Direct-to-Consumer (D2C) presents an attractive

opportunity, but there is still some time before India

can capitalize on its full potential

Most businesses needs a globally successful story, ‘Poster Boy’, for domestic (any
geography) companies & investors to start believing in the space and then we have our
own unicorns / soonicorns being built out of it — Flipkart (Amazon), Paytm (Alipay), Ola
(Uber), and the list goes on. Of course, businesses & services are then tailored to suit
domestic needs; however, the starting point, more often than not is an inspiration from a
globally accepted business model.

Dollar Shave Club’s billion dollar sale to Unilever in 2016 created the global ‘Poster
Boy’ we were all looking for in the D2C space, but have we been able to capitalize on the
potential of D2C yet? Or is it still some time away?

So I have heard of B2C, B2B, C2C, and such other terms. Now what the hell
is D2C?

No intermediaries. Directly from manufacturer to consumer. That’s the D2C business

model. Products are made, sold & delivered directly to the end consumer with no
intermediaries in between.

Understood. But why are people talking about it now? What has changed?

Today, entrepreneurship is at its peak in the country. The earlier generation was more
inclined towards predictable, less risky and so-called stable professions such as
engineering, medical, law, banking, etc. but today there has been a significant shift in the
mindset of individuals where ambition clubbed with aids like technology, changing
consumer habits, etc. is fostering entrepreneurship in the biggest possible way in the
country. Everyone is / or believes can become an entrepreneur today — whether it is
someone as young as Ritesh Agarwal (Oyo) or someone as old as Anand Anandkumar
(Bugworks).

Earlier, distribution, payments, scaling, brand building were considered challenging for
individuals to do on their own, however today, the digital revolution coupled with
large proliferation of startups (in each of these areas) has solved (to some extent)
these problems helping entrepreneurs dare to build brands on their own given they have
a supporting ecosystem around them.

And of course, no India story is complete these days without the mention of Jio. Having
given the power of smartphone / internet in everyone’s hands through its disruptive
pricing & reach, Jio is helping to develop the ‘New India Consumer’ today. This ‘New
India Consumer’ is (will be) digitally SOCIAL –
Savvy, Opinionative, Choosy, Informed, Aware and Literate — the development of this
consumer has already started, and it will not take long before he / she matures. This
consumer will be aspirational & trendier and so traditional business models might not be
enough to satisfy or win him / her — disruption across the value chain will be needed,
with customer experience being the most important whether it is around personalization,
packaging, delivery, brand values, etc.

Too many factors have changed today making the D2C opportunity absolutely ripe for
disruption!

Any advantages for the Sellers?

D2C allows brands not to be at the mercy of the distributor / retailer to ensure superior
(or even an average) customer experience but lets them control their own fate. Once
the discounts / cashbacks are gone (whenever that happens, if ever), customer
experience will be the single biggest differentiator (not that it isn’t today, but one has to
agree that discounts / cashbacks are also a big pull factor) and hence whoever can ace
this will win the market (much of the research, money, efforts towards AI is for
improving customer experience, besides solving greater world problems of course).
Selling directly will help brands control the customer experience.

Direct sales will allow brands to collect customer data. In today’s day and time, the
customer in ‘Customer is King’ has been replaced by data — the ‘Pseudo Customer’. Data
is the new currency. Data analytics can help increase the LTV of customers since brands
can provide tailor-made personalized solutions to customers as per their preferences,
behavior & needs — this can help drive up the customer happiness quotient leading to
retention as well as larger & more frequent purchases.

Cutting out the middlemen also helps you save significant costs. E-commerce websites in
India charge anywhere between 5 to 15–20% (not verified) commissions from their
sellers apart from several other fees such as shipping fee, collection fee, listing fee, etc.
Lower costs in the D2C model can help brands price their products more competitively
boosting their sales / market share.

Rather than being one among thousands of brands (which also has its advantages) on an
e-commerce platform or in a multi-brand retail store, targeted & directed efforts with
landing pages (website, app, facebook, twitter, youtube, or even own store) including
content & literature solely about your brand can possibly build the brand better through
unambiguous brand positioning and value proposition.

And what about the incumbent players. FMCG giants, others? Do they feel
threatened? Are they doing something?

For many years, Gillette was a clear leader in the razors market in the US, with over 70%
share. Dollar Shave Club, through its well thought out D2C strategy was able to
successfully challenge / take away substantial market share from Gillette. Unilever saw
this as an opportunity and snapped up Dollar Shave Club (not before its valuation
crossed a billion dollars).

