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D2C In India’s Hinterlands: How Insurgent Brands Are Fighting Challenges, Building Opportunities

D2C In India’s Hinterlands: How Insurgent Brands Are Fighting Challenges, Building Opportunities

By 2030, the ecommerce market in India is expected to be the third-largest by scale with an annual GMV of $350 Bn

D2C players’ timely shift to digitalisation has thrown open massive opportunities across Tier 2 and Tier 3 cities

In spite of the rise in opportunities, there are challenges galore that can hinder D2C growth in non-metro markets

The booming ecommerce sector in India got a significant boost during the Covid-19 pandemic as most people opted for online shopping for the sake of safety and convenience. But the growth story of the past two years was not just a flash in the pan. A RedSeer report says that by 2030, India’s ecommerce market will be the third-largest by scale, and the annual gross merchandise value (GMV) is expected to reach $350 Bn from $55 Bn in 2021. 

Interestingly, much of this growth will be triggered by the widely popular direct-to-consumer (D2C) market, an emerging sub-segment of the traditional ecommerce ecosystem, think experts.

The D2C segment provided brands with an easy solution to survive and scale while the entire country and its industrial behemoths were under a series of lockdowns and observed social distancing. As the new format enabled brands to discard middlemen from buying and selling and reach their customers directly, the market flourished. By April 2021, more than 800 brands shifted to this model, according to Inc42 estimates. And this opportunity is set to grow consistently and go past $100 Bn by 2025.

With disintermediation in sales and distribution came cost capping and rapid revenue growth. For instance, while legacy giants like Lotus or Revlon took at least a decade to reach the INR 100 Cr revenue mark, new-age brands like SUGAR did it in four years.

The D2C trend initially took off in India’s Tier 1 cities as big city dwellers were mostly internet savvy and familiar with the nitty-gritty of online shopping. But the market for brands has gradually expanded outside the metros, throwing open massive opportunities for sellers from Tier 2 and Tier 3 cities.

A testament to that is the fact that logistics startup Shiprocket added 68K new sellers In 2020 alone, where 51% were from Tier 2 and 3.

Backing that up Chirag Gupta, cofounder of Delhi-based 4700BC Popcorn, a gourmet brand, said “With the entire digital transformation (in place), we have been able to reach Tier 2 and Tier 3 consumers as well, especially through Amazon and social media. We have not reached them via offline channels, but we are able to do it online.”

D2C In Hinterland Sees Green Shoots Of Growth

According to RedSeer data, Tier 2 locations and beyond may account for 88% of the online shoppers between 2020 and 2030. They are also expected to add cumulative incremental online retail transactions worth $7 Bn+ and more than $150 Bn cumulative incremental online retail GMV during this period.

Of course, the major growth driver in this space has been the large-scale digitalisation of small businesses during the pandemic. Embracing enabling technologies to cope with the new normal is prudent, but the Covid crisis has done even more. It has brought to the fore thousands of new users ready to embrace the D2C format, a veritable ecommerce 2.0 powered by one-to-one engagement on social media, scope for product customisation and a complete absence of intermediaries in-between. 

This is even better than the good old physical markets, thanks to the convenience of the digital tech lying at the core. Brands, too, are keen to explore the untapped user base across Tier 2+ locations — a wide swath of semi-urban and rural India. 

However, tapping into non-metro markets means brands need to revisit and rework their strategies for every context, be it operations, marketing or sales — right from tweaking the features, the messaging and brand positioning to the cost of services. This is essential to cater to new consumers living in disparate geographies and entering the market with a specific set of requirements.

“Consumers in Tier 2 and Tier 3 cities are genuinely exploring value from products, especially from a premium product. They want to understand the brand, the narrative, the reasons for the cost of the product and more,” said Tanvi Johri, founder and CEO of Gurugram-based Carmesi, a women’s hygiene brand.

What The New D2C Users Want: Opportunities And Challenges

What the non-metro users crave also determines which D2C brands can successfully penetrate the new markets. Market data indicates their interest in the latest trends, gadgets and more, which means D2C players in fashion, FMCG and consumer electronics can tap into this user base more readily.

