The Direct-to-consumer or D2C segment in India is at an all-time high and continues to expand exponentially. Numerous aspects that have led to this tremendous surge include increased internet accessibility at a very low cost, higher penetration of smartphones, better and more convenient platforms/ systems for making transactions, improved delivery and fulfillment infrastructure, etc. The pandemic not only fuelled the D2C sectors' expansion but also permanently changed the customers' behavior, making them glued to the pleasure of shopping from home while getting numerous deals and discounts. 

As per Google's Year in Search Report for 2021, online-first shopping and D2C brands have seen massive gains in interest and number of transactions. On the investments front too, the D2C segment in India saw unprecedented funding with more than $1.4 billion across 160+ deals, putting a spotlight on this high-growth segment. 

Fashion & Lifestyle, Beauty & Wellness, and Food & Grocery lead the D2C ecosystem, in terms of categories. Although traditional players still dominate these categories, D2C companies are giving them a tough competition by leveraging digital and social media, extensive influencer marketing which is as effective (if not more) as advertising, leveraging data and cohorts to improve customer metrics, using automation in product design and development, targeted marketing, and logistics to offer superior customer service. From AR and VR to live or social commerce to quick commerce, D2C brands are looking for new ways to sell better and sell more.

Most D2C brands are also using multiple digital channels/ platforms to sell, besides their own D2C platform. These include marketplaces like Amazon, Flipkart, Ajio, Myntra, etc, social media such as Facebook, YouTube, and Instagram, and social commerce apps such as Trell, as well. New channels are evolving every year for the digital-first brands to leverage. 

The new-age consumers are also different, They want to engage more and understand the brand, its values and USP, the brand story and purpose, the product narrative and price rationale, and much more. Consumers are also becoming savvier and now demand an immersive shopping experience as well as a smooth purchase journey that includes tech-first solutions one-step check-out and pre-filled addresses, among other things, and D2C brands are upping their game to provide the same. 

But that is the existing reality; let us now discuss the future and the potential of D2C.
 
Potential of the D2C Industry

Despite the recent surge, the D2C sector is still in its infancy, allowing companies with many possibilities to experiment in the growing market. The D2C industry in India is forecasted to exceed $100 billion by 2025, which makes it very clear that D2C has a bright future ahead. The consumer trends, the developments in the technology and seller enablement ecosystem, and the market as a whole augur very positive developments in the D2C space.  

Let us do a deep analysis to see what makes this sector so lucrative from a brand’s point of view:
 
Direct Relationship Between the Brand and its Customers - Fraught with multiple intermediaries, most traditional brands did not have any direct relationship with their customers. D2C is opening a whole new world of opportunities where brands directly connect, engage and develop a relationship with their core customers. They get instant feedback and hear the voice of the customer. Inspired by D2C brands even legacy brands have opened new channels of communication and have activated direct relationships with their customers.

Control Over Data - D2C brands own and can hence leverage all consumer data in real-time. Control over data facilitates new ways of utilizing it; from clustering consumers to the inclusion of intelligent marketing automation, and of course, new ways to innovate products and services.

Personalization - The segment of one is now a reality. With available data trends and AI-managed personalization, brands now have the opportunity to better comprehend their consumers and then provide customized products and offers to tempt them again and again. D2C allows merchants to follow their shoppers' activities and understand their behavior and aspirations, while tech solutions create many pitches at record speed, saving both time and money, and making personalization a reality for D2C companies today.

Brand Promotion and Stories - In the new world, content serves as a link between a brand and its customers. A successful D2C brand sees its customers as users and interacts with them at numerous touchpoints. Content is at the core of a successful brand's promotion since it not only engages and educates shoppers but can also convert them to paying users. This helps in expanding the brand’s storytelling. The D2C model nudges businesses to express their ideology, goods, and offerings to their audiences through innovative brand partnerships, storytelling, co-branding, and influencer marketing, thereby assisting them to grow and sustain.

Faster and Easier Scale-Up - Creating and scaling up an offline retail business was always difficult, time-consuming, and involved high Capex. D2C businesses offer a single interface that collects all customer orders, makes inventory management smoother, and provides a real-time forecast, transactions data, and a clear view of the fulfillment chain. There are multiple seller enablement support services that make the entire business easier and faster to scale up, without the need for the brand to create any significant infrastructure on its own. This enables D2C brands to expand their business faster without having to scratch their mind about multiple issues that hurdle the traditional retail business. 

Superior Profit Margins in the Long Run - Though most Indian D2C brands are still far from achieving this benefit due to high marketing and fulfillment costs, eventually, by eliminating intermediaries, D2C brands will be able to reduce distribution costs and gain greater control over their profits. Dependence on intermediaries and distribution inefficiencies will be reduced, which in turn will positively impact the brand. 

Challenges Faced by D2C Brands
 
Despite the lucrative nature of the D2C model, with many brands adopting it, the market is experiencing fierce competition and comes with its own set of challenges. D2C brands have to mushroom across categories and the overall cost of brand building has increased multi-fold. Cost of marketing and sales have zoomed as all brands are vying for the same customers, without much of a differentiated offering. The customer acquisition costs (CAC) have thus skyrocketed in most categories and the Lifetime Value (LTV) of the customers has decreased as the customers have more options and continue to be flirtatious. 

Most D2C brands continue to run after valuations and not after delivering value to their customers and that remains their battleground – the ability to continuously raise funds. In absence of any stickiness, customers opt for new brands, the moment any brand stops aggressive marketing, which in turn is a factor of the cash available. Thus brands start with a high burn rate but after a few months are unable to sustain it. 

Thus while launching a D2C brand is easy, scaling it up is becoming tougher with each passing day. 
 
What's Ahead

The current wave of D2C growth will continue as long as there are investors to fund the growth. As soon as the money dries up in the market, many of these brands will vanish as they will not be able to run the high burn model they are currently on. This in fact will also be good for the market as a whole as only strong brands that are the choice of the customers will survive. 

D2C brands will need to penetrate deeper in terms of geography and look at innovative low-cost customer acquisition techniques, some of which may be a hybrid of online and offline. Further, the focus on customer retention will become a necessity to create optimal CAC – LTV gearing. 

The acquisition of D2C brands by large traditional companies has already started and this trend will further accelerate as D2C brands become bigger and more mainstream. Giants like Marico, Reliance Retail, Tata, Aditya Birla Fashion, etc. have already invested large sums and are eyeing further investments and acquisitions of D2C brands to build their own house of digital-first brands.

Further, D2C brands will also accelerate their foray into the offline retail structure with distribution and EBOs and all other feasible channels. D2C brands will also have to think beyond and across channels like mainstream, brands do. At the end of all this, true omnichannel brands, with a different DNA than legacy brands, will emerge across categories and that will be the real win for the industry as a whole.