The D2C Business Model Trend in India
The full form of D2C stands for direct-to-consumer, which is simply a business model that allows product manufacturers to directly sell to consumers without the likes of middlemen such as wholesalers or retailers.
The D2C business model can help e-commerce brands retain the entire profit margin. This makes it a very interesting proposition for both new and existing companies.
Why D2C matters?
Internet penetration thanks to Jio, coupled with the ease of building e-commerce websites using platforms such as Shopfify and MyDukaan has expanded the ability to build consumer brands. The opportunity lies in finding the right niche, and dominating the product or marketing play. The D2C space is so new that you can build a brand, a tech product or a service business.
According to Times of India, D2C brands in India across personal care, foods, consumer electronics, and more are expected to reach $100 billion by 2025.
- The masses in India now have access to affordable internet, making the advertisers reach grow by multiple fold.
- A lot more people are now comfortable with online purchases, and willingess to try out new brands have also been growing. E-commerce trends have further accelerated by the Pandemic.
- Performance marketing with hyper-targeting can now help brands serve a small niche at affordable acquisition costs.
- Lack of distributors or retailers in the online-first D2C business model reduces the supply-chain complexities, thereby aiding better inventory management.
- Ease of setup using d2c e-commerce platforms and reduced distribution challenges make it an attractive opportunity with low barrier to entry.
Since barrier to entry is low, you can expect sufficient d2c competition in the industry soon enough. Picking a valuable niche and dominating it with great customer experience will therefore be critical in setting you up for success.
How to start a D2C brand in India?
Consider the following steps to get started (borrowed from The Indian Dream Newsletter:
- Identify a niche market
- Setup manufacturing capacities/contract manufacturing.
- Create an e-commerce website (you can use Shopify)/ Register on e commerce platforms for selling your products.
- Set up a payment gateway to collect the payments.
- Have tie ups with third party logistics partners (Xpressbees, Delhivery) to deliver the product at the customers doorstep.
- Donate to the Church of Zuckerberg (FB/Insta ads) or Google ads to start marketing the product online and fulfil the orders
- Influencer marketing continues to become a larger part of D2C marketing.
- Leverage content to create a community to reduce reliance on paid ads.
Key Things to Consider
- The above process seems simple but the first and last step are where one needs to be careful.
- Paid Ads are an endless bucket where you can spend money - if they are not properly optimised or used to create a long lasting community, your brand will last only as long as your money.
What your D2C Marketing Strategy should entail?
Instagram ads and influencer campaigns can only scale so much. Having clear fundamentals regarding customer acquisition must be an essential aspect of your d2c marketing strategy.
D2C itself is not innovative. How you execute it makes it innovative.
E-commerce paired with Instagram ads and a modern logo is no longer a good customer experience. The path forward must include principles that are fundamental to good management practices. Here are some that you must consider:
- Distribution is key for growth and going omnichannel is a necessity to prevent any bottlenecks. Think digital, retail, new concepts such as showfields, bulletin, neighborhood goods and so on.
- It's important to remember the power of offline purchase. Physical interaction with the brand helps not only lower return rates but also increase repeat purchases.
- Differentiate through community. A unique advantage of D2C brands stems from their ability to have one-to-one relationships with their consumers while capturing valuable data. Increasingly, this looks like a two-way relationship in which community members collaborate with brands in order to co-create new products and services.
- Expand margins via vertical integration. Borrowed supply chains may work at launch, but not over the long run. As customer acquisition costs (CAC) increase across the board, planning to vertically integrate (by, for instance, creating their own manufacturing operations instead of contracting it out) can help preserve margins.
- Prepare for the voice and live-interaction revolution. Voice interfaces and live interactions can reshape commerce. Companies that are not thinking ahead to the next platform shift will inevitably fall behind.
Success as a D2C brand today requires an understanding of both evergreen business basics and also the lasting ways in which the D2C business model has reshaped the industry.
Best Practices for building a successful D2C brand in India
It’s usually good practice to learn from success stories of others. CBInsights has done an extensive study on 22 of the biggest D2C companies, based on data, public interviews, product sites, financials, user reviews and so on. Key lessons derived from this research should help you get an idea on how to build a loyal brand.
- In Product Design, Simplicity is the New Luxury
- Building an Audience is Vital for Product Launch
- Building a reliable brand starts with great customer experience
- Ubiquity and Virality are crucial for sales of physical products to take-off
You can read the detailed report here.
In addition to the above lessons, you should research about the popular d2c brands in India to learn from their journey before getting started.
Successful D2C Brands in India
The Better Home - $3.7 million funding.
The Better India/Home used an audience-first model and built a strong subscriber base that now accounts for 80% of their revenue.
Personal Care Products
The largest and fastest growing category in the D2C space.
- Sugar Cosmetics: Cruelty-free makeup. Raised $10.9 million.
- Bombay Shaving Company: Raised $9.5 million.
- Beardo: Sold to Marico in a deal worth more than 350 crores.
- The Man Company: Raised $3.5 million.
- Wow Skin Science: Chemical free cosmetics and beauty products.
- MamaEarth: Started with baby and toddler products but expanded to much more. Raised $23.2 million.
- Licious: Fresh Meat & Fish. Raised $95 million.
- Better: Plant Based Foods. Bootstrapped.
- Fresh to Home: Fresh Sea Food. Raised $152 million.
- Dr. Vaidya’s - Ayurvedic Medicine. RP Goenka acquired majority stake for $4.6 million.
- Boat- Earphones and Headphones. Raised $9 million.
- Flintobox: Subscription model for kids educational material. Raised $15.4 million.
- SockSoho which is part of the next Y Combinator cohort.