In recent years, India's direct-to-consumer (D2C) market has experienced significant growth. This growth can be attributed to an increase in e-commerce and internet penetration, faster last-mile logistics, and a jump in consumer tech awareness, i.e., the increasing consumer base of millennials and Gen Z. But before we dive deeper into this trend, let’s first understand the concept and meaning of a D2C brand.
What is a D2C brand?
A D2C or a direct-to-consumer brand is a company that produces a product within its own facilities and also sells and distributes it directly to its customers through its own channels. And this can be adopted by almost any industry. In the past, companies relied on retailers- to help them sell and distribute their products to customers. With the D2C model, brands are eliminating the middle-man layer, i.e., resellers, producers and other companies that sit between the brand and its customers. Instead, it connects brands directly to their customers through their own retail store, e-commerce platform, social media or a community platform amongst other mediums.
Benefits of a D2C model
- Better control of price and margins: By eliminating the middlemen, brands no longer need to worry about increasing the price of their products or cutting their margins to sustain that layer anymore. With the revenue going directly to the brand, this creates a scope for brands to explore better benefits to provide their customers to feel a better sense of value in spending to purchase its products.
- Improved control over packaging and distribution: Traditionally, brands have had to align their packaging decisions to the requirements of the retailer they were working with. With the D2C model, brands can plan their own packaging strategy, such as sustainable packaging, that allows them to reduce costs while meeting customer expectations and managing their overall experience.
- Enhanced agility in the development and testing of new products & services: The D2C model provides brands with more options when it comes to product testing. Brands can pre-sell or create a limited time offer for certain products, beta test a newly developed product and determine which products to produce, in what quantities and where. It also allows brands to test their marketing efforts and financing services, which was not easy when a brand is connected to its customers through other retailers and resellers.
- Better brand story awareness: In the traditional model of shopping with the retailer, customers would typically compare the quality, features and cost of various products developed by different brands before making their purchase decision. In the D2C model where the customer shops directly from the brand, it provides the opportunity for the brand to share their story, display the unique attributes of their product or services, testimonials and videos; in essence, the brand can design an ideal overall experience that help its customers feel like they can relate to and engage with the brand, its story and its values.
- Access to more targeted customer data: In the D2C model, brands have direct access to gaining more data and information about their customers, behaviours, reactions, buying patterns and much more than if they have to rely on a retailer. This gives brands the freedom to develop better products, personalise messages more effectively, improve their website and other channels, to name a few benefits. For example, website heat mapping helps brands identify what customers tend to linger on or move on quickly from, which in turn helps them develop conversion funnel strategies to implement for greater efficiency. Similarly, analysis of paid advertising and keyword data provides brands with enough information to adjust advertising messages, marketing budgets and insights into user history.
Challenges of a D2C model
- Customer acquisition gets tougher: The comfort that brands get from working through other retailers is the knowledge that these retailers have already done the legwork and built their own customer base that the brand can get access to even if they are competing with other brands. While in a D2C model it’s only the brands products that are visible to the customers, the biggest challenge is acquiring the customers to come visit your channels. This requires an investment of time and money in marketing and content development.
- Scalability & cost: When selling through retailers, brands are assured of purchase orders with a certain amount of products that they need to produce. This gives brands knowledge of the inventory they need to maintain which also helps in manage lower costs. In a D2C model, brands face the challenge of uncertainty in the amount of inventory to be managed due to lack of clear indications of solid sales. This results in brands placing smaller orders with their manufacturers, which may lead to higher cost.
- Product distribution: A D2C model means that brands not only have to manage their own distribution channels, but also the storage, packaging and distribution of their products as well as returns and exchanges. Not only is this operationally intensive for the brand, but it can also be rife with issues and adds to the logistics burden. Working with the right logistics partner who can provide integrated logistics solutions can ease this burden as brands can rest assured about timely deliveries of their products and have visibility over their supply chain. Similarly, creating a strong customer service team that can handle any issues that may arise eliminates the worry of issue management during any transaction.
