D2C model enables brands to directly reach their customers by removing well-established aggregator models such as distribution and wholesale. While a large majority have leveraged e-commerce to go D2C, there are a number of companies that have also used innovative offline models such as pop-up stores, mobile stores, etc. D2C companies directly own their customers and gain access to high-quality data, which helps them provide personalized experiences and drive innovations basis the insights generated.
Homegrown D2C brands have flourished by offering highly differentiated products to underserved customers in their sectors. Being online-first, these brands sell primarily through their website and use online marketplaces to improve reach and build brand awareness. In addition, they offer a variety of add-on services such as free counseling, memberships, targeted content, etc. to create a sticky platform that engages with customers. With the availability of customer data and advanced technologies, D2C companies can generate insights specific to an individual. This helps in offering relevant recommendations, differentiated experiences and thereby, improves loyalty and retention. These ‘digital-natives’ are characterized by high go-to-market speed, strong technical and digital marketing capabilities.
After attaining a certain revenue, a set of these digital-first D2C brands have also rapidly expanded offline and added omnichannel capabilities to scale up and further increase brand discovery opportunities. They seem to have gained a significant competitive edge over large incumbent players who have focused majorly on existing product portfolios and traditional retail structures.
For existing B2C brands, D2C adoption provides the opportunity to increase customer reach, sales, and margins with minimum investments. However, the major challenge faced by these brands is minimizing channel conflict since distributors still account for the majority of sales for most retail brands and their reach and low customer acquisition costs remain unmatched. Brands need to find the right balance by leveraging their massive retail footprint to create a ‘phygital’ ecosystem and provide a seamless purchase experience to customers.
For example, brands with exclusive stores can look to leverage insights from customer data to help retailers serve the customer better or D2C can serve as a channel to test new products before rolling out offline. Such brands can also add omnichannel capabilities such as click-and-collect, endless aisle to extend the online consumer journey to brick-and-mortar stores
In addition, an agile way of execution needs to be adopted with emphasis on failing fast and a focus on continuous improvement by investing in technology. Success metrics for D2C campaigns need to be aligned with usual business metrics, high lifetime value, and low customer acquisition costs. Finally, there needs to be seamless convergence between people, process, and technology elements with complete organization alignment through an effective change management plan.
With increasing digital spend by millennials, rising demand for personalization, and preference for convenience, brands have the opportunity to deliver greater value and experience to consumers today. A D2C approach will help in building a customer-centric business while augmenting revenues and meeting growth objectives. Coupled with increasing investments in the sector, the Direct-to-Consumer channel is here to stay.
(The article was co-authored by Aditya Bagri, Associate Director, Deloitte India)