By Sathya Ramaganapathy
2020 was a watershed year – never before has a catastrophe impacted the entire world so quickly and so completely. The Covid-19 pandemic brought industries everywhere to a grinding halt and changed the way the world lives and does business. At the same time, it has united countries with a shared goal to discover a vaccine and return to a regular life. Both consumers and businesses have had to cope and adapt in multiple ways, and the D2C space is no different. In 2021, we can expect several trends that took off in 2020 to make further headway as the world learns to recover after the pandemic.
D2C will come into its own as a business model
India’s digital transformation has taken off in a big way over the last several years, with affordable internet plans and cheap smartphones becoming ubiquitous. Ecommerce has also been growing in popularity in both large and small towns. When the pandemic hit, both these trends combined to create a paradigm shift in consumer behaviour towards online shopping for all their needs, both essential and non-essential. Today, India has approximately 90 million shoppers, of whom many are first-timers. Much of this comes from ecommerce marketplaces, with Amazon reporting more than 4000 crorepati sellers in 2020. However, many brands recognised the constraints of marketplace selling and opted instead for the D2C route. From Whatsapp-based selling and taking orders via Google forms, brands started setting up their own online storefronts to connect with customers – a trend all set to continue next year.
‘Essentials’ have a new meaning now
The pandemic and the consequent lockdown changed people’s lifestyles completely. As working from home and online meetings became the norm, people started looking for comfortable clothing that also looked professional – at the same time, many started cooking their favourite dishes at home owing to the inability to eat out. Thus, in addition to the demand for hand sanitisers and immunity boosting supplements, apparel companies started focusing on fashionable leisurewear and F&B brands started offering exotic ingredients, condiments, spices and dips from around the world. There was also a large spike in the demand for ready-to-eat foods. As work-from-home continues in 2021, these altered eating habits are likely to continue being popular.
Large brands shift gears
For many large established brands, online selling was never a priority and was restricted to some marketplace selling. Post-Covid, however, they were compelled to start selling online for the first time. While some were cautious about how they set up their D2C channels, others were more aggressive. Consumer durables, for instance, saw a significant increase in demand post lockdown as people started doing all the household chores on their own. Dishwashers, vacuum cleaners and washing machines all began to sell much faster than they would before the lockdown. This has necessitated a major strategy shift behind the scenes as manufacturing, supply chain, marketing and branding all focused their attention towards building up the D2C channel. As D2C store and warehouse integration improved, orders are now fulfilled more efficiently and both costs and time are saved, which will help boost production and sales for this year.
The rise of digital-first brands
2020 was the year when digital-first brands with a strong brand identity, greater tech-savviness, better access to consumer data and stronger operational efficiencies came into their own – 2021 will be the year they consolidate their market share. Their agility enables them to move from product testing to market launch in record time, while their customer-centric approach has quickly garnered a loyal following. A recent Avendus report, in fact, says that digital-first D2C brands will become a $100 billion addressable market by 2025.
The growth of niche products
Today’s customers no longer take a brand’s claims at face value. Easy Internet access has enabled customers to inform themselves about exactly what they want, thus leading to the growth of niche products to cater to different demand segments. This is particularly evident in the skincare and cosmetics sector, where the ingredients used play a big role. Customers now demand more personalised skincare routines to target different concerns, and are likelier to buy from brands certified by dermatologists. There is also greater demand for vegan and cruelty-free cosmetics, as for products derived from niche ingredients or nutrients like ginseng, tea-tree oil, caffeine or argan oil.
Data-driven insights drove growth
Another consequence of universal Internet access is the demand for personalised shopping experiences. With the help of AI-powered technology, brands can now offer that on their D2C storefronts. Data and analytics enabled brands to capture their shoppers’ preferences based on factors like location, demographics and browsing history. Tailored recommendations helped conversion rates go up and also brought in repeat business.
Ad spends went up
As offline sales reduced and online sales skyrocketed, brands saw the importance of online marketing to stand out from the competition and began diverting most of their budget towards digital ads. Paid marketing saw a 6x increase from 2019, with improved return on expenditure and higher sales as well. It is likely that the 2021 marketing budgets will see significant allowance for ad spends as more brands seek to beat the competition.
Earlier, only large brands had the necessary distribution and retail networks to get their products to customers across India. Post-lockdown, however, the logistics sector grew exponentially and multiple tech-driven, competitively priced logistics partners made it easy for smaller brands to deliver products beyond just their local geographies. This enabled them to move beyond marketplaces and set up their own D2C stores with hyperlocal deliveries to both urban and rural areas, as well as international shipping. Customer reach is thus more democratic now for both large and small brands.
Buy now, pay later
Digital payments were on the uptick in India ever since the 2016 demonetisation, and with the post-Covid safety concerns, contactless payments have become the norm everywhere. Almost 80% of online transactions happen through digital wallets, bank transfers and cards now. In addition, flexible payments options such as no-cost EMI or zero-interest EMI have enabled people with lower or more uncertain income to also avail of ecommerce purchases. Banks and NBFCs have also been quick to partner with online stores, making it easy for D2C brands to offer multiple payment options.
VC funding – A mixed bag
While investments in D2C brands in India dropped by 69% from the previous year, this was largely due to the Covid-related slowdown. Among the brands that attracted the most investment were boAt (consumer electronics), Sugar Cosmetics (beauty and skincare), Mamaearth (natural skincare), Melorra (jewellery) and Furlenco (furniture rentals). Enablers of D2C also attracted investment, including Pickrr and Shiprocket (logistics), Pine Labs, Navi Technologies (fintech) and Shoptimize (D2C eCommerce platform).
As we look ahead at 2021, digital-first D2C brands will continue to emerge, with large brands also launching their digital-first arms. D2C brands that aim to outstay the competition will need to leverage insights from customer data to amp up their traffic, engagement and conversions. Business enablers like website tech, marketing tools, logistics and supply chain providers and fintech companies will play a key part in this and will continue to grow. We are also likely to see larger volumes of ecommerce sales coming from consumers in tier-2, tier-3, semi-urban and rural markets as their aspirations and income levels grow. Above all, technology and innovation will be key to success, with trends like AI-enabled decision making, advanced forecasting and recommendations, localized content and native regional language interfaces, conversational commerce and social commerce set to lead the way for D2C growth in 2021.
The author is vice-president marketing at Shoptimize