We hear about D2C everywhere. Many businesses are shifting towards the D2C (Direct to Consumer) model, and newly launched startups are quickly adopting this approach. It’s no longer a niche; it’s become a mainstream way to run a business. But why are startups and established companies choosing D2C as their primary option?
D2C – Emerging Mainstream Business Model
D2C stands for Direct to Consumer. This model involves businesses selling products directly to consumers, bypassing distribution channels like wholesalers, retailers, and agents.
Example:
Imagine a new chocolate company that offers a wide variety of chocolates—dark, nutty, protein bars, etc. They launch an assorted chocolate box targeting the premium market. By choosing the D2C model, they take on the entire supply chain: manufacturing, marketing, branding, designing, positioning, stock management, shipping, order fulfillment, and handling returns. Essentially, they control the distribution chain completely.
Benefits of D2C Over Traditional Retail Channels
To understand the benefits, let’s look at how traditional retail works. In chocolate company example, if they sell their assorted chocolate box to a wholesaler for ₹550, the wholesaler sells it to retailers for ₹570. Retailers then sell it for ₹650. This results in a significant ₹100 difference between the manufacturing cost and the final retail price.
Disadvantages of Traditional Retail Channel:
- Difficulty in targeting the exact market.
- Loss of control over pricing—retailers dictate the final sale price.
- Missed margin opportunities for manufacturers.
While a D2C model offers the potential for better margins, it does require significant investment in systems and operational chains to ensure seamless delivery and customer satisfaction. In contrast to traditional retail, where retailers market the product, D2C brands must actively drive traffic to their websites, manage purchases, run promotions, and target specific audiences.
Key Areas a D2C company need to figure out:
- Brand Positioning
- Targeted Marketing
- Creating a Brand Story
- Pricing Strategy
- Selecting Delivery Partners
- Establishing Customer Support
- Implementing Feedback Mechanisms
- Developing an R&D Department
For startups, it’s possible to gradually implement these strategies as they scale.
The State of D2C Brands in India Today
According to a Forbes India report, the Indian e-commerce industry is projected to surpass $60 billion by 2027. There’s considerable interest from foreign investors in new-age D2C brands in India. While many brands currently operate in Tier 1 cities, opportunities in Tier 2 and Tier 3 cities remain largely untapped, presenting a goldmine for brands that cultivate strong customer relationships. With government support for manufacturing in India, the D2C sector is poised for significant growth.
When Should D2C Brands Consider Going Offline?
As the D2C wave continues to grow, brands initially see an influx of customers visiting their websites to make purchases. However, as the customer base expands and expectations rise, it becomes essential for brands to build a loyal community by delivering real value. Entering the offline space can significantly enhance conversion rates, as customers appreciate the opportunity to experience products firsthand. This tactile interaction helps to strengthen their relationship with the brand.
In an online setting, customers often have a static focus and tend to buy only the specific products they want, overlooking others. In contrast, in a physical store, they are more likely to explore and purchase additional items, thereby increasing the average order value (AOV).
According to a report by the International Council of Shopping Centers (ICSC), stores can generate 37% more traffic on their websites from customers in the surrounding area.
Key benefits of going offline include:
- Increased Brand Trust: As the trust increases, your chances of failing decreases and allows you to explore.
- Enhanced Community Building: People who root the brands growth and enjoy using its products, then its a good sign to understand that brand is on right track.
- Higher Average Order Value (AOV): A higher AOV directly correlates with stronger revenue and profitability. Customers shopping in-store are often more inclined to purchase additional items, boosting overall sales.
- Improved Conversion Rates: Conversion rates indicate how effectively a brand turns visitors into buyers. Analyzing these rates helps businesses strategize their focus on specific channels and optimize their sales tactics accordingly.
- Real-Time Customer Feedback: Real-time insight in physical spaces enables brands to quickly address concerns, make adjustments, and enhance the customer experience.
- Opportunities for Expansion: The stronger hold a brand has in offline space opens new doors for expansion.
Key Metrics for D2C Success
D2C brands should track the following metrics to measure success and growth:
- Customer Acquisition Cost (CAC)
- Customer Lifetime Value (CLV)
- Repeat Customer Rate
- Average Order Value (AOV)
- Gross Margin
- Conversion Rate
- Net Profit
Conclusion
The Direct to Consumer (D2C) model is still relatively young and disruptive. Businesses must assess the risks and rewards before committing to this model. If you choose the D2C path, expect substantial work from the ground up, including establishing a strong digital presence and continuously monitoring your brand’s positioning. D2C can be risky but also rewarding when executed well.
We wish you the best on your startup journey! If you found this article useful, please share it and also share your thoughts in the comments section. Your feedback encourages us to create more curated content each week. Feel free to explore our other blogs as well.
FAQs
Is the cost of retaining a customer lower than acquiring a new one?
Yes, retaining a customer is significantly less expensive than acquiring a new one. Brands typically spend 5-20 times more on customer acquisition.
What is omni channel?
Omni channel refers to establishing a presence across all platforms to provide a seamless customer experience. A customer can see a product online and purchase it offline, with a consistent experience across all channels.
How can I build a digital presence for a D2C brand?
Start by being active on social media, engaging your audience in your niche, leveraging influencer marketing, showcasing customer testimonials, and running digital ads to boost your digital presence.
