Direct To Billion: Digital Transformation Opportunity Edition 1

Digital Transformation

Direct-to-Consumer (D2C) simply means selling a product or service directly to customers where manufacturers have complete control of creating, promoting, and selling. Brands now focus on creating a direct channel between themselves and their customers. This model offers higher flexibility in pricing, promotions, product line, and marketing, giving manufacturers the tools to establish direct connection with customers and dominate both digital and physical retail environments. Apart from apparent benefits for sellers like increased profit margin, complete control of customer data, deeper customer relationships and better customer experience, this model deserves attention because more and more consumers seem to prefer it. As the online world continues to improve and consumers get more and more used to it, it is safe to say that this model is more than just an infatuation.  According to market data, consumers are increasingly purchasing directly from brands, with a reported increase from 49% in 2019 to 64% at present. This trend has been driven in part by the rise of D2C (Direct-to-Consumer) brands, which have disrupted traditional retail channels and enabled brands to connect more directly with their customers. Despite the concept of purchasing directly from brands not being new, this market is still seen as having opportunities for innovation, as brands continue to explore new ways to enhance the customer experience and create more personalized offerings.

Today, the consumer orders pretty much everything from her smartphone. According to a report by KPMG, the Indian e-commerce market is estimated to reach $200 billion by 2026, up from $30 billion in 2019. According to the KPMG report, the Indian consumer market is expected to continue to grow rapidly in the coming years, driven by factors such as rising incomes, a growing middle class, and increasing urbanization. The report suggests that the consumer market in India could potentially reach US$ 6 trillion by 2030, up from US$ 1.5 trillion in 2019.

Even though the direct-to-consumer (D2C) model has been around since 2015, it gained popularity during the COVID-19 pandemic in 2020. The following year, the D2C industry received healthy funding, putting an even stronger spotlight on this expanding segment. The goal of producing sustainable products and services and increasing fairness and safety for people and the environment has given rise to numerous direct-to-consumer brands. According to a report by Bain and Company, the year 2021 marked a significant shift towards digital-first aggregation models in India, and many direct-to-consumer (D2C) aggregators received significant funding. The report states that VC investment in D2C startups increased from $40 million in 2020 to $1,187 million in 2021. The report also highlights an increase in online consumer purchasing preferences, which has been accelerated by the ease with which brands can build their online presence. The report suggests that this trend is expected to continue in the coming years, and projects that the D2C industry in India will surpass the $66 billion mark by 2023, growing at a rate of 21%.

Consumer preferences (demands & shifts), supply-side innovations, data and technology-driven disruptions, new competitive dynamics, and governmental regulations will also impact how Indian retailers will perform. Therefore, retailers must spearhead business model improvements based on value propositions and diversified operational models. There are several prominent trends in the D2C (Direct-to-Consumer) market, but three key trends are:

  • Personalization and Customization: D2C brands are increasingly focused on providing personalized and customized experiences for their customers. This includes offering tailored product recommendations, personalized messaging and content, and unique packaging and product designs. This trend is one of the key reasons consumers are shifting to D2C and they’ll keep expecting more, in terms of customized experiences.

  • Digital First: Many D2C brands are prioritizing digital channels for customer acquisition, engagement, and retention. This includes leveraging social media platforms, building robust e-commerce websites, investing in mobile apps, and using email and SMS marketing to connect with customers. Content, context, and language collectively constitute the central part of this strategy. The context sensitive content in a preferred language while shopping is a significant advantage in a country with different languages like India. This could make a considerable difference as D2C expands into Tier 2 & 3 cities.

  • Artificial Intelligence (AI) and Analytics: AI and analytics are helping D2C brands to improve customer experiences, optimize operations, and drive growth. As the amount of data generated by D2C businesses continues to grow, AI and analytics will become even more important for staying competitive in this market. AI is no longer an alien concept now; we’ve seen its benefits to the business. Brands need to collect and analyze customer data using AI to create and automate happier customer experiences.

Customers today have a wide variety of options in any category at competitive prices. The retail business is experiencing its most prominent technological disruption compounded by direct access through e-commerce and marketplace platforms.  This trend is expected to last for many years to come. Traditional retailers can now use digital retail channels to increase their reach in Tier II and Tier III cities while spending less on their physical estate. The growth of e-commerce in India is being driven by factors such as the large and growing number of internet and social media users, affordable adoption of e-commerce technologies, and improving payment infrastructure. The number of independently run e-commerce businesses using platforms like Shopify and WooCommerce is also indicative of the increasing popularity of e-commerce in India.

In the next edition of this topic, we will talk about the evolution of D2C, factors that are helping it grow, a few case studies and a wrap-up. Read the next edition here Click

Author: Kanwal Rai

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