It was in December 2006 that Time magazine carried 'YOU' as Person of the Year on its cover. The cover announced boldly the importance of the web consumer, a robust user-generated content and the power of social media to change the direction of consumer markets.
However, there was a spanner in between when the global financial meltdown of 2008–09 affected discretionary incomes and consumption patterns. The steep prices of mega brands in different categories drove consumers to seek cheaper options and a rash of entrepreneurs rushed to grab the opportunity. By 2010 names like Warby Parker, Casper, Allbirds, Dollar Shaving Co and the like entered the US market attacking established categories and players. Gillete had more than 70% share in the market at the time when Dollar Shaving cut into the leading brand’s market pie. It was a similar story in the mattress market when Casper entered. According to a Harvard professor, the market in the US offers potential for over 100,000 such brands though after COVID the strategies are changing with entrenched physical players also assuming the avatar of D2C brands which is changing the game rapidly.
India Story
In India, D2C brands like Lenskart entered the market exactly in the same year, 2010 when Warby Parker entered the US market and has grown in the last decade to a sizeable presence with an omnichannel approach. Since 2016, it is estimated that over 600 D2C brands have stepped into the Indian market in sync with the growth of the retail market which is likely to go up from US$40 billion to around US$200 billion in the next five years, while social media users are expected to burgeon from 376 million to touch 500 million by 2025.
The unending pandemic and lockdown of about two years have led to rapid digital acceleration which has aided the boom of the D2C brand. The job losses and drop in discretionary income of a large cross-section of people put pressure on market leaders and mega brands, creating opportunities for value-seeking brands to make their foray and expand their footprint. Avendus Capital, a strategic advisory MNC, projects an addressable market of consumer opportunity of about US$100 billion in India for D2C brands.
Digital First
Now, what's really D2C? It often leads to confusing answers. A digital first strategy is considered a litmus test to ascertain the nature of a brand. There are many instances when the aggregators or marketplaces have pushed a D2C brand to the forefront as Myntra has done for a host of fashion brands. In some other cases, the brand’s own website has acted as the main channel, with the brand and the channel becoming the same.
D2C labels are aplenty and they use an established aggregator or market place as their retail partner, and then there are brands which stand on their own legs, connecting directly with the consumer through their own website or active social media presence, majorly Instagram or Facebook, and a clearly laid out digital business strategy with proper integration with a design-led brand strategy.
The drive towards rediscovery of value with inflation raging in FMCG and other goods and the need for democratising design for mass market offer great opportunities for D2C brands, helping them to move from the periphery to mainstream and even exploring adjacencies to expand market presence much like what players like Nyka, First Cry, Urban Ladder had done. Buy online and pick up in store (BOPIS) is quite the norm now with players across categories. The mega brands, by entering the space, see this as an opportunity to strengthen their brand image and engagement while mostly using it as a flanking strategy, as in to be present in the digital marketplace not really for sales but to protect their market share and leadership.
However, while D2C offers a great opportunity, customer acquisition costs (CAC) are high and brands like Warby Parker, one of the early movers of D2C model in the US reported its average CAC increase by 49% in 2020 and its media spend per customer climbing to 19% of average customer revenue.
