D2C and the brand opportunity in India

I would argue that the biggest factor for D2C to gain so much trust and so fast from their target consumers is the organic nature of their development. So many of these brands have a similar story. They are not a product of a corporate’s market research or strategy, but rather an idea from someone sitting at home being dissatisfied by the way a certain product was being offered by the traditional companies. Not enough safe baby products, not enough reliable fresh food, not enough variety in cosmetics, etc, etc. So each new D2C brand was born to solve a specific problem for a usually very specific group of customers and, with the benefit of focus, did it pretty well. This is absolutely key, gaining the trust of a small homogeneous group of customers because you solve their very concrete pain point.

A second organic factor was COVID, which pushed a great number of consumers to buy from home through digital channels. This moment was a perfect fit for D2C brands, with their native direct delivery model and, most importantly, their digital closeness to the customer. For months, people’s eyes and minds were fully on the screen and small new brands took advantage. Once that period ended, people’s attention went somewhere else but the trust in those brands which had served them well in the pandemic remained.

A third aspect of D2C brands’ ability to gain consumer trust is the innate customer centricity in all their operations. They just seem to have an additional gear when it comes to service and execution. As companies that outsource most of their operations (procurement, manufacturing, order fulfillment, etc), lack experience and operate at a sub-optimal scale, they could easily be messing up on a frequent basis. And yet they do not. For instance, I regularly buy chicken from Licious and I still have not had to return a single piece. The delivery comes in a couple of hours like a clock. Payment is seamless. And any customer concern is rapidly resolved. Part of this success again is their focused nature and their customer orientation. And part is also that the ecosystem they rely on (home delivery providers, B2B procurement, payments and e-commerce software, etc) has become hyper-reliable and efficient. All of this builds trust.

Both types of brands (traditional and D2C) are bound to grow fast in the coming years in India thanks to the market momentum. But should traditional brands worry about substitution down the line? I think the answer is yes and no.

“D2C is something different, much more focused, so it does not represent a real threat”. There is some truth to this. We are currently witnessing the pains of D2C brands to grow outside their initial cohorts. If focus is their strength, growth obviously becomes harder and harder as their saturate their relatively constrained TAMs (in India there are still not so many online consumers with regular and significant spending). This would still leave hundreds of millions of people as the exclusive space for traditional brands to grow through the premiumisation trend.

Nothing wrong with that, except that the segments that D2C brands naturally compete in are also the more affluent ones. So while D2C brands might not be a serious threat to traditional players’ growth, they might be to their profitability. I doubt traditional brands want to willingly abandon the segments with least price sensitivity, so a fight must be had. And that fight in the more affluent part of the market will be won cohort by cohort, as customers there require customisation and a value proposition that fits them like a glove. In a sense, D2C brands, which are born precisely on that premise, have already tilted the playing field to their advantage.