Direct-to-customer ( D 2 C) Adoption in India Booming

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Indian manufacturers and marketers of  Consumer Packaged Goods (CPG) including cosmetics and personal care are taking the Direct-to-Consumer (D2C) route to enter the market directly.

It was during the lockdown, in the last few months, consumers started choosing to buy even the most essential of products from the safety of their own homes. For those brands who had already chosen to sell online, this meant higher sales, but for those discovering the digital scene for the first time, it is the most appropriate time. Consumer behaviour has changed permanently and perhaps direct-to-consumer or D2C is the way ahead. 

What is direct-to-consumer (D2C) strategy?

D2C or Direct to Customer is a business model where the brand bypasses the traditional method of negotiating with a reseller and retailer to sell. India is one of the fastest-growing market for e-commerce business and according to reports, the country is estimated to have approximately 330 Mn digital buyers this year. When we see the sales projections of Amazon India- from $500 Mn in sales in 2017 to an estimated $200 Bn in the next 10 years, it leaves us with no doubt. With growing digital consumption, changing buying trends of the Indian consumer, advanced technological support from apps and online selling tools for small businesses, the stage is perfectly set for eCommerce success. Government policies catering to domestic e-commerce start-ups, Initiatives such as Atma Nirbhar and #vocalforlocal, growing foreign investments into Indian brands are further fuelling the wave and bringing more new-age brands under the D2C fold. Though affordable merchandise is clearly attracting new customers, it is also that D2C companies are building powerful brands that stand for quality and innovation.

How are D2C brands different from B2C Brands? What are the advantages?

For D2C brands, the primary point of engagement with the customer is their own branded channel/channels. These channels may be an e-commerce website/ platform, social media or exclusive retail stores. For these brands, the entire cycle of engagement with the customer viz. marketing, selling, customer support, fulfilment, returns, exchanges and payments are done on their own native channel with no middlemen involved. Most D2C brands are  ‘digital-first’. Some D2C brands, having already established their online customer bases look at expanding into brick-and-mortar; some introduce pop-up stores, some open their own flagship stores; some D2C brands with an already established brick-and-mortar presence expand their store footprints. But everywhere the objective is to deliver a seamless Omni-channel experience.

Going D2C has many advantages.

  • Higher Margins: Save commissions paid otherwise to aggregators, marketplaces, Distributors, Retailers.
  • Direct contact with consumers: The D2C model provides businesses an opportunity to interact with potential buyers and learn about their evolving needs.
  • Faster to market: It takes a traditional CPG a long time, a period of 12-24 months from conception to market. With D2C, it is real quick – a company can launch a product on a smaller scale, validate the need for it and set up the market plan accordingly. They can also make the appropriate changes to their products if needed. A D2C business offers an opportunity to communicate directly with the consumer at every stage of the process-from giving insights into the concerns a buyer has , what they can expect from the brand and how the brand can resolve them.
  • Be in charge of the business completely: From conception, to the moment the product is in the customer’s hands, the D2C business has complete control. How should the product be packaged, what should the marketing message be, how will the customer receive it? The D2C brand can get answers from potential customers and they do not need to rely on third-party retailers and distributors. They can even co-opt the customer during the product development stage, experiment with new product releases and so much more.
  • Control over Brand Image – In the traditional relationship, the marketing message and brand identity is often watered down. For example, Imagine, your customer doesn’t find your brand on the retail shelves. This may be either due to stock-outs or due to competitor brand’s shelf space negotiation. But this creates a negative perception of your brand leading to off-putting customer experience. You may even lose the customer.D2C brands don’t have to worry about this negative customer experience. In addition, by displaying product recommendations across different touchpoints they can introduce consumers to more products and sub-brands.
  • Low Entry barrier- The launch of SaaS-based e-commerce platforms like Shopify, Facebook Shop, Store Hippo, Get me a shop, Zepo and others have made easy for D2C brands to launch and market products online. At a minimal cost, businesses can build their own online store in-house and thereby not only save the cost of hiring a team and other infrastructure expenditure but also use data analytics to understand their store performance and growth. They can understand revenue by traffic streams, see which products aren’t selling, and make data-driven decisions accordingly.

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D2C brands in India

In India, D2C brands in lifestyle categories like apparel, beauty and home furnishings and CPG  category as food and beverage and personal care have not only succeeded but have become challenger brands. Mattress brands like Wakefit, Sleepycat, Apparel brands like Bombay Shirt Company, Henry & Smith, Label Life, cosmetics brands such as Mamaearth, Sugar, Ustraa, The Moms Co are seeing good traction. D2C Brands like Pee Safe, Azah, Baby Chakra are building unique niches by engaging on social media with their customers. Not only are start-ups taking the D2C routes, even established brands are expanding into the D2C segment with their own eCommerce platforms although, the bulk of their sales, come through wholesale and retail partners. Some renowned brands have even acquired D2C brands to tap into this category. An example is an acquisition by Marico of Beardo, an online-first brand.

Until recently, a successful FMCG company would boast of having a strong distribution network and presence in lakhs of retail outlets. But this has changed with D2C brands challenging these brands and having only an online presence. The Moms Co serves almost 10 lakh customers with 2 Lakh orders per month. Mamaearth is targeting INR 1000 crores in annual revenue in 2023. Fit & Glow, the company that owns the ‘WoW Skin Science brand is expanding offline and is targeting a revenue of INR 250 crores this fiscal.

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The Global Scenario

The explosion of direct-to-consumer (D2C) brands over the past few years have led to a shift in the relationship between brands and consumers. The way consumers buy everything from beauty products, personal care products, sunglasses, mattresses to vitamins and sanitary napkins is disrupting established industries and cutting out the retailer in order to own the end-to-end relationship. Typically, these D2C brands tend to be born out of the internet, targeting younger audiences, digital natives, millennials and are focused on driving more engagement with the customer. They are also usually start-ups, with high potential margins.

For ages, a handful of cosmetics and personal care brands have dominated consumer retail. But this is changing across the world. Giant CPG companies are not only acquiring start-ups for unique products but also to learn about D2C customer acquisition tactics and customer service. Majors like Unilever which acquired D2C poster boy ‘The Dollar Club’; Henkel which acquired 3 D2C brands recently and P&G that acquired all-natural deodorant brand Native and Billie are setting up startup studios to launch new brands and compete with the direct-to-consumer brands that have challenged their businesses in recent years. Overall, the D2C strategy seems to pay off for the start-up business and the consumer is thrilled with choices and the prices.

Author : Sheela Iyer 

sheela@cosmetech.co.in

Sheela Iyer is an observer of the Indian Cosmetics & personal care industry and the editor of ‘Cosmetech’. She regularly video interviews industry experts on Cosmetech TV and has her fortnightly podcast ‘Cosmetics Today’

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