Yo! I badly wanted to order Sea Monkeys as a kid. They advertised in comic books and it seemed magical – put these eggs in water and you’d get magical sea creatures! That’s true Direct to Consumer – you discover the product and order directly from the producer. Both brand and user benefit by cutting out intermediary costs. It is a powerful driver for entrepreneurship.
Let’s say I post about my awesome no-chemicals-preservatives Apple Tea Cake on Instagram. You message me, place the order and I deliver it to your home. I haven’t spent money on advertising, retail space or inventory, so the product will deliver disproportionate value. You like my cake so much that you make it a Friday ritual, and place a recurring order. You subscribe to my Insta feed to receive updates on my cakes, dogs, and me. Whenever there is a craving for cake, you order from me, because I have top of mind recall. The cake box has my number and soon your friends who came home for tea and cake, are all ordering from me too. I invest in capacity and soon am selling 100 cakes a day. Yay! It is a virtual cycle and one that every D2C founder dreams of.
When does the D2C Dream fail?
Most D2C brands are faking it. Why? Because there is a Discovery Tax. Meta – which owns Facebook, Instagram and Threads – has over 10 million advertisers worldwide. And reported a 9% increasein cost per ad. So unfortunately, my cake post is unlikely to be seen by potential buyers unless I pay for it. Even if you are my “follower”. If a lot of people start baking cakes and selling them directly to consumers – and admittedly, there is a very low bar for entry – the price of that ad will keep rising.
Now remember I added capacity, so for financial reasons I need to continueto sell 100 cakes a day. I will keep advertising on Insta and list on Swiggy and Blinkit for discovery and fulfillment. Uh-oh. Now I have to pay all these platforms – for discovery, fulfilment, ads, listing. And I don’t even have direct access to my customers, so I can’t ever sell directly to them. Ahem.
So much for direct to consumer.
Which is why I say phooey when I read that there are 800 D2C brands in India.
What is accurate is that there are 800 startups who are either renting customer lists from Meta or Google or LinkedIn or renting virtual shelf space from Blinkit/Swiggy/Amazon/Flipkart. There is nothing wrong with that – brands have always paid for shelf-space in retail – but it defeats the “direct to consumer” logic of cutting out the discovery and distribution costs. The business model needs to acknowledge that.
Which are the REAL D2C brands then?
I love Forest Essentials skincare. It started as a handmade soap company around 2002, and got its big break selling to the Hyatt hotel in Delhi around 2004. It followed a B2B model of selling directly to hotels, and that formed its discovery base. Later a dedicated store in Khan Market allowed customers to walk in and buy. Forest Essentials owned manufacturing right from the start and managed distribution and customer data on its own. They got patient capital from Estee Lauder as they built out their brand, capacity and stores.
Lenskart.com is another brand that controls manufacturing to consumer. Even better most people need to keep buying their product across a fixed timeline so they can build loyalty based on functional excellence. They invested in storefronts because at some point in the scaling journey it is better for both discovery and fulfillment to have a physical presence. Lenskart has gone global with this model – a rare success story for an India-born brand.
For contrast, popular “D2C” brands like Minimalist, MamaEarth and Wow!SkinScience are startups that just substituted traditional physical retail space with getting virtual shelf space, before making the leap to physical for scale and discovery.
With different tools these brands have all followed the Mindshare -> Marketshare -> Profitshare route
The ABCD Model as a Structural Assessment Tool
For any product/service to be successful it has to satisfy certain criteria – I find the ABCD model handy to assess and build a product. I elaborate this in Chapter 3 of Marketing Without Money, but here is a synopsis
Why only 800? Statista claims over 200,000 wannabes with a dream. I’d love for all of them to succeed – and they can if they applied a little brand and marketing science fairy dust to their dreams!
Support your local physical discovery point
Local multi-brand shops perform a great service of discovery and fulfillment. I love going to the local Peekay MiniMart and buying random snacks, rediscovering favourite goodies, or stocking up on bread. Not only am I getting a break from the screen, I am using my feet to bypass the discovery tax or fulfillment tax that these brands would otherwise pay. I would also like to keep this neighbourhood shop going for as long as possible, so that I can opt to bypass this tax or minimum order charges. My own framework – Mindshare -> Marketshare -> Profitshare should be a wakeup call for us as customers that when marketshare gets concentrated in the hands of a few platforms, they will extract value.
PS: I really do bake an awesome Apple Tea Cake from a recipe set my mother bought in 1979 🙂
Shopaholically yours!