D2C model for Indian startups?

Direct to Consumer (D2C) companies build, sell, and ship the products directly to the end-consumer without the middlemen or third party platforms.

Power is increasingly shifting away from traditional retailers (and e-retailers), as customers are tired of old fashioned – and often outdated – retail experiences. So, there is a need for innovation around customer experience and product.

A new generation of startups with disruptive brands are shaking up retail business through D2C models. D2C startups compete with monopolistic brands in vast market with focus on unique customer experience, high quality and differentiated product, with the a sensitive price point. An explosion of new D2C global companies like Dollar Shave Company, Casper etc. is transforming how people shop online. "Direct-to-Consumer innovators report significant improvement across every measure of customer engagement - awareness, acquisition, satisfaction, mindshare, and profitability", according to Forbes.

Why does D2C make sense?

• Data: D2C model allow startups to foster better customer relationships and loyalty, they also get access to mountains of data pertaining to consumer tastes and preferences since the startup has full control on every visitor on the platform. This allows product customization and catering to a customer's needs, which improves the overall customer experience.
• Customer Experience: Consumers are demanding a new experience that big box retailers and other “middlemen” simply can’t provide. When wholesale manufacturers sell through retail distributors, they have very little say on how the product is sold- they’re at the mercy of the distributor to ensure that the customer leaves the store (or website) satisfied. D2C model gives more control to a startup to provide full experience.
• Brand Awareness: E-commerce platforms are increasingly moving towards promoting products under their own brands on their platforms as profit margins are much higher for private label products. Besides these platforms offer other third-party products, and your product can never successfully build awareness and the brand positioning can be compromised.

More retailers are realising the benefits of D2C models and are investing on their e-commerce sites and brick& mortar stores. This was particularly observed in the US market, where progressive companies like Tesla Motors are going the D2C route.

There is a rise in early-stage consumer brand space in India with companies like Vahdam Chai, RoadGods, BOAT electronics etc.. These products are mostly sold through third party channels or partners. But why have these companies not chosen the D2C model yet?

• Supply-chain: Considerations such us warehouse proximity, special packaging needs, integration to e-commerce platform are key to set up a successful D2C businesses. The primary business expertise of CPG and FMCG is not packaging or customer fulfillment, and many early stage companies do not want to focus on these areas, so they choose to partner with third party vendors.
• Scale: More products leads to more customers. More orders lead to more profits. Product range, price point and choices affect overall scale. For example, the Honest Company launched with 17 products, rather than starting with just one or a handful of products. To achieve high scale, the platform has to offer products that fits everyone's tastes and needs. Higher sales numbers allow lower production costs.
• Payments: This aspect is often overlooked. Payment collection (especially cash) from customers is critical to CPGs. These concerns are largely handled by third party retailers.

In order to build these capabilities, the startups need to have a large market opportunity and cater to a customer base that has high a need for good quality differentiated products with attractive price points.

As per reports, companies like Apple, Xiaomi has already approached the government for 100 per cent FDI in single-brand retail. More brands are likely to go the single-brand retail route and likely to adopt D2C e-tailing. The key to success is to grow a successful D2C business in India, is to NOT adopt a one size- fits- it-all strategy due to the vast digital, language and demographic divide. Each consumer is different. By using the right digital channels that include a mix of of landing sites, social media, and YouTube channels, a wide market can be reached. Building the right brand positioning with an appealing story to the target customer is going build customer loyalty and ultimately sales. By achieving a smart supply chain disruption and achieving high economies of scale, D2C models can be successful.

The ultimate dream for a company is to sell directly to consumers- envision how the customer journey should take place and execute the tactics required to make that vision a reality. But are we ready for this today? Not quite.