Why most D2C brands will fail?

Mrs.Anjali is an IT professional, mother of 2 sons living in Mumbai aged 32. Being an early adopter and tech savvy, Anjali is an ardent eCommerce endorser. She wakes upto A brand facewash, practices yoga on a B brand yogawear, bathes with C brand Soap, drinks D brand tea, eats E brand Oats, cooks with F brand Olive oil on a G brand cooktop, serves food on H brand tableware, works from home on a I brand chair, talks to colleagues online thru brand J Headphones, relaxes on a K brand lounger and her day goes on like this till she sleeps at night on the brand Z mattress.

Brands A-Z mentioned above in the life of Anjali are not from stable of Unilever, P&G or Reckitt Beckinser. All of those are Direct-to-Consumer (D2C brands) and she had bought all of them online. With millions of Anjalis around the Nation, it looks like a bumper field for new and upcoming D2C brands. Answer is not a resounding yes but a yes with truckloads of riders around it.

Market is abuzz with plenty of monies (or announcement of it) chasing around good D2C brands. Are all the D2C brands being funded? Can they all expect to see that happening few years from launch? It’s a Big NO. Author who has created & own several D2C brands is of the strong belief that most (not all) D2C brands will fail eventually. This is not a curse statement. This is rather a wake-up call at an early stage. Analysing the reasons can throw light on how not to fail.

Below are the 8 tricky scenarios which brands typically fall prey to. These 8 factors shall be answer to the ubiquitous Question ‘Why will most D2C brands fail?’:

1.?????Pushing the Topline

2.?????Poor Choice of Advertising

3.?????ASP mistakes

4.?????Advertising for Ego Boost

5.?????Operational Debacles

6.?????Customer is King (not all)

7.?????Wider Portfolio, Deeper Problems

8.?????DKYC – Don’t know your Customer

?1.Pushing the Topline

Business is addictive. Be it small or big, many businessmen have been victim of this addiction ever since Commerce originated. eCommerce business has got far more dopamine than traditional businesses. While latter will give that push once a month or so, the former will excite on an hourly basis. Imagine this with a first-generation entrepreneur at the helm, it is worser than a dope obsession.

Enthused with topline numbers, D2C brands keep pushing the spends unmindful of the real business output – Bottomline. More products, more advertising, more eyeballs, more channels, more markets – the journey gets pretty captivating. Topline zooms at the start and stabilizes at a certain level for every D2C brand.

If a brand doesn’t delve into details at an early stage (during Zooming phase), it shall spell a disaster when Topline peaks up. Burning cash is easy, earning profits is difficult. Backed with investor funding, many D2C brands just doesn’t bother about burning cash.

Unlike an app which is aggregating demand and supply, burning cash necessarily will not yield long term benefits for a D2C brand. It may certainly add Topline but that is just not enough!

2.Poor choice of advertising

D2C brands burn cash on poor choice of advertising in 3 areas:

1.?????Digital Agency

2.?????Channels of marketing

3.?????Influencer

4.?????Celebrity

Digital Agency – Each category has its dynamics. Every D2C brand has got certain aspiration and limitation. Typically, every D2C brand wish to be associated with a digital agency which has worked on top 3 brands. This is a classic approach – Success will bring success. There is no guarantee the agency has delivered success (definition not clear) to the top brands. You end up paying top dollars in the form of Retainers, Media commission etc., and earn nothing back in return (bottomline). D2C brand journey needs to be mapped to the right agency at different stages of its growth. Probably one day it can have the best digital agency but not necessarily on the first day.

Channels of Marketing – Digital marketing channels are so microscopic in nature. But one needs to dissect it before deploying spends. Imagine an Adult Diaper brand advertising its brand video on Instagram. Or think of a teen fashion clothing brand promoting its campaign only on Facebook. Both are recipes for disaster (a real situation happening now)

Different channels serve a specific audience & purpose. A D2C brand needs to understand the dynamics of a channel and use it as part of their campaign strategy only if it serves well for the brand. Many a times, D2C brand monies are wasted this way.

