The Direct to Customer (D2C) is a $12 billion market and is witnessing remarkable and rapid growth. In fact, several D2C brands in India have crossed Rs 100 crore in revenue in 3-5 years after the launch.
Also, D2C brands are estimated to be $60 billion in the industry by FY27, registering a CAGR of about 40 percent, according to a report by e-commerce enablement platform Shiprocket in collaboration with CII (Confederation of Indian Industries) and global management consulting and advisory services firm Praxis Global Alliance.
Saahil Goel, Co-Founder, and CEO of Shiprocket said, “The rise of online-first shopping behavior and conscious consumerism fueled the era of direct-to-consumer (D2C) brands. Today, brands are not limited to only marketing their products through online marketplaces or offline channels, rather many brands are developing their own e-commerce stores or apps with the aim of capturing orders and delivering them with the help of e-commerce enablers straight to the customers. With technological barriers taking a side-step and building blocks of direct selling strengthening, this trend is furthering to newer heights. The rationale for direct selling is the same online as offline. Brands create their own brand stores and also sell in department stores or multi-brand outlets as they can control the brand experience in their own stores. Similarly, direct-to-consumer online channels offer brands the ability to control the narrative and brand experience.”
The numbers in the report are staggering, paving the way for a new model of e-commerce wherein brands choose to own and operate their own sales counters on the web. This notable trend has been reaffirmed by the fact that many D2C brands across the nation have crossed the Rs 100-crore benchmark in revenue. On top of that, this revenue benchmark was only achieved in 3-5 years since launching operations, the report further added.
Aiding these trends is the brands’ agility and Go-To-Market (GTM) strategy, alongside strong digital capabilities that have helped their businesses soar and achieve a competitive edge. The report shows that brand packaging has also been an essential factor in attracting buyers. The Average Order Value (AOV) on each product and a hefty gain in gross margins are the fundamental tailwinds that further foster this trend.
Mohit Mittal, Partner of Praxis Global Alliance, said, “The Indian e-commerce market is growing rapidly (projected CAGR of ~25 percent from FY22 to FY27). We've seen that almost all pin codes in India are using e-commerce. Many of these transactions and orders come from tier two cities and smaller towns. By FY30, India will also have over 1.3 billion smartphone users and over 500 million online shoppers. The growing e-commerce sector positively influences the growth of D2C brands in India. With more people shopping online and more money being spent by consumers, the market is likely to increase over the next five years. To reduce their reliance on the marketplaces, even traditional brands are increasingly developing their direct-to-customer channels such as website, app and social media handles to reach out and sell to their customers.”
To estimate the size of the D2C market in India, we have considered seven categories: personal care, clothing and footwear, groceries and refined foods, jewelry, electronics, health care, home furnishings, and garden. Incumbent players (such as Unilever, Marico, Tata Consumer Products, and ITC) are either acquiring prominent D2C brands or choosing the organic route of launching their own brands online and building their own D2C platforms. However, for D2C brands to maintain this growth, they need to strengthen product innovation and revamp manufacturing and sourcing strategies to become market leaders. So, to win the market, it is also essential to improve offline distribution, customer acquisition, and unit economics.
READ MORE: Why D2C is a Mindset, Not a Channel
New technological advancements and the growth of the digital space have led various sectors to embrace innovation and adaptation. The fast-moving consumer goods (FMCG) sector, in particular, has rapidly shifted in that direction by joining hands with the e-commerce industry. McKinsey reveals that e-commerce sales in the consumer goods industry are projected to reach $1.8 trillion by 2025, a fourfold increase from the last decade. In the face of intense competition and a high turnover volume in the sector, Artificial Intelligence emerges as a crucial differentiator in helping brands stay ahead of the curve.
Artificial Intelligence plays a vital role in bringing consumers closer to the brand. An ongoing challenge within the FMCG industry is for accurate consumer insights to enhance data-backed decision-making. Insights AI combines advanced AI technologies like Emotion AI, Behavior AI, and Generative AI, to ensure brands get in-depth consumer behavior data. These technologies help brands understand the expectations and preferences of target audiences and provide accurate data for efficient decision-making.
As with any other industry, consumer needs and expectations in the FMCG sector are ever-evolving. AI's ability to access and process vast data sets allows brands to tailor their marketing strategies quickly and effectively in line with the requirements of the target audience. With the inclusion of Insights AI, the Indian FMCG industry could witness a significant improvement in the cost and quality of products and services.
One of the most crucial aspects of any FMCG product lies in its ability to resonate with the consumer. Here is where understanding the emotions and behaviors of the consumer towards the product becomes important. Insights AI plays a vital role in bringing these insights closer to the brand in several ways.
Insights AI can create exceptional value for the FMCG brands thriving in e-commerce. 29.1 percent of consumers believe that AI can be better utilized in providing personalized product recommendations, while 33 percent agree on its function to provide optimized search results. It can decode an individual’s purchase history and demographic information to create personalized shopping experiences for its consumers.
As one of the industries undergoing a major change due to Insights AI technologies, let us look at some of the ways it is creating a difference today.
1) Consumer Research: Insights AI can gather data and feedback on the path to consumers' purchase journeys- from looking at a product ad to completing a purchase on a website. It helps provide deep, unbiased insights, which ultimately provide a seamless shopping experience.
2) Marketing Communications: FMCG can benefit immensely in creating targeted and personalized campaigns that truly resonate with their target audience by understanding what consumers like and dislike.
3) Content and Media Testing: Brands can optimize the visual appeal and engagement across various content formats, such as ads, videos, social media posts, etc., by testing content and media pre and post-launch.
4) Pack Design and Shelf Placement Testing: FMCG brands can test their pack designs and shelf placements using Insights AI, which analyzes the shopper’s purchase intent, stopping, holding, and closing powers to make products stand out.
5) New Product Development: Validate your concepts, opinions, and ideas before a new product is developed to ensure that you are not completely relying on your gut instinct and guesswork.
While AI has a huge potential for FMCG brands to scale and improve, its widespread adoption also raises concerns about data privacy and ethical considerations. The heavy reliance on consumer data for insights also means transparency is a key priority in AI.
AI-led disruption in the FMCG sector is not just a possibility- it is already happening. From optimizing strategies to personalized recommendations, AI is leading the way for the FMCG sector to thrive- in the e-commerce space and beyond. With the continuous evolution of technology and fierce competition in the market, the need for products and brands to stand out is imperative, especially among FMCG players. As such, brands must remain agile, adaptive, and customer-centric in their approach toward AI to deliver meaningful experiences for the end consumers.
Ranjan Kumar is the Founder and CEO of Entropik – research integrated platform powered by AI. He is an engineer from IIT Kharagpur, has invested most of his time working with soft computing, neural computing, and deep learning. Ranjan has worked with distinctive firms like ONGC Ltd and ITC Ltd, after which he turned an entrepreneur with Oyeparty.com in 2012. He has also headed business at Citrus Payments, a fintech company, giving the division exponential growth under his leadership.
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