In the hyper-connected digital world of today, as we push real connections away, we are strangely bringing brands closer to us, more than ever. Companies aspire to integrate into the fabric of customers’ lives, and they keep innovating to become omnipresent - always at the reach of their patrons. This urgency to catch the easily distracted modern shopper at the right place and the right time gave birth to hordes of direct-to-consumer (D2C) brands in the past decade. Even legacy brands backed by decades of traditional, offline retail channels are getting into this world of pixels. This trend that accelerated during the lockdown, is rapidly gaining momentum now. However, despite this growth, a joint survey by Publicis Groupe India and MMA Global India reveals that 80% of D2C ventures in the country are struggling to achieve profitability. Additionally, most legacy brands get only 1-2% of their overall sales from these D2C platforms. Then what is prompting more and more legacy brands to jump the gun and invest in creating their own D2C platforms? Could it be the new oil for businesses – data?
The Data Dojo
Data has been at the heart of creating successful businesses since day one. Be it the old days of on-ground customer research or more sophisticated digital data from third-party sources, brands rely on insights to devise strategies, innovate products, and design marketing campaigns. But as third-party cookies bid goodbye and regulations around data privacy improve, getting trusted, actionable data insights has become tricky. So now, brands need to invest in building sophisticated data repositories for future success. And what better way to get this data than being in direct contact with their customers throughout the purchasing process? D2C platforms allow the brands to do just that.
Nagaraj Krishnamurthy, Co-Founder & MD, MFunnel shares, “Rich first-party data delivers a huge competitive edge. With first-party data, brands can gain insights, such as what they buy, and how often they make purchases narrate the entire consumer journey better, in short. This is one of the key reasons for established brands to go D2C.”
Sooraj Balakrishnan, Head of Marketing at Acer, one of the first few players to enter the D2C world – tells us that their prime motivation to explore this domain was data. “We started building our D2C platform in 2018-19, to get access to customer data across touchpoints. We have our physical retail stores but the pace of things is different there. Whereas, digitally, we have a goldmine of data. We know the products customers want and their purchase behaviour. Data from our social media and D2C platforms could have given us a lot of insights,” he says.
He adds that they are planning to incorporate AI capabilities into their D2C platforms to churn out better data. It will also improve customer experience.
While this data can be sourced from many other sources; according to industry insiders, D2C platforms can simplify the process while saving some money too.
Nalin Sood, Head - Digital Ecosystem, Healthcare Business, Emami Ltd. notes, “In a traditional model, gathering feedback and insights through a research agency would be much more expensive and time-consuming than direct interaction with customers enabled through first-party data. We gather this data with consent from various sources, including website and app analytics, CRM, social media, surveys, feedback forms, and analyses based on customers’ browsing and purchase behaviour on our platform.”
But Is Data Everything?
First-party data is more extensive and elaborate than any other form of data. It is more refined, can talk about individual customer behaviour, identify TGs based on purchase journeys and not just browsing behaviour. It can eventually help brands to curate more personalised and customer-centric experiences. As Rajiv Dubey, Head of Media at Dabur India says “By establishing a direct line of communication with our audience, we can customise product offerings, tailor marketing approaches, and thereby cultivate deeper brand loyalty.”
However, Dubey believes it is a misconception that D2C businesses are solely focused on data collection. He mentions, “For brands, it overlooks the broader strategic implications of this approach. While data analytics certainly play a crucial role, the significance of D2C extends far beyond data gathering. For brands like ours with a strong retail presence, D2C offers an invaluable opportunity to forge direct relationships with consumers, bypassing intermediaries and gaining unparalleled insights into their needs and preferences. By leveraging these insights, we can drive product innovation, refine marketing strategies, and deliver tailored experiences that resonate with our audience on a deeper level.”
Sumeer Mathur, Chief Strategy Officer, Dentsu Creative India further elaborates, “First-party data is a big motivation but its importance changes depending on the category. While this is a big reason for categories that involve large ticket sizes and cross-selling, it is less important for categories like personal care and FMCG. For fashion, this is always a way to share information and be in touch with consumers.”
