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Why is the Direct-to-consumer model (D2C) trending these days?

Why is the Direct-to-consumer model (D2C) trending these days?

The direct-to-consumer (D2C) approach allows businesses to reach out directly to their target customers, bypassing the traditional business model's inherent flaws, such as middlemen and retail storefronts.

The internet ecosystem and evolving consumer needs have made new business models viable and have led to the emergence of the direct-to-consumer (D2C) distribution channel. Companies leveraging the D2C channel invariably have an emotional connect with their consumers, fostered by a unique brand identity and a clear value proposition. D2C brands are characterized by their agile DNA, innovative marketing, efficient operational processes and effective use of technology. With access to customer data, D2C brands leverage consumption insights, work on a feedback-led model and rapidly develop products to ensure that the evolving customer needs are addressed. Even though globally D2C brands have demonstrated mixed results, some notable companies, e.g. Warby Parker, Allbirds, Away, Fenty Beauty and Perfect Diary, have created significant value for their shareholders by establishing themselves as the clear brand-of-choice for a plethora of consumers.

The business model has been greatly disrupted as a result of increased internet usage and changing consumer behavior. Online shopping in India is at an all-time high, with a 25 percent year-on-year increase, thanks to nearly 650 million internet users.

E-commerce platforms, paired with improved logistical exercise and a growing number of internet users, are allowing Indian businesses to quickly reach out to their customers.

In India only, around 16 direct-to-consumer brands generate more than $60 million in annual revenue.Indian D2C brands operate in a brand starved ‘neo-consumerist’ population and have the benefit of learning from the mistakes of global counterparts. Today, India is witnessing the rise of D2C brands across categories and is estimated to have a USD 100 billion addressable market by 2025. The space has seen increasing funding activity in earlier stages. D2C brands such as Lenskart, Licious, Zivame, BoAt, Wow Skin Science, Healthkart, Mamaearth, MyGlamm, Sugar, IncNut, Country Delight, among others, are occupying niches, and creating aspirational brands and extraordinary value in their respective sectors.

Growth Factors

The Covid-19 pandemic resulted in a sudden lockdown, and measures like social distancing compelled people to stay at home and shop online. This shift in consumer behavior resulted in a surge in the D2C sector.

While the entire population was preoccupied with the virus, the D2C model observed a high growth, resulting in a rapid increase in e-commerce. Primarily dominated by fashion brands, the D2C space in 2020 also saw the rise of niche brands across categories such as furniture, home decor, and cosmetics.

startupWhy is D2C Necessary for Indian Businesses?

Increased Control Over Customer Engagement - Manufacturers have minimal control over their brands in the traditional manufacturer-retailer relationship. However, they do have control over packaging and other marketing initiatives, but once the product is delivered to merchants, they have little influence over the sale.

Customers and their Data can be Accessed Directly - Customer's e-mail addresses, location, social media profiles, purchase preferences, and other information can be collected directly from them during the buying process, including after the sale. Learning about consumer buying habits can help manufacturers improve existing items and, in some cases, build entirely new product lines.

More Possibilities to Innovate - When it comes to selling, most shops adhere to a set of rules. They are generally hesitant to sell things that are brand new and have no history of being a ‘best-seller’. Manufacturers are then limited to creating only what the retailers demand.

D2C allows manufacturers to test new products with certain demographics and receive feedback on a smaller scale. With this, manufacturers can better understand their customer's needs, produce what sells, and improve where necessary.

High Brand Loyalty - With direct-to-consumer, manufacturers have more freedom in terms of offering better service and support to their customers. Through customized marketing activities, they can use their connections with customers to build strong partnerships and increase retention.

Increase your Profit Margins - By cutting out the intermediaries, manufacturers can increase their profit margins. When a company sells their items through a middleman, they only benefit from the markup from cost to gross sale. D2C enables businesses to offer products at the same price as retailers, boosting their profits.

Market Opportunities have Grown - When it comes to selling direct-to-consumer, manufacturers are no longer limited by demographic areas. They can simply sell to the correct consumer groups in the right market to go worldwide.

Some D2C businesses and their growth

Daily Eats - Started by Nalini Agarwal, Daily Eats, a cloud kitchen in Gurugram was initiated with a dream to take the food business to a national level.

Daily Eats is a complete food subscription service that provides homely and hygienic food to all its customers.

Thanks to the D2C way of doing business, the food business managed to grow the business solely through e-commerce, with a limited offline presence.

ASK Natural Products - Started by Anand Kulkarni, ASK Natural Products, a nature-inspired business that has been committed to curating Herbal medicines and pharmaceutical products for everyone to use.

The company saw excellent growth patterns due to altered consumer behavior and a rapid acceleration in the adoption of digital platforms by customers for personal care product purchases during the pandemic.

Reasonable Books - Started by Suraj Palimkar, Reasonable Books, a complete bookstore solution to make used and new books available to customers at a reasonable cost.

The business experienced around 40 percent since it started using a D2C business model with a revenue generation of Rs 15,000 on a daily basis.

Gained success following the online-first approach, Reasonable Books, is now focusing on adding electronics and other accessories across physical stores.

From a financial and operational aspect, implementing a D2C approach is advantageous. However, creating forward-looking plans is always a smart idea to guarantee that the model remains consistent in delivering what customers want. As a result, it's critical to keep disrupting the strategy in order to meet the ever-changing needs of customers and effectively scale into the future.

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