The Rise Of the D2C Market In 2020: What Can We Expect for 2021?
The COVID-19 pandemic may have invited tough times for quite a few verticals but only allowed this sector's accelerated growth by bringing a sudden shift in consumer behaviour and compelling brands to reconsider their business strategies to serve their customers better
E-commerce has been one of the fastest-growing sectors in recent times with a steady growth trajectory that is expected to make it the second largest market in the world by 2034, according to IBEF. A majority of this, the direct-to-consumer (D2C) market has been exhibiting a double-digit growth rate over the past few years. The COVID-19 pandemic may have invited tough times for quite a few verticals but only allowed this sector’s accelerated growth by bringing a sudden shift in consumer behaviour and compelling brands to reconsider their business strategies to serve their customers better. As per predictions made prior to the onset of the pandemic, this market is expected to grow by 19.2 per cent in the year 2021.
The booming e-commerce industry amid the pandemic
With the inflammation of the coronavirus crisis, exceeding number of consumers started showing hesitation in stepping out of their homes and hence, switched to online shopping. In May 2020, online spending across the world hit $82.5 billion, a staggering growth of 77 per cent year-on-year. While in the beginning, the consumers spent mostly on essentials, now a substantial proportion of purchases comprise consumer discretionary items.
Why are brands going D2C in 2020?
Needless to say, the pandemic proved to be a boon for the e-commerce industry. But the sudden shift also revealed cracks in the existing model. Management and logistics capacity were put to the test as businesses lost control of the supply chain. Even e-commerce giants such as Amazon and Flipkart were unable to guarantee smooth online shopping and delivery experience.
In the first quarter of 2020, major e-commerce players reported a record 230 per cent surge in return-to-origin (RTO) orders, the figure for shipments stuck in transit hitting 9 per cent, order delays increasing by 21 per cent, and a 9 per cent decline in deliveries. As supply chain around the globe took a hit and brands found it challenging to manage their end-to-end operations, they began to turn to third-party platforms to ensure frictionless operations with minimal RTO.
D2C brands market and sell products and services directly to consumers, eliminating middlemen, reducing cost for consumers, and increasing ROI for the brand itself. According to a study by Invespcro, 78 per cent of D2C brands have increased their marketing budget compared to only 60 per cent of traditional retailers.
In the past few years, the consumer-brand relationship has seen a change, as well. According to the same study, over a third of consumers reported that they have bought directly from the manufacturers’ website in the last year while 55 per cent of them reported that they prefer to buy directly from brands rather than multi-brand retailers. An estimate by Avendus Capital, the investment banking arm of financial services firm Avendus Group shows that D2C brands could be looking at a $100 billion addressable consumer opportunity in India by 2025.
Online shoppers, especially millennials, are attracted to streamlined prices and a smooth D2C shopping experience. Prolonged lockdowns and increased traffic in online marketplaces in the wake of the COVID-19 pandemic led more consumers to brand websites as it’s both faster and easier to place an order with a brand.
On the other hand, with the help of 3PL facilities, brands gain control over the entire shopping experience resulting in stronger brand identity, and lasting relationships with customers. They can open up new revenue streams using D2C strategies and gain customer loyalty much more quickly and efficiently. Here’s how:
● Direct relationship with the customer eliminates distribution inefficiencies. Brands have reduced distribution costs by removing intermediaries and gained greater control over their profit margins.
● D2C strategy allows brands to fully utilize the data available to them. They can identify patterns, trends, needs, and preferences of their customers, leading to better customer segmentation and marketing strategies.
● Brands get to form deeper relationships with their customers. With the entire customer experience chain, from brand websites, personalized offers, and messages to product delivery under their control, they get to dictate how the brand is perceived by the consumer.
● With greater control of all channels, brands can regulate their branding and conversion efforts under one funnel, creating a 360º brand identity.
This year shed light on the benefits of onboarding the D2C model like never before. Undeniably, the future will witness the D2C segment gain further traction, consequently prevailing as one of the major contributors to the e-commerce sector as a whole.
Saahil Goel is the CEO and co-founder of ShipRocket (BigFoot Retail Solutions Pvt. Ltd.)