Over the past few years, the unprecedented growth of the ecommerce industry in India at a CAGR of 19.24% says a lot about the state of consumers and businesses. Dig deeper and you will find the industry embracing digital-first D2C or Direct to Consumer brands. With more than 800 new-age brands eliminating the role of middlemen, the D2C business model has garnered a massive uptick amongst the masses.
With young startups challenging the established giants in the Indian market for decades, it is interesting to see how it marches towards the $100 billion opportunity in the D2C space. If you have plans to enter this business segment, it is important to understand various aspects of D2C ecommerce in detail. Let’s get started.
What is D2C ecommerce?
D2C ecommerce is a business model in which manufacturers/producers sell their products directly to the consumers without relying on middlemen (distributors or retailers). D2C brands not only manufacture and ship their products but also take care of marketing, sales, and customer experience.
At its core, D2C commerce allows brands to quickly enter a market without facing entry constraints, such as distribution and cost per sale. The rise of ecommerce in the country has enabled many businesses to make the most of this opportunity to cut the middlemen and sell directly to their consumers at a higher profit margin.
Either new brands can benefit from the D2C commerce model to join the bandwagon or existing brands can expand their reach by selling directly to the customers. In either case, the core proposition of D2C brands revolves around enabling direct product access to consumers.
Why choose D2C ecommerce? – Key benefits
The popularity of the rise in numbers of D2C companies is mainly based on the obvious benefits, some of which are:
Complete control over the value chain
If you manufacture a product, you need to first find ways to make it reach traditional markets. Since visiting every local store to house your products for sale is neither feasible nor economically viable, you would want something that breaks the usual pattern of doing business. With D2C ecommerce, you can exercise complete control and ownership. You do not have to rely on the retailers to build a long-term rapport with your customers.
D2C brands have greater potential to become profitable earlier than expected because of higher profit margins without paying any middlemen. Moreover, the availability of social media channels helps in reducing the cost per acquisition.
Lesser friction for market entry
In the traditional business model, a new product first reaches a distributor, then a retailer, and finally a customer. In between all these stages, the success and reach of your products also depend on the preference of each middleman to push your products out for sale. If they do not see good profit margins, they are less likely to feel motivated to sell it further.
D2C ecommerce reduces this underlying friction to enter a niche market and start selling your products to potential customers online.
Easy to understand consumer behaviour
D2C ecommerce allows the brands to get in touch with the customers directly. This helps understand their preferences and needs better so as to redefine the offerings accordingly.
Omnichannel brand presence
Running a D2C brand also means enabling your customers to connect with you via different channels for sales or queries. When handled in the right way, this can lead to high sales and a loyal customer base.
D2C ecommerce vs. traditional retail business model: Comparison
The following table highlights the differences between selling products via the traditional business model and using a D2C approach:
|Parameter||Traditional retail business model||D2C ecommerce model|
|Customer interaction||Indirect relation because of multiple parties involved in between||Direct relationship with customers|
|Control over branding||Limited||Full control to manage product marketing and branding|
|Cost involved||Considerably higher||Comparatively lower to begin with|
|Impact of online marketing||Not significant as most of the sales happen through retail stores||Considerable impact as it relies on online traffic for sales|
|Access to user data||Unable to collect data because of distributed network involved||Easy access to consumer data to personalize the offerings|
|Profit margin||Lower because of middlemen involved||High|
Recommended Read: Traditional Marketing vs Digital Marketing: All You Need To Know
Challenges linked with D2C Ecommerce companies
Building a brand falling in the D2C ecommerce industry has its fair share of challenges, some of which are:
Competition with local stores
Not all retailers would like to find a D2C brand selling products in their category online. Battling these retailers having experience in product sales and market reach can be a tough nut to crack.
D2C brands, based on their core selling model, often struggle with fulfilling the orders they receive directly from their customers. It is because of the logistics involved and the direct competition with giant marketplaces that enable quick deliveries.
Development and maintenance of technical infrastructure
The execution of a D2C ecommerce strategy requires proper technology in place and a plan to maintain the same. This can be quite difficult for D2C companies that are just starting out.
High marketing expenses
Although the D2C ecommerce model allows you to broaden your horizons, executing an effective marketing strategy does require significant investment.
How to get started in the D2C ecommerce industry?
Entering a D2C market does come with several risks and challenges. If you can plan well to build a brand ahead of the competition, you set yourself up for success in the time ahead. Make sure you know about various facets of starting a startup company in India before proceeding further.