Evolution of D2C Ecosystem in India
Consumers are increasingly shifting towards digital platforms for their shopping needs, and D2C brands are taking advantage of this shift by offering innovative products and personalized services, particularly in the FMCG sector. D2C brands now have the opportunity to directly sell their products to consumers, bypassing middlemen and traditional retail channels, by leveraging D2C tech platforms to set up their online stores. This digital revolution has expanded the reach of D2C brands, allowing them to connect with a wider audience
By capitalizing on digital platforms and social media, D2C FMCG brands have successfully cultivated their identities and established direct connections with customers. Moreover, the D2C retail industry faces various challenges due to its intricate value chain encompassing procurement, supply chain and logistics management, distribution, retail operations, and customer service. Major industries are currently adjusting and making concerted efforts to overcome these challenges. Here are a few examples:
Grocery and Gourmet
- High marketing costs / costly organic sales
- Operating multiple domains
- Food wastage due to lack of quality control
- Product unavailability
- lack of same-day, and on-time delivery
- High Cost and low Margin
Digitisation has revolutionized the way D2C brands establish and grow their businesses, enabling them to leverage digital platforms with minimal investments instead of relying solely on physical infrastructure. This shift has empowered grocery brands to eliminate middlemen, distributors, and wholesalers, resulting in higher profit margins and greater operational control. A notable example in this regard is the Open Network for Digital Commerce (ONDC), which offers comprehensive solutions for D2C brands. ONDC facilitates the launch of eCommerce platforms for grocery brands, allowing them to sell their products directly and manage order requests and transactions independently. This government-led initiative streamlines services by offering lower commission costs for selling and marketing. Also, ONDC provides affordable logistics partners and provide in-build value chain solutions for optimized hyperlocal grocery delivery.
Apparel and Footwear
- Difficult to match price range and discounts as offered on marketplaces
- Difficulty in dealing with multiple courier partners
- Connectivity issues in tier 2 and 3 cities due to poor infrastructure
- High RTO rate especially in case of COD orders
Apparel and footwear D2C brands now benefit from new-age digital algorithms that enable them to understand and predict customer preferences and trends well in advance. By leveraging historical sales data and market trends D2C brands can forecast future demand for apparel products. This forecasting capability facilitates optimized inventory management, production planning, and pricing strategies, resulting in improved profitability and reduced inventory wastage. The traditional challenges of establishing a physical retail network and managing multiple eCommerce solutions like online stores, payment gateways, and landing pages are being addressed through advanced technology solutions. D2C solutions aggregator platforms offer a convenient one-stop destination for D2C brands by eliminating the need for multiple software solutions.
Personal Care and Wellness
- Low customer retention rate
- High customer acquisition cost on digital platforms
- Changing consumer preferences
- Volatility of demand
- Rising labor and transportation costs
- Poor Inventory management
Establishing brand recognition and generating awareness among target customers can pose challenges, especially for new personal care brands. However, digital platforms offer direct channels for customer engagement through social media, email marketing, and live chat. This direct interaction enables D2C brands to gain insights into customer preferences, gather valuable feedback, and foster strong relationships with their audience. To ensure quality control and real-time tracking, personal care brands are embracing technology solutions such as barcode scanning, RFID tags, and serialization systems. These advanced tools facilitate quality assurance, traceability, and compliance across the supply chain. Recently there is a growing demand for customized and personalized solutions, particularly in the beauty segment, brands are leveraging AI solutions. These AI-powered tools enable real-time virtual try-on experiences, empowering customers to make informed purchasing decisions with confidence.
- Strong distribution network of legacy brands
- Dependence on e-commerce platforms for promoting visibility
- High commission charged by the marketplace
- Surge in raw material price
- Component shortages
- Low domestic manufacturing
India's electronics retail sector is experiencing rapid expansion due to increasing spending power and technology adoption. To stay competitive, Indian retailers have incorporated e-commerce, omnichannel retailing, customization, and other innovations. Electronic products have complex supply chains involving multiple components, manufacturing processes, and global distribution networks. Advanced technology solutions such as Internet of Things (IoT) devices, blockchain, and real-time analytics can improve supply chain visibility, optimize inventory management, track product movement, and enhance collaboration among suppliers, manufacturers, and logistics partners. By embracing digital technologies and leveraging the digital landscape can help D2C brands thrive in a competitive industry and meet the evolving demands of their customers.
Trends Reshaping the D2C Landscape in India
Indian consumers' purchase patterns are changing quickly, which is driving a rapid increase in adopting advanced technology and investing in infrastructure to meet shifting consumer demand. Moreover, with the surge in D2C brands in the FMCG sector, brands are now seeking to provide innovative shopping methods
To remain competitive, D2C brands in India must utilize advanced technology to meet evolving customer preferences through the integration of features like Virtual try-on using AR and VR for a better buying experience. Additionally, D2C brands must grow their presence across multiple platforms through omnichannel, chat-based commerce, and social commerce approaches. For consumer-packaged brands (CPG), there is a great opportunity to tap into a larger customer base with minimal investment through online collaboration with Open Network for Digital Commerce (ONDC) to access a wider consumer base. to expand their reach, enhance customer engagement, and optimize operations.