#007 Direct to Consumer (D2C) Trends in India

E-commerce made easy.

🥡 D2C Trend Takeaways

  1. The D2C Trend is being caused by internet penetration, hypertargeting of niches & the ease of building e-commerce websites has democratised the ability to build consumer brands.

  2. Content & community building are the moat for a long lasting, profitable D2C brand - if you really purely on FB/Google ad spends, your brand will die the day your money dries out.

  3. Opportunities exist across the value chain - you can build a brand, tech product or service business.


D2C is simply a business model selling products directly to the customer without having any retailing and wholesale distribution channels. Think MamaEarth (100cr in 3 years), BoAt (100cr in 2 years), Licious (100cr in 3 years) & many more. We explore the opportunity of building a D2C focused business in this week’s newsletter.

🧐 Market Gap

  • The Jio Boom has given affordable internet access to the masses.

    • Never before have so many people in India been so easily accessible for advertisers.

  • The first step in the retail shift was to e-commerce such as Amazon, Flipkart, etc. which has been further accelerated by the Pandemic.

    • Now that people are comfortable with online purchases, new brands can also start selling online.

  • Advertising and products no longer need to be made for the broadest possible audience. With hyper-targeted ads, niche brands can now target specific niches in consumer demand.

    • Facebook/Google ads have become a science with the emergence of Performance Marketing. Performance Marketing is basically paid marketing on Google & Facebook which is only charged when a certain action is performed - for example clicking on a link or completing a purchase.

    • Performance Marketing has led to the flourishing of the Direct to Consumer (D2C) business model since ads can now be targeted precisely at the people who are most likely to buy the product.

    • Brands serving small niches can now find their customers at manageable customer acquisition costs.

  • Shopify and other websites allow brands to easily create an e-commerce platform that can serve various regions in one shot.

  • Traditional brands are slower and more focused on strengthening their existing product ranges, providing space for new entrants to quickly launch and capitalise on pricing or product white spaces.

  • The lack of distributors and retailers for an online-only model means a reduction in supply chain complexity and thus better inventory management.

  • Can leverage pricing gaps in the product offerings by existing brands (refer page 50, Avendus Research).

  • D2C has essentially reduced the challenges of distribution to companies and helping them to launch the products as soon as they are ready to launch. Some D2C brands achieved INR 100 crores revenues much faster compared to traditional players.

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💰 Market Size

D2C brands in India across personal care, foods, consumer electronics and more are expected to reach $100 billion by 2025.

🧗 Process

We did an episode with Navjot Kaur, VP at Fireside Ventures which focuses on the playbook to launch a D2C brand.

Nik Sharma also has this great presentation on launching a D2C brand.

  1. Identify a niche market.

  2. Setup manufacturing capacities/contract manufacturing.

  3. Create an e-commerce website (you can use Shopify)/ Register on e commerce platforms for selling your products.

  4. Set up a payment gateway to collect the payments.

  5. Have tie ups with third party logistics partners (Xpressbees, Delhivery) to deliver the product at the customers doorstep.

  6. Donate to the Church of Zuckerberg (FB/Insta ads) or Google ads to start marketing the product online and fulfil the orders.

    • Influencer marketing continues to become a larger part of D2C marketing.

    • Leverage content to create a community to reduce reliance on paid ads.

    • We will launch an episode this week focusing on Digital Marketing for D2C brands with Himanshu Arora from Social Panga.

This process seems simple but the first and last step are where one needs to be careful.

Market dynamics are the most important factor leading to the success of a company.

Church Donations are an endless bucket where you can spend money - if they are not properly optimised or used to create a long lasting community, your brand will last only as long as your money.

🥊 Players

Home Products

Personal Care Products

The largest and fastest growing category in the D2C space.

Our episode with the American Personal Care D2C brand ‘Shaz & Kiks’:

Food

Healthcare

Consumer Electronic

Subscription Model

Fashion

From Established Brands

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🛰️ Tech Stack

Here’s the list of tools for different functions that are needed to build a D2C Brand.

🙏 Our Predictions

  • The D2C brands who survive in the long run will increasingly become content production machines that are also selling products. They will use this content to create an engaged community of fans around a central mission - this community will be their moat.

    • Content and community build the brand and reduce customer acquisition costs over the long run.

    • This is the playbook successfully run by The Better India/Home.

  • Traditional players have already started experimenting with D2C channels with the onset of the pandemic and will continue acquiring D2C brands.

    • Acquisition by large traditional players will be the most likely route to exit for D2C brands as traditional players look for story driven brands.

  • Costs of distributing the products will be same as the cost of advertising and logistics/ market place commission will be around 22-35% where as in traditional model retailer and wholesaler margins will be around 20-30% of product prices. (refer page 38, Avendus Research)

  • The best players will shift some of their marketing spends from acquiring new customers to retaining current customers.

    • As per our conversations, ~90-100% of marketing spends are currently focused on acquiring new customers but this could be reduced to 60%. The remaining 40% could be spent on retaining current customers.

    • Lifetime value of customer acquired and retained through own platform is 6x the customer acquisition costs (refer page 56, Avendus Research).

  • Economies of scale can be achieved leading to lower production and distribution costs.

  • Inventory management a will play a key role and rapid expansion might lead to inconsistent quality.

  • Can use data analytics to target customer and can provide specific offers for targeted customers.

  • D2C and traditional models both will co exist with growth coming mainly from D2C channel.

🛒 Opportunities

  • Find a white space where traditional brands are not serving a need or ignoring a certain customer segment and build a story-focused brand around that niche.

  • Identify a product category that requires repeat purchase and build a subscription D2C.

    • Easier to do this bootstrapped. Retention will be the key to success.

  • Expand the footprint of a regional brand to a national/global level.

  • Create a community management platform to help D2C brands build and engage with their communities.

  • Create a content-as-a-service business because the diversity and amount of content creation is exploding at the moment.

    • Affordable video content production is difficult to find for smaller brands. Video consumption is on the rise.

    • Studio Dialog Box is one that comes to mind.

  • Consult brands on how they can build engaging communities.

    • This is a new field and there is a shortage of talent.

  • Build a D2C focused Branding & Digital Marketing agency to help brands optimise their spend.

    • My wife does branding for D2C businesses (including Shaz & Kiks), contact me if you’re interested.

  • Build a D2C focused micro-SaaS business for different marketplaces.

  • Invest in and Operate (or build yourself) multiple micro-D2C brands leveraging economies of scale on the operational backend.

  • Start D2C for your manufacturing business.

    • Reach out to us for a detailed playbook.

📉 Challenges

Easy for copycats to enter.

You need to build a solid moat using community & content.

Its easy to get addicted to generating revenue through performance marketing dollars.

Extremely important to focus on retention marketing, organic traffic through content and word of mouth through a strong community.

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🔗 Links

  1. D2C brands are driving up customer acquisition costs – and it’s time to course-correct.

  2. How India’s Women-Focussed D2C Brands Are Leveraging Product Innovation To Challenge FMCG Majors

  3. https://inc42.com/startups/can-shoptimize-take-on-shopify-other-global-giants-in-indias-booming-d2c-market