In today’s rapidly evolving business landscape, particularly post-COVID, the direct-to-consumer (D2C) business model has gained significant traction in India. But should every brand embrace this strategy? To make an informed decision, it’s important to understand what D2C strategy entails, along with its advantages and disadvantages.
What is a D2C Strategy?
In the downstream of a supply chain, the finished product reaches its end-consumers in 2 ways:
- Wholesale strategy where the brand ties up with several wholesalers who have an established network of multiple distributors and retailers to reach the end consumers. Brands like Pantaloons, ShoppersStop in fashion; BigBazar, Dmart in Retail; Croma, Reliance Digital in Electronics, etc are a few examples of retail chains.
- In the D2C strategy the brand cuts all these middlemen and sells their products directly to the customers through their website, app, or brand outlets.
In India’s post-pandemic market, D2C has gained popularity as more companies realize the benefits of direct sales. But does this strategy make sense for all businesses?
Let’s dive deeper into the pros and cons of adopting a D2C strategy in India’s competitive landscape.
Pros of D2C Strategy
- Higher Profit Margins: By cutting out intermediaries, brands retain a larger share of the profits. For example, if a ₹100 product sold at ₹110 to a wholesaler, who then sells it at ₹120, the brand would earn only ₹10 in profit. But through D2C, the brand can sell the same product for ₹120 directly to consumers, increasing their profit to ₹20. They can even choose to price the product at ₹115, offering consumers a better deal while still maintaining higher margins than the wholesale model.
- Full Control Over Brand Experience: D2C brands have complete control over how their products are presented and marketed. From website design to in-store layouts and customer service, every touchpoint can be meticulously crafted to align with the brand’s narrative. This holistic control helps create a consistent and memorable customer experience, free from third-party influence.
- Access to Valuable Customer Insights: One of the most significant advantages of D2C is the ability to collect first-party data. By interacting directly with consumers, brands gather invaluable insights like preferences, buying behaviors, and feedback. This data can fuel personalized marketing strategies, product recommendations, and even future product development, leading to stronger customer connections.
- Faster Market Entry and Agility: With direct access to consumers, brands can quickly introduce products to the market. The D2C model bypasses the lengthy negotiations with traditional retailers, accelerating the time to market. Moreover, feedback loops are shorter, allowing brands to iterate and improve products swiftly based on customer input.
- Price and Promotion Flexibility: Since brands manage their pricing and promotional strategies independently, they are not bound by retailer-driven sales or discounts. This flexibility allows D2C brands to maintain premium pricing, launch exclusive promotions, or run loyalty programs, giving them better control over their brand positioning.
Cons of D2C Strategy
While the benefits of D2C are enticing, the model also comes with challenges that shouldn’t be overlooked.
- Higher Initial Setup Costs: Building a D2C business involves significant upfront investments. Brands must develop e-commerce platforms, manage digital marketing, invest in logistics, and create physical retail stores, all of which require substantial capital. For many small businesses, these costs can be prohibitive and risky.
- Fulfilment and Logistics Complexity: In the D2C model, the responsibility for shipping, returns, and customer service lies entirely with the brand. Unlike the wholesale model, where retailers manage these aspects, D2C brands must invest time and resources into operational efficiency. As businesses scale, these operations can become increasingly complex and costly.
- Supply Chain and Inventory Risks: In case of unexpected supply chain shocks and logistics disruptions, the retailers share the burden of inventory management, reducing the risk of overstocking for the brand. Also, in the wholesale model when products pile up, the retailers help brands move those products in secondary markets through promotional activities, which is completely a brand responsibility in the D2C model.
- High Operational Costs and Marketing Efforts: Driving website traffic and acquiring customers in a D2C setup requires substantial marketing investments. Unlike retailers that attract foot traffic, D2C brands must build their own customer base through paid campaigns, SEO, and social media outreach, leading to higher customer acquisition costs (CAC). Moreover, maintaining physical stores comes with fixed operational expenses, making it vital to consistently hit sales targets.
- Scaling Challenges: Expanding a D2C business can be more challenging than scaling via traditional retail partnerships. Instead of leveraging established retail networks, D2C brands must invest in opening new stores or expanding online reach—both of which are time-consuming and resource-intensive. Wholesale models, on the other hand, offer immediate access to vast customer bases through established retail channels.
- Customer Trust and Physical Presence: In some sectors, particularly fashion, beauty, and electronics, consumers prefer to see, touch, or try products before purchasing. Building trust with customers in these categories can be difficult for D2C brands that operate solely online. Established retailers often serve as a bridge for hesitant customers by offering a tactile shopping experience.
The Indian Context: A Mixed Strategy?
While the D2C strategy is flourishing, especially in sectors like fashion, personal care, and electronics, the Indian market still presents unique challenges. Many Indian brands are now adopting a hybrid model, combining the benefits of D2C with the reach of traditional wholesale. By balancing these strategies, brands can capitalize on higher margins while leveraging established retail channels to scale quickly and mitigate risks.
Conclusion: Should Your Business Go D2C?
Choosing whether to adopt a D2C strategy depends on your business’s goals, industry, and financial capacity. If you prioritize brand control, quick market entry, and have the capital to manage the upfront costs, D2C could be a profitable choice. However, if scalability, risk-bearing, and managing logistics seem daunting, a hybrid approach might be more suitable.
Ultimately, every business must assess its unique situation in the broader Indian market before diving into the D2C wave.
By considering the pros and cons outlined here, you’ll be better equipped to decide whether a D2C model aligns with your brand’s long-term vision.
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