D2C is great but every brand should not take that route

 

By Dhruvil Sanghvi, Chief Executive Officer, LogiNext 

 

A D2C (direct to customer) firm is basically a great marketing company. Once you’ve identified a good product and a USP you want to sell, the D2C model can be employed to go all out and market wherever possible. There are some brands going full stack and manufacturing as well but it’s a long shot! Most of the brands are companies that are trying to figure out a way to create a splash in the consumer market and deploy tactics to acquire more customers. 

 

What’s the big fuss around D2C

 

CB Insights on D2C

The nature of commerce has drastically shifted owing to the emergence of digital technologies and changing consumer behaviour. The pandemic has also given a huge push to buying moving online first and expecting same day delivery or next day delivery. Consumers no longer want to visit a store first but are comfortable ordering online and go for returns if there is a need to exchange. In 2020, the last mile delivery market stood at $40 billion globally and is growing annually at 9%.  

 

Amidst these developments, one key emerging trend is the rise of D2C Brands. Amazon brought in the online revolution and there are several other giant marketplaces- be it for retail or food or grocery. Once the consumer became used to buying online, the marketplaces like Amazon are becoming a monopoly and continuously increase the commission for players selling on the marketplace or aggregator apps. 

 

Even in cases of food delivery apps, restaurants are now being charged 20-30% commission and this eats up heavily into their margins. This has led to the inevitable need for brands to become self reliant in terms of deliveries and own the entire customer experience. But is it that easy? 

 

 

Pros and Cons of a Direct to Customer (D2C) Business Model
D2C Model Marketplace Model
Owned customer experience Brand gets lost in the marketplace
High cost of customer acquisition Easier acquisition  due to available reach
Control over pricing of the product Inevitability of entering price wars
Additional cost and hassle of logistics Logistics and delivery is taken care of
Customer comfort is yet to be built Majority of customers are now used to marketplaces

 

 

Last Mile Delivery Logistics is a Tough Nut to Crack

 

For any D2C brand, investing in deliveries and having their own fleet to deliver is an uphill task. Having one’s own fleet and delivering makes sense for an enterprise that has multiple brands but if every product starts having a supply chain of its own, it becomes incredibly difficult for the end customer. We are conducting a Twitter Event currently where these discussions are going on:

 

 

If one decides to handle their own last mile delivery management, a hybrid model would make sense. From our experience at LogiNext of working with D2C brands, companies can make the most of a delivery  management software for selecting the right carrier and getting the best price for their deliveries based on multiple  parameters like cost of the carrier or 3PL, network reach based on geofencing or zipcodes, speed of fulfilment, easy of handling, historical on time delivery performance and many other custom terms agreed as a part of custom contracts between the brand and the carrier. 

 

Some of the questions a brand needs to be asking themselves:

  • Do I want to focus on the core of the business which is my product or enter the field of logistics and supply chain?
  • In the existing scenario, which is the best way to manage carriers and choose the most optimal strategy?
  • How to improve the delivery experience while using multiple carriers and still be able to give a consistent and unique delivery experience to the end customers 
  • How to use logistics and deliveries as a retention mechanism by creating USPs around it?

 

Don’t get carried away

 

To conclude, I’d like to say that D2C seems like a very attractive model and a lot of brands are springing up to ride the wave but it is extremely challenging to scale. The unit economics are difficult to work out with the high cost of deliveries and working with multiple carriers without investing into technology that can manage them all seamlessly. The best bet is to stay focused on the product, leverage technology solutions to figure out the best carrier possible, create unique delivery experience with software and leave the on ground final mile delivery to the experts. 

 

 

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