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 more than selling directly to end customers through your own website without involving intermediaries such as distributors or resellers. That is why the name “D2C” was invented.
One of the most important questions we hear when we talk about D2C is how a D2C brand reaches directly to the end customer and what was different in the last 5 years that drove the growth of the D2C industry.
Facebook and internet accessibility
To begin with, the development of smartphones and the emergence of networks like Jio have made the internet easily accessible to millions of people in India. Just the number of active users on Facebook is a testament to this. India currently has 330 million active users on Facebook, which is almost double that of the United States – 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, which nurtured the dreams of D2C brands
The Covid network
In 2020 and 2021, Covid also brought tailwinds to the entire D2C industry. Shopping malls were closed 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 start-ups in the online area offering cooked food groceries that could be delivered at the click of a button. The end result was that people who never shopped online before 2019 did so in 2020 for the first time.
Ecommerce assistance
While all this was happening, the ecosystem also evolved to keep up with the customer’s growing demands. Platforms like Shopify rose to strength and offer brands to build D2C sites in as little as a week. Delivery providers like Shiprocket extended the coverage to thousands of PINs in India and reduced the delivery time to as little as 1-2 days. Newer companies appeared trying to solve India-specific problems like the high Return-to-origin (RTO) rate.
During this time, the D2C industry matured to 10x growth. Success stories began to emerge from brands like BoAt or MamaEarth that made it big on the D2C road. This caught the investor’s attention and we saw the total number of trades increase in 2020 and 2021. In 2021 alone, a total of two billion dollars was pumped into the D2C by investors across over 100 trades. And for every D2C brand that is VC funded, there are 50 others who have boots and / or are looking for VC money. What better way to woo investors than to show them month-on-month growth in the customer base?
Here comes Facebook and Instagram.
Speaking of E-Commerce Acquisitions
60-80% of customer acquisition across most D2C brands happens on the Meta set of apps. This exposes D2C tags to a high level of vulnerability. Small variations in the price of impressions (CPM) on Facebook can result in a large cut in the bottom line for D2C brands. Founders and investors had always known this and had accepted this as an inherent risk in the industry.
So in 2021, as each brand raised VC capital and poured money on Facebook and Instagram, CPM began to rise. To the extent that it increased 20-30% for most brands within a year. But that’s not all that another major change happened in 2021 that made the entire advertising industry flutter. It was Apple’s announcement that they will stop interrupting third-party cookies on its ecosystem. This means that if you see an ad in 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 it was translated into less accurate targeting.
In total, several D2C brands saw their acquisition costs increase by as much as 40-50% during 2021. So the question arises,
What should D2C brands do given a new reality?
Over the past 6 months, I have interacted with over 100 DTC founders on how to overcome this challenge. A few red threads appeared.
Focus more on increasing the customer’s lifetime value. This can be done by increasing the recurrence rates for existing customers by offering them better cross-selling or additional sales opportunities. There are tools that can help a brand do customer marketing across Whatsapp, Email, SMS and Push notifications. These prove to be very effective in increasing repetition.
Build alternative and cheaper ways to bring more valuable website traffic. This can be through influencers or by using alternative advertising platforms like YouTube or Snapchat, where competition is still less and the price of impressions is perhaps a 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 increases the opportunities to reach out to customers. We often 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 turn 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 in order to stand out as a brand and entice potential customers to come to their website and make a purchase.
The author is a co-founder of AdYogi. Views are personal.
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