By Anshuk Aggarwal
In the last 5 years, there has been a lot of buzz around Direct-to-consumer or D2C brands. D2C is nothing but selling directly to the end customers via your own website without involving intermediaries like distributors or retailers. This is why the name “D2C” got coined.
One of the main questions that we hear when talking about D2C is, how does a D2C brand reach out to the end customer directly, and what was different in the last 5 years that propelled the growth of the D2C industry.
Facebook and Internet accessibility
To start with, the evolution of smartphones and the emergence of networks like Jio has made the internet easily accessible to millions of people in India. Just the number of active users on Facebook is a testimony to this. India currently has 330 million active users on Facebook which is nearly double to that of the USA – the second-largest country for Facebook. Just 5 years ago, the number of Facebook users in India was just 180 million. The increased user base meant access to a wider customer segment thus fuelling the dreams of D2C brands
The Covid network
In 2020 and 2021, Covid also brought tailwinds to the entire D2C industry. Malls were shut for some time and more and more people were forced to shop online sitting at home. The inertia of shopping online was suddenly challenged by a barrage of startups in the online space offering groceries to cooked food to be delivered at the click of a button. The end result was people who never shopped online until 2019, did that in 2020 for the first time.
While all this was happening, the ecosystem also evolved to keep pace with the growing demands of the customer. Platforms such as Shopify rose to strength offering brands to build D2C websites in as little as a week. Delivery providers like Shiprocket expanded coverage to thousands of pin codes in India and reduced delivery times to as little as 1-2 days. Newer companies emerged trying to solve India-specific issues like the high Return-to-origin (RTO) rate.
During this time, the D2C industry became ripe for 10x growth. Success stories started emerging of brands like BoAt or MamaEarth who made it big going the D2C way. This caught the investor’s attention and we saw the total number of deals swell in 2020 and 2021. In 2021 alone a total of two billion dollars was pumped into D2C by investors across over 100 deals. And for every D2C brand which is VC funded, there are 50 others that are bootstrapped and or looking for VC money. What better way to woo investors than to show them month-on-month growth in customer base?
Here comes Facebook and Instagram.
Talking E-commerce acquisition
60-80% of customer acquisition across most D2C brands happens on the Meta set of apps. This exposes D2C brands to a high level of vulnerability. Small variations in the cost of impressions (CPM) on Facebook could result in a huge dent in the bottom line of D2C brands. Founders and Investors had always known this and had accepted this as an inherent risk in the industry.
So in 2021 when every brand was raising VC capital and pouring money on Facebook and Instagram, CPM started to rise. To the extent that it rose 20-30% for most brands within the span of a year. But that’s not all, one more key change happened in 2021 which did flutter the entire advertising industry. That was Apple’s announcement that it will stop firing third party cookies on its ecosystem. That means if you see an ad on the Facebook app on an Apple device and then click on the ad and go to a Safari browser to complete the purchase, Facebook may not be able to track the purchase event. This essentially meant less data for Facebook and which translated into less accurate targeting.
Coupled together, several D2C brands saw their acquisition costs go up by as much as 40-50% during the span of 2021. So the question arises,
What should D2C brands do given a new reality?
Over the last 6 months, I have interacted with over 100 DTC founders on how they are overcoming this challenge. A few common threads emerged.
Focus more on increasing customer lifetime value. This can be done by increasing the repeat rates of existing customers by offering them better cross-sell or upsell opportunities. There are tools that can help a brand do customer marketing across Whatsapp, Email, SMS, and Push notifications. These are found to be very effective in increasing repeats.
Build alternative and cheaper ways to bring more valuable traffic on the website. This could be via influencers or using alternative ad platforms like YouTube or Snapchat where competition is still less and the cost of impression is maybe one-fifth of what Facebook or Instagram offers.
Several DTC brands are also opting for the Omnichannel strategy. Being present across websites, marketplaces and offline retail also increase the avenues for reaching out to customers. Often we see brand searches go up significantly on Google when a brand is listed on marketplaces like Amazon or Nykaa
D2C is here to stay. But founders need to do more than just switch on their Facebook or Instagram ads to scale a brand today. Gone are the days when ads alone could scale a brand to more than 1000 orders a day. Today founders need to get more creative to stand out as a brand and lure potential customers to come to their website and make a purchase.
The author is co-founder of AdYogi. Views expressed are personal.
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