Manoj Dawane, Founder & CEO, VTION Digital Analytics also feels that data is one of the most important factors that legacy brands consider while planning their D2C strategies but that can’t be the only reason. He elaborates, “I think more than meeting the customer needs or collecting data, it is a logistical call for these brands to add D2C channels to their sales funnel. The competition is quite high in the marketplace. Smaller brands come up each day who think they are the tigers. Now even e-commerce players have started creating their brands, which they can sell at much lower prices, simply because they can afford end-to-end creation and delivery of products within their existing business models. There is no shortage of warehouses, dark stores, delivery fleets, etc., which would be added costs to traditional brands going D2C. If they don’t do it now, eventually the marketplace will devour them, and the brands are rightly scared. To be honest, it cannot be just for data or experience because it would be the costliest way to get customer data.”
The Logistics of Going D2C
Dawane calls going the D2C way the costliest way to collect data because of the amount of effort and finances behind taking a legacy brand digital. While new-age direct-to-consumer brands are designed with the margins and requirements of an end-to-end approach to selling, legacy brands have decades-old structures in place to support retail-based selling. Products such as healthcare supplements that have a higher profit margin can be easily taken online, while FMCG products with lower margins, and also lower order volumes take considerable effort to be ready to compete in the D2C world.
Mayank Shah, VP, Parle Products – a brand that has shied away from the D2C phenomenon explains, “I think what keeps most (traditional FMCG) players away from D2C is the prohibitively high costs of last-mile delivery. There are added costs of packaging, fuel, and fleet, etc. Next, the product margins need to be high, which is not the case with most consumer products. Brands active in the niche category with high margins or brands that can create a high order value with multiple products across varied categories online can afford to be profitable on D2C platforms. Right now, I feel most brands are getting into the D2C domain out of fear of missing out. They do not want to miss the bus when a disruption in the industry happens and it becomes profitable. Right now, around 95% of them are not unprofitable.”
Talking about the steps that a brand has to take to prepare for their digital journey, Balakrishnan notes “There are multiple things that legacy brands have to work upon to get into the D2C world. First, one has to figure out the basic logistics, i.e., having a platform that can tackle the order volumes while taking care of customer experience and data safety. Sometimes, you need to hire more human power for this. Next, you need to plan packaging and delivery processes. Different brand categories would have different requirements for preparing the packages and completing the last-mile delivery. You also need to set up warehouses or dark rooms across the pin codes. Then you must also have a sophisticated system in place where customers can track their product and much more.”
Along with creating these capabilities for existing products, certain brands would also be required to design new products to suit the specific needs of online customers. This could mean diversifying their product offerings or adding new, sometimes digital-only products to their portfolio. HUL launched specialised digital brands like Acne Squad and Novology. Several brands also acquire existing D2C brands and merge them with their portfolios to expand their scale. For example, ITC’s acquisition of YogaBar and Marico’s investment in Plix. All these are high-cost endeavours that can cost dearly to these brands.
But it’s not all about expenses. Legacy players can also save some cost in the longer run if they build sustainable D2C platforms, as Sonali Malaviya, Chief Strategy and Transformation Officer, EssenceMediacom highlights, “We must not forget that some of these brands have to invest a lot in brick-and-mortar shops, which is not cheap. I think building warehouses would be much cheaper and would also allow scalability. You will not be limited to only big cities like Delhi, Mumbai, and Bangalore paying for brand stores in crazy expensive retail markets. You can expand your businesses to multiple locations with the help of D2C platforms.”
Furthermore, legacy brands can also optimise their media spends smartly by shifting their monies from traditional media to digital – most prominently through programmatic advertising.
Mathur shares, “Traditionally, mainline brands spend on awareness and consideration. When D2C comes into the picture, a portion of this budget gets utilised towards performance marketing as now it’s possible to measure the impact and drive conversions. Once you have a D2C presence, spends get redirected from e-commerce where the consumer would find the brand in a cluttered environment. The mainline spend of the brand does get impacted when a brand moves to include D2C in its mix.”
Elaborating on how going D2C impacts a brand’s marketing strategy, a spokesperson from Godrej says, “Having a strong D2C presence for these select product portfolios has significantly impacted our marketing strategies as well. We’ve invested in building capabilities like graphic design, content creation, and SEO to ensure maximum visibility and efficiency of our promotional efforts. Additionally, our dedicated Shopper Marketing team analyses e-commerce data to optimise ad spend and improve conversion rates. Through joint business planning, promotion strategies, and online content, we have made substantial upgrades to our capabilities, which are yielding results in terms of on-platform conversion rates and off-takes.”
Overall, while data rules the D2C game for most brands, there are multiple other factors that are pushing legacy brands on the D2C route.
