In continuation to our previous edition in this edition, let’s discuss about the evolution of D2C.
According to the study published in European Journal of Social Psychology in 2009, the researchers found that it took participants an average of 66 days to form a new habit, although the time frame varied depending on the individual and the nature of the habit. Amidst the COVID-19 pandemic, there was a surge in the number of online buyers across most categories, and a considerable proportion of these customers expressed their intent to continue shopping online even after physical stores reopen.
The last two years saw a significant shift in consumer behavior. Smartphones and access to the internet have impacted buying behavior. Consumers now discover new products, compare features, and read reviews to make a choice. They check social media before making that final ‘check out’. This consumer shift to purchase various categories online is destined to stay as a habit, and the ‘stickability’ of this shift looks encouraging for those with a robust online presence.
The proliferation of new D2C businesses has disrupted traditional shopping patterns, leading to fundamental changes in how brands interact with their customers. As a result, customer preferences and expectations have undergone a transformation, which has spurred a shift in how brands reach out to their customers. For instance, companies in the telecommunications, grocery, and automotive industries are increasingly adopting direct-to-consumer channels to sell their products directly to consumers, bypassing intermediaries such as dealerships.
According to a report from Shiprocket, since 2016, India has witnessed the emergence of over 800 direct-to-consumer businesses as new market players. The report mentioned that compared to traditional brands like Revlon and Lakme, which took several decades to reach INR 100 crore revenue, modern D2C brands such as Sugar and Mamaearth were able to achieve this milestone in roughly half the time. These businesses have entered the market to fill gaps in product and price that are still not being met by industry incumbents. As a result, established players are now either acquiring or creating their own D2C platforms. Factors such as internet usage, online behavior and shopping patterns, and category preferences of potential customers determine the addressable opportunity in a particular category. By multiplying this with the average order value or spend in a period, the potential for growth in a segment or category can be estimated.
The D2C industry has embraced new marketing strategies like omnichannel marketing and hyper-personalization, which have helped in acquiring and retaining customers. The sector is successful in keeping customers informed and offering them tailored choices based on their preferences. The rise of online shopping is disrupting traditional industries and opening new business opportunities for merchants. D2C marketers aim to engage with customers by targeting smaller audiences, digital natives, and millennials. This approach also presents significant profit margins for start-up businesses.
There are several factors contributing to the growth of the direct-to-consumer (D2C) sector, such as significant untapped markets, supportive ecosystems, expansion into related industries, online market potential, and brand loyalty. However, in 2023, the D2C industry is expected to face external challenges that will require Brands to develop more strategic approaches. Additionally, with increasing competition, Brands will need to come up with specific plans to stand out in the market. As over 80% of Indian pin codes now have access to doorstep deliveries, various categories such as food, clothing, and cosmetics are likely to expand into tier 2 and 3 cities.
Although D2C businesses may face challenges such as stagnant revenue, low customer retention, and high customer acquisition costs, the overall trend is still strong. Despite challenges such as strong competition from established players and challenges in offline ecosystems, D2C brands would succeed through innovation in business models, product and price offerings, and access to growth capital. To fully realize the potential of this market, strategic investments in marketing automation and logistics technologies will be crucial to serve India’s billion consumers and scale the business rapidly.
Author: Kanwal Rai