Clearly, some of the incumbents have realized that acquiring / investing in such
players can be a good strategy — this will not only counter the threat of new-age startups
disrupting the incumbents’ businesses but can also serve as D2C platform in the future.
Examples include Marico’s investment in Beardo, Emami’s investment in the Man
Company, etc. (though these startups are not pure D2C today)

Then there are some others who are organically building their own D2C channels within
the organization. Nike and other retailers are investing in direct sales by beefing up their
e-commerce sites as well as launching their own brick-and-mortar stores everywhere
(more others than Nike).

Whether organic or inorganic, incumbents have already started work on the D2C piece,
not just to counter the threat from new-age businesses, but also because they clearly see a
large opportunity in that space.
Sounds interesting. So why is this not happening currently? And what can
make it work?

Over the past few years, India has seen a lot of early/mid-stage consumer
brands spring up in various spaces such as food & beverages (Raw Pressery, Vahdam
Teas, etc.), personal care & grooming (Bombay Shaving Company, Beardo, etc.) and baby
care (Mamaearth, etc.) to name a few.

Such new-age brands have managed to create a niche positioning (price point,
subscription, organic, natural, etc.) for themselves that have resonated well with both
consumers as well as investors. Some of them could have possibly gone the purely D2C
route — however, in order to (a) achieve quick scales (expectation to meet numbers for
funded startups) and (b) provide a seamless experience (not necessarily the best /
differentiating customer experience, but enough to make the early sales) to their early
adopters, without getting into the myriad problems of supply-chain / last mile delivery,
etc., such companies have adopted the hybrid model of ‘D2C along with e-commerce
(Amazon, Flipkart, etc.) / multi-brand retail’.

However, given that most of these players are positioned as ‘Digital First’, once scale &
brand is established well, they would be the best positioned & the first ones to grab the
D2C opportunity (and eliminate the commissions they pay to the likes of Amazon,
Flipkart, Nykaa, etc.).

Having said that, it will be easier (hopefully) to implement & gain traction from the first
wave of internet users (mainly metro users), however, to make a sustainably growing &
profitable model out of D2C, it will be essential to capture the next wave of users (also
known as the ‘Next Billion’ by many). And out of V3 (Video, Vernacular, Voice) — the
trilogy that will help capture the ‘Next Billion’, Vernacular will be key to success (to
achieve massive scale). Of course, Video will play its part in terms of brand
communication through advertising / marketing initiatives (which will also happen in
the local language of the consumer), and at some stage Voice will also play a part
(Amazon Echo might become mainstream someday with capabilities of the main Indian
languages). But as of today, focus on vernacular will be most essential. A lot of the
communication, marketing, messaging, selling, website / app etc. will need to be in the
users’ preferred / local / used language — explosion of ShareChat (‘Poster Boy’ of the
vernacular space) and vernacular language video content clearly demonstrates the
disruption that can be unleashed through these mediums.

Apart from this, products that can fall under the ambit of subscription or recurring
usage will be more appealing from a D2C standpoint. Lately, the subscription bug has
bitten India — whether it is Netflix, Amazon Prime, Zomato Gold, Ola Select, MMT
Black, Fab Bag, etc. — Customers are flocking to buy subscriptions (for various reasons —
price, exclusive content, etc.) and are happy to make up front payments as far as the
value proposition is delivered. How this augurs well for D2C models is because of two
reasons: (a) If you are going to take a six-month / one-year long subscription, you will
most likely buy it directly from the brand website rather than from some marketplace —
something like the 12 month subscription of razors & other shaving stuff will be best
bought from the brand’s website / app rather than from Amazon (b) Given the
predictable nature of the business in subscriptions (say delivery on 29th of every month),
it makes sourcing, manufacturing, delivery, etc. everything more efficient, predictable
and easy to do and hence can be managed by some of the early/mid-stage brands who
are still not as scaled / experienced.

Closing thoughts?

D2C represents the most ideal scenario for any Company. However, we live in the real
world, not an ideal one. And hence Companies will need to understand the products that
will be fit to be sold through D2C. The most attractive consumer products ripe for
D2C disruption are the ones which have a large spread on gross margin level (this was
true in the case of razors — Dollar Shave Club disrupted it), are easy / cheap to ship (this
is true for some beauty & personal care products — Honest Beauty disrupted it) and are
non-perishable (this was true in the case of mattresses — Casper disrupted it). However,
product characteristics are not the only requirement — above everything, brands will
need to strongly believe that they can drive clear value proposition / differentiation to the
consumers in order to make D2C work.