[Yojana December Summary] Direct-to-Consumer Model – Explained, pointwise

Introduction

Before the advent of large modern economies and consequently, globalisation, individuals around the world preferred buying locally (and directly), and in fact, that was the only channel of economic activity known to man. This activity was characterized by low development status of transportation and communication platforms. However, the ‘Direct to Customer Model’ (D2C) is now a full fledged modern economic business model with much advanced technology, specialized firms and a wide consumer base.

What is the Direct-to-Consumer Model?

Direct-to-Consumer Model (D2C) is an economic model in which manufacturers/producers sell their products online directly to the end-consumers.

With the help of a radical supply chain, the D2C model eliminates unnecessary middlemen. They generally rely on a higher reach of smartphones and increasing internet connectivity.

For example, An Indian tea startup, Vahdam Teas, founded in 2014, has reached the doorstep of consumers without a single brick and mortar setup.

What are the major features of the Direct-to-Consumer Model?

First, The D2C model allows businesses to experiment with distribution models and change them according to the fast-changing needs of society and the economy.

Second, Product differentiation is another feature that the D2C model facilitates when sellers have the power to make immediate changes in the consumer interaction setup.

Third, The D2C model facilitates easy liquidation of business in a situation of failure, offering a relatively convenient exit to entrepreneurs who can then move their capabilities to other, more productive businesses, causing minimum loss to the individual and economy.

Fourth, Success, when measured purely on profit parameters, can now be achieved sooner by an entrepreneur owing to the reduced non-monetary investment, time. Hence, the D2C model has reduced the cost side of the equation for business and enables business owners to make quick profits.

What is the potential of the Direct-to-Consumer Model?

The manner in which direct-to-consumer models function now is vastly different from how they functioned before modern economies. The dot-com bubble of the late 90s and early 2000s gave people internet and facilitated retailers to sell products and services to consumers directly without any extensive physical setup.

The new-age consumer is becoming increasingly aware and demands end-to-end attention from producers or sellers. Direct-to-consumer is preferred by sellers and also enjoys popularity among investors.

Hence, the D2C model will perhaps become some sort of a revolution in the near future if consumer demands continue to rise.

How Direct-to-Consumer Model developed in India?

While the world was introduced to the modern-day direct-to-consumer model almost two decades back, the model has become a part of Indian vocabulary only recently. The growth of the direct-to-consumer model in the Indian economy has happened through the recent Atmanirbhar Bharat.

Mass digitisation has contributed to the success of D2C firms. Digital India, an integral part of Atmanirbhar Bharat, has enabled and continues to facilitate the Indian direct-to-consumer market.

As of 2021, D2C startups of India have been able to raise USD 783 million in the first 7 months of the year. The most popular and successful consumer brand startups of India have followed the direct-to-consumer model beyond marketing and production strategies.

What are the benefits of the Direct-to-Consumer Model for India?

First, Entrepreneurship is leaving the elite circles of the country and reaching the grassroots minds of India. Now, D2C models provide grassroots entrepreneurship with the power to create their own terms of business and reach consumers without using extensive capital for building physical infrastructure.

Second, even if individuals created great products and ideas; the end goal, reaching consumers, remained a challenge for most entrepreneurs before the advent of mass digitisation and the D2C. Now with the D2C model, that challenge has reduced considerably in many sectors.

Third, more young entrepreneurs feel empowered to take up entrepreneurship in India, because the time input does not contradict with responsibilities of these young founders towards their families.

Fourth, along with digital payments, the D2C has had a tremendous impact on the success of online retail. Digital payments system empowered entrepreneurs to distribute the risk in an economic contract by imposing monetary liability on buyers as well. (Earlier, online retail favoured the buyers unfairly over the sellers).

Fifth, the D2C market has created additional business segments in the economy, like logistics startups that go beyond wholesale deliveries to reach the doorstep of the consumer. The producers directly become retailers, bypassing the wholesale market altogether.

Sixth, with rising profits, businesses are now moving towards a hybrid model by establishing flagship stores while continuing a dominant online presence. Here the stores not just capture offline consumers but allow the better function of the online model by allowing for physical pick-up of products purchased online.

The digital D2C model allows new businesses to first establish and flourish with low capital requirements over online platforms, and then reinvest those earnings into building physical capital. This type of model is called the clicks and mortar model.

How Indian D2C revolution is happening?

India is not witnessing a mass movement of the consumers, but there is a gradual and sustainable individual shift towards digital channels that has been facilitated by Digital India entrepreneurs. The economy is changing, and it is being led by an individual with a smartphone in one hand and rising income in the other.

Atmanirbhar Bharat has created a more individual-level change in the Indian economy, with consumer and producer preferences changing one at a time and leading to a larger economic phenomenon which can be termed the Indian D2C revolution.

In conclusion, the D2C model is flexible, low cost, and easy to reconsider in case of failure. D2C will be a USD 100 billion market in India by 2025. Further digitisation across the country and India’s significant population, make India a potential hub for the global D2C industry in the near future, with plenty of opportunities for sellers, buyers, and investors. The ‘clicks and mortar’ is gaining popularity and is soon to become the next big thing.