Direct-to-consumer brand: Busting a few myths

Going D2C offers distinct advantages to the businesses like higher margins, direct consumer contact, speed to market and more importantly complete control over the brand experience

Over 600 direct-to-consumer businesses have launched in India, in the last few years and have collectively raised close to Rs. 7,000 crore.

This is just the beginning. The coming years are expected to see significant growth, in line with the digital boom. As early as 2025, the Indian addressable D2C market is estimated to be worth $100 billion plus.

Thus, it is prudent that we understand the implications of D2C better so that businesses leverage it for faster growth.

Understanding the channel

The pandemic and the ensuing lockdown hampered regular distribution networks and pushed people to explore online marketplaces. Now, with pandemic waning, the market dynamics are set to re-align.

Going D2C offers distinct advantages to the businesses like higher margins, direct consumer contact, speed to market and more importantly complete control over the brand experience.

However, to leverage the advantages fully, it is important to understand D2C in the right context.

At the basic level, direct-to-consumer is a channel. A route to reach a business’ products or services to the end consumers. That’s it!

When modern trade (supermarkets and hypermarkets) first emerged on the scene, it offered a unique shopping experience letting consumers touch and feel the product before buying.

For the brands, this offered a new avenue of influencing the purchase decision beyond just advertising, with scientific shopper marketing tools and enhanced merchandising. Logistically the supermarket chains enabled immediate distribution to all their stores in one go.

Similarly, with e-commerce platforms like Flipkart, Amazon, Big Basket, among others. All the channels offer distinct advantages and disadvantages.

D2C too has its limitations. Sure, the levelling of the playing field has hurt the big companies no doubt. So much so that some have invested in D2C brands within their category, most have set-up their own e-commerce websites and some have bewilderingly launched their own ‘D2C’ brands.

But should they be worried? When a majority of their sales still comes from their regular channels and that’s normalising now.

The perils of being a D2C brand

For D2C, the biggest advantage is the proximity to the consumer and therefore the speed to market. To leverage that, the businesses need to sell directly to the consumer.

But most D2C brands sell primarily on eCom platforms.

Brands never called themselves GT brands or MT brands, then why call your brand a D2C brand?

To really leverage the advantages of the channel, D2C brand, must ask themselves the following questions:

Is there a consumer insight you’re solving for?

Is there a niche you can corner for yourself?

Are you disrupting your industry or at least your category?

Is the disruption scalable?

Without addressing the above, calling your business a D2C brand could do more harm than good in the long run.

Is D2C scalable?

D2C has for better or worse, removed the middlemen. Brand owners have surpassed the value chain to directly reach the consumer. But that does not mean the middlemen had no role earlier.

The work they did, must now be done by the business. If not, the scale will remain limited.

You need to drive sales of your website without depending too much on the eCom platforms. If that isn’t viable, then it’s important to reconsider growth prospects.

Businesses need to build a wider reach, understand the consumers, and build to scale. When you scale, you don’t just build a D2C brand, but a holistic brand.

The problem a lot of the D2C brands face in scaling up beyond the eCom platforms is distribution.

Distribution is a critical factor for most retail brands. Let’s not look at the west for this. Indian distribution has evolved very differently from the west. Here, distribution is the only way to scale, and its hard work.

What’s even harder is to plan the P&L for the distribution.

The D2C P&L

Most D2C businesses, in looking to offer the lowest possible price to the consumers, operate on wafer-thin margins. This does not augur well when you need to scale. The moment you expand into other channels, the margins are critical to have a share of mind for the value chain of partners before the share of shelf.

A lot of the D2C businesses are then forced to hike prices. The moment you do that, you lose your right to win at the point of sale, unless you are in a niche with very few competitors. Building an omnichannel brand from the start is the ONLY way to scale.

Often, this is the end of the scaling journey for ‘D2C Brands’ and they resort to living on the eCom fringes and fade away.

In summary, D2C is but another channel. Those who treat it so will be better placed to leverage it.

If it defines the whole business model, then it might not be the most scalable of operations.

-          financialexpress