Businesses with a D2C business model are disrupting the market like never before and are winning the hearts of their audience. But, you may be thinking, what is D2C? How are they placing themselves in the market? Why are they becoming a trend?
What is D2C?
D2C stands for direct to consumer marketing by removing the middlemen and directly selling a product or a service to consumers through e-commerce as well as branded retail stores. D2C brands produce the product, as well as distribute the product themselves by eliminating the number of men in the distribution cycle. The D2C brands can be seen in every sector including fintech, electronics, fashion and cosmetics, home decor, FMCG and many more.
Covid 19 has majorly affected businesses and startups throughout the world. It has also impacted the perspective of consumers and brands. Consumers today are widely preferring brands and want to be in direct contact with the brands. So brands are also opening native stores to get directly in touch with their consumers. On this note, D2C brands are gaining popularity and great profits. Because of this many conventional brands and businesses are shifting their model to D2C.
Shark Tank and D2C startups
In India, there is a wave of startups and many startups are going for equity funding. Recently, Shark tank India aired on televisions in which sharks like Aman Gupta, Vineeta Singh, Namita Thapar, Peyush Bansal, Ghazal Alagh have invested in D2C brands. Here people come and pitch in their ideas to raise funds for their startup. Famous D2C startups that gained equity funding on the show are Bummer, Heart up my sleeves, Tagz Foods, Hammer and many more.
The panel consists of entrepreneurs who have built famous D2C brands like BOAT, Sugar cosmetics, MamaEarth and LensKart.
Benefits of choosing D2C model
1. Retain control –
D2C brands have higher control on margin as well as over brand reputation. Manufacturers who sell their products through merchants frequently discover that they have little, if any, control over their brand’s reputation. Selling directly to customers eliminates this problem while also giving you complete control over your brand’s messaging and customer service. This is an opportunity to take a proactive, personal approach to customer service and build a strong relationship with your clients.
2. Customer data –
“Content is king,” as the saying goes, but data is just as vital. One of the most significant benefits of direct to consumer eCommerce for brands is complete access to business data; this means you can learn everything you can about your customers’ behavior (even if they didn’t make a purchase): the source that brought them to your website, the pages they visited or products they expressed interest in, the items added to their shopping cart and those that were removed, and much more. All of these put you in control of your business, allowing you to act on the incredibly important insights provided by your data and enhance your store accordingly.
3. Customer engagement and loyalty –
E-commerce brands have the freedom to conduct their businesses as they see fit, without worrying about their image being tainted by a third-party vendor. This is an excellent time for store owners to develop a communication strategy that will keep their customers engaged; creating personalized, high-quality content to share across your channels, offering special deals, soliciting feedback, responding to each new interaction, and more are all excellent ways to earn your customers’ trust and keep them coming back for more.
Cons of D2C model
1. Higher competition level –
D2C e-commerce has a lot of advantages, but it also has a lot of disadvantages. Because eCommerce is on the rise, many large corporations (such as Walmart and Amazon) are offering their products directly to their customers on their online assets; this means an extra challenge for a relatively small business trying to make its way to success, as fighting for your audience’s attention can be difficult.
2. Cost level –
Because expenses that would otherwise go to third-party distributors are reduced, selling directly to customers equals larger profit margins for your company. The bad news is that you’ll be responsible for all other business expenses, including advertising campaigns, product promotions, and various levies.
3. Complex operations –
D2C e-commerce gives you the freedom to run your business whatever you want, but it also comes with a lot of responsibility in the form of managing complex processes. Order fulfillment of payments, shipping, refunds, customer service, and a variety of other responsibilities are frequently juggled by direct-to-consumer business owners.
What do investors look for?
If any angel investors or venture capitalists firms invest their funds in a startup they look for various critical factors such as business model, scalability, value proposition, team, and the most important predictor is in which industry or segment that startup is playing. Following are the factors that investors look like –
1. Market –
Given their capacity to cut out intermediaries, D2Cs have large gross margins. However, due to high SG&A and client acquisition costs, these profits quickly erode. As a result, a startup’s ability to scale (i.e., sell a large volume of product) is important to its survival, making market size and growth two critical considerations.
2. Customers Lifetime value –
Client acquisition costs (CAC) have increased as more companies compete for our attention, emphasizing the necessity of customer lifetime value (LTV) for your organization to remain sustainable. There are two approaches to get a high LTV:
● The average order value is high.
● Purchases made on a regular basis or repeatedly
3. Incumbents –
The ineptitude of incumbents in a category is the most important aspect in a startup’s capacity to disrupt it. We look at two things when evaluating market incumbents:
● Market concentration: They want concentrated marketplaces with fewer options since this prioritizes customer experience and product innovation. Another benefit is high gross margins are common in concentrated markets.
● Pain points: We also look at the industry’s specific unmet demands and customer pain concerns. They favor companies that are solving a problem that a big number of customers are experiencing. The more specific the problem, the more likely are the chances to succeed.
- 4. Barriers to entry –
Investors like industries with high barrier entry as they are harder to disrupt. Barriers to entry can be seen in different ways-
● Manufacturing complexity
● Brand affinity
5. Supply chain –
This is also one of the parameters that investors consider. It consists 2 things –
● Complex supply chains with various middlemen are appealing to us (distributors and retailers). D2Cs that simplify their supply chains can decrease costs substantially and share savings with their customers (e.g., Away Travel with their suitcases) while also having more control over their products (e.g., Everlane and their ‘Radical Transparency’ campaign).
● Friction in the eCommerce world: The second factor they consider is friction, which includes two aspects: 1) customer willingness to buy the product online, and 2) the expense of shipping the merchandise ( i.e., value to weight ratio). We are more drawn to products that have a flawless eCommerce operation. Companies that ingeniously handle these problems, on the other hand, always impress us.
There are various other parameters than stated above that angel investors or venture capitalists firms look into depending on the idea and industry. But D2C brands are disrupting the market in innovative ways and becoming a game changer in the industry. In pandemics, however, these D2C brands were also harmed. When compared to previous records, the D2C brand’s investment rate dropped by 69 percent. Meanwhile, the entire investment was raised around $117.6 million during the year. The ecommerce industry has had a phenomenal year of development. In order to grow and enhance revenues, more brick and mortar stores as well as online retailers are shifting to d2c ecommerce. While there are some drawbacks to going direct to the consumer, the benefits are numerous. It’s one of the most popular ecommerce models, allowing you to get closer to your customers, reduce your reliance on distributors, and gain complete control over your brand.