Countless small businesses have thrived for years on direct customer access paving the way to the Direct to Consumer (D2C) model. My childhood memories would be incomplete without the fresh smell of clarified butter (“ghee”) delivered at our doorstep every month by “jethu”, a middle aged man whose name is lost in time. This ghee was made by his wife in her dainty kitchen and he delivered in around his home to customers he acquired purely by word of mouth. Who would have known that decades later small businesses like his could use digital media to directly reach out and engage with customers across the world with a single click?
The internet is replete with case studies on how the digital D2C model has benefited businesses across industries. The consumer durables industry is a shining example of that. However, the FMCG sector is still nascent in adopting the D2C model with an exception of a handful of companies in the baby and beauty industry. The D2C model has contributed to only 0.3% of sales in FMCG globally.
This isn't surprising as the consumer’s involvement in purchasing something like their monthly supply of grocery is low. Hardly will one find buyers going to individual brand sites to buy a packet of chilli powder or a kilogram of rice since the average basket size is usually small. The usual behaviour is to go to the nearest supermarket, “kirana”/ “sari sari” stores or to hop on to aggregator sites like bigbasket.com or coldstorage.com.sg, where it is convenient to browse through different brands and products and buy from one place.
The question then is - Does it make sense for FMCG brands to plunge into the D2C waters? While greater control over the value chain, better margins and a direct connection with the consumers might lure some businesses to explore this business model, I’d recommend brands to step back and take a look at the bigger picture.
Here’s a quick breakdown of how FMCG brands can leverage the D2C business model.
Identify an Unaddressed Problem
- What’s the brand’s unique offering or what differentiates its D2C platform against competitors or existing retail stores?
- Is the offering strong enough to entice consumers and bring them back to the site regularly?
Examples of unique offerings include considering an unaddressed consumer problem, giving customers a chance to customize the products, providing subscription based models, personalizing products by crunching consumer data, providing access to exclusive products or ensuring better pricing as compared to the retailers. There are many companies in the West that are doing sales worth millions through the D2C business model. Companies such as NatureBox and Graze work on a subscription based model to provide healthy snacking options to their consumers on a monthly basis. Graze goes an extra mile and personalizes the boxes based on the taste and dietary preferences share by its subscribers. The Dirty Lemon, known for its line of lemon-based health beverages, accepts orders via text messages. The brand has over 100,000 regular customers, with a 60% retention rate month-over-month.
Work out the Opportunities and the Risks
Many companies plunge into the D2C waters without working out the risks and the opportunities. It's important to take into consideration various factors including cost of goods and their delivery, management of perishable goods, maintenance and upscaling of the customer-centric ecosystem, and margins that are good enough to run a profitable business in the long run.
Partner with Agents to Develop Capabilities
Assessing the unique selling proposition is very crucial as it is a detrimental factor in driving ROI from the D2C site. Once this is done, brands should work on the capabilities required for running the model.
Usually, businesses would want to own all the capabilities and have an end-to-end accountability of the value chain. However, realistically this might not be possible for small and mid-sized companies due to budget constraints. Additionally, owning the entire set of capabilities in the short term is also not recommended. The company should decide on which capabilities to own and which ones to outsource, such as partnerships with retailers (if the brand’s e-commerce website is not up and sales have to happen through a retailer’s site in the short run), R&D companies, data management agencies, delivering agents and customer care partners.
The level of partnership also depends upon the scale of operation of the brand. In today’s day and age, a family run business selling bottles of ghee in Bangalore, can showcase products on the Facebook Page or Shop, receive orders from Facebook Messenger, collect payments through PAYTM and deliver through Dunzo. Simple.
Test and Learn
The business environment today provides a great opportunity for brands to test and learn.
When it comes to the small and mid-sized businesses or local brands, especially startups, it is easier for them (compared to the international brands) to test different business models since they do not bear the burden of adhering to a legacy system. They can be innovative, adopt agile ways of working, can take risks, understand the local market better and have access to capital through numerous third party investors.
After the prototype is created, it is recommended to test it with real target customers before doing a full-fledged launch. Once launched, the brand should use data from the D2C platform and all digital marketing channels adopted to decode customer insights to build a customer-centric ecosystem (example, connected/ AI-enabled objects, chatbots, apps, features subscriptions or personalisation).
Jessica Alba’s The Honest Company, that sells affordable, convenient and eco-friendly beauty products and items for babies and homes directly to the end buyers, has recently received a $200 million investment from the private equity firm L Catterton. The company aims to use the money to grow the business globally, expand its product supply and boost innovation.
Use Digital Channels as Per your Objectives
Use different digital marketing channels to push the customers across the funnel of engagement, starting from the discover stage to the advocacy stage.
My previous blog addresses the different digital channels and strategies that FMCG brands can use to keep growing the level of engagement across the consumer funnel.
My recommendation here is to think big, prioritize the channels (paid and free) as per the marketing budgets and the objectives, and build a great customer experience across the different touch points. After all, one of the most important advantages of the D2C business model is to get an opportunity to connect with the customers directly, which should be leveraged thoroughly.