An intern in digital agency will decide for budget splits for a D2C brand. He/ She would be working a similar exercise for 10 other D2C brands. Agency resource is unaware of brand dynamics, D2C brand is ignorant of digital channels – this deadly combination is a perfect recipe for debacle.

Influencer

Digital brands have discovered a new source of advertising – Influencers. Ordinary people from home have been creating content (BIGG BOSS at home from brushing teeth to snuggling in night bed) and they build up an ardent follower base. Initially D2C brands created influencers. Presently Influencers dominate D2C brands. More the follower, association rates jump up exponentially.

Here again, D2C brands need to understand their brand lifecycle and accordingly allocate budget to Influencers. There is no point in a premium handbag D2C brand being promoted by a Village Cooking Influencer, just for the sake of views. Again there is no reason for a budget Cookware D2C brand to be promoted by a Hi-Fi metro influencer who charges upward of a lakh per post.

Celebrity

PE funded companies can go crazy for brand endorsement of a Celebrity. Licious can afford Anil & Arjun Kapoor. Netmeds can get Kareena & Karishma Kapoor. Oziva can associate with Deepika Padukone. MamaEarth can associate with Shilpa Shetty. But not every D2C brand need a Celebrity.

Again considering the life-stage of a D2C brand, category dynamics and available budget (vs Sales), this Celebrity association needs to be factored in. Even a regional Cine celebrity, TV actor or a popular chef (even in not so busy Covid times) comes loaded with a pay package. A D2C brand must associate only if ethos match and budget can afford. Else, it is a sure fiasco.

3.ASP Mistakes

D2C brands priced below Rs.500/- with a probable frequency of repeat purchase less than 6 months are highly likely to fail. Chasing new customers on marketplaces or on Social media is an expensive exercise & the eventual throughput doesn’t compensate the efforts holistically.

ASP (Average Selling Price) mistake is not relevant on two counts: 1) Product categories with higher frequency of repetitive purchases like Grocery, Personal Care, Handyman Services etc., 2) High value of one time purchase like premium furniture, mobile, eco-friendly shoes etc., Lifetime value of a Customer (LTC) is better in both the above scenarios provided the product is good and meets customer needs.

India being geographically humungous in nature comes with a natural disadvantage of high cost of shipping products to customers. Other factor being India has a large order proportion of CoD (Cash on Delivery) which amplifies the issues of customer returns.

Considering the above pointers, it is wise for a D2C brand which is lesser than Rs.500/- (& matching the criteria) not to dream for online success.

4.Advertising for Ego Boost

We all are sentimental about our initiatives. Brands must trespass these petty sentiments - Having started something, we must pursue it even at a loss! Having put in best of our efforts, it will succeed one day! Detach sentiments and introspect a business success only on number terms.

A close friend of yours will always boast high of your brand and say he has been seeing your Ads all over the social media. A family member will always see your brand ranking high on top of Amazon search. They all have good intentions, but it gives a bad ego boost to self. Never yield into that.

Off late have been seeing a Coconut water brand (yes, the simple fresh coconut water costing Rs.40/- on streetside) flashing its brand video all over social media & influencers endorsing it. How on Earth, coconut water becomes an essential daily requirement? There is no point in building this brand recall. On the contrary, have been viewing a Country milk brand advertising heavily. They may get to enjoy certain adoption & profitable campaigning if the trial users convert into ardent members.

Unfortunately, game is played by many brands for a profitable acquisition with plenty of PE monies chasing D2C brands in India presently. But PE’s are clear to acquire brands only on EBIDTA and not on crazy toplines or even crazier digital advertising spends.

Guess who wins billions in this ego advertising race? – Facebook & Google. No one else!

[End of Part 1, await Part 2]

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