According to Kashyap Vadapalli, chief marketing officer and business head at the leading furniture brand Pepperfry, the growth of any organisation depends on how aspirational its target audience is in a specific market. “The youth in Tier 2, Tier 3 and even Tier 4 markets are very aspirational. They want new gadgets and want to sport the latest fashion trends. So, it is fairly easy for brands in those segments to penetrate these cities.”

Case in point, in an interview earlier this month, New Delhi based boAt’s CEO Vivek Gambhir revealed that as the users in the hinterlands become comfortable with shopping online, the startup has noticed a visible change in the buying patterns from these cities. He attributed 40% of its growth today to Tier-2 and Tier-3 cities, a massive increase as compared to the share of the cities before the pandemic.

However, Tanvi Malik, cofounder of the online fashion stores FabAlley and Indya, did not agree with Vadapalli as users still prefer touch-and-feel buying in physical stores. “For the fashion category, in particular, there is resistance to shopping online in Tier 2 and Tier 3 cities. Our target audience/potential customers in these cities are more comfortable with trying and buying from neighbourhood stores rather than the ease of online shopping.”

D2C brands from other categories such as furniture and home décor also find it challenging to attract traditional users due to consumers’ price perception. Many people still think ‘branded’ products and services will cost way more than what one gets at a local shop.

Tanuj Choudhry, cofounder and COO of Bengaluru-based HomeLane, earlier told Inc42, “(Our) space is largely unorganised, especially in Tier 2 and Tier 3 cities. Currently, we are trying to build brand awareness and visibility to increase trust in customers in these towns. We want to invest in creating awareness that HomeLane is not that expensive even if we are a private label.”

Many brands recount similar experiences, although reports like Kearney India Retail Index said that the share of luxury retail spending grew from around 9% in 2013 to 55-60% in 2018 in non-metro cities, especially in Jaipur, Udaipur and Chandigarh.

What Is Driving D2C Adoption

To increase user adoption in these key segments and many others, brands need to focus on every aspect of the consumer’s journey, right from how a user views a product/brand (perception, to be precise) to price points to post-purchase experience.

Understandably, content plays a crucial role here not generic, promotional pop-ups often pushed by legacy companies but localised ads and narratives that make D2C brands more relatable, trigger user interest and lead to both rational and emotional purchases. Engaging with micro-influencers with a credible following has also been a significant help for D2C players in terms of building a strong presence and stoking customer trust and loyalty.

For instance, FabAlley & Indya, while localising the content to engage with the audience in the cities, is also focussing on micro-influencers — who despite smaller following, still have credible influence.

Elaborating on the same, Shivani Poddar, cofounder, FabAlley & Indya said, “As people spend more time on their mobile screens and engage more with content creators, expanding our base of influencers was imperative. In addition to key macro bloggers, we now work with some stellar micro and regional influencers who hold great credibility.”

Johri of Carmesi recalled adding another trigger to that brand-building mix. “We adopted an active and aggressive marketing approach on marketplaces like Purplle.com. This helped position the brand better for Tier 2 and Tier 3 cities, and we are now actively engaging with consumers from those locations.”

Offering good deals and being available on the popular platforms in those cities have further helped the brand’s adoption.

Choudhry, on the other hand, is currently positioning HomeLane as ‘your neighbourhood partner to get your interior stuff’. His goal is to convince users that the brand understands their requirements and their budget constraints. The sentiment was also resonated by Pepperfry’s Vadapalli in an earlier interview.

Of Omnichannel And Collaborative Strategies

Irrespective of the geography, an omnichannel or hybrid strategy (an online-offline combo) has driven both sales and brand awareness, say D2C players. 

Take for instance, a customer visiting a physical outlet of a brand will be able to find hardly any data for customisation, while the website will solve issues such as these. The website can enable the users with a 360 degree view in terms of product and price discoverability, along with providing them with multiple ways to connect with the brand and share the preferred specifics such as email, Whatsapp, SMS, Instagram and more. Sharing the specifics of how the customer wants the product, in turn, helps the brand do justice to their preference and enable a better experience for them as well.

Malik of FabAlley and Indya said that the brands did thrive due to successful cross-channeling. “We have more than 200 shops-in-shop in Tier 2+ cities so that shoppers get a look and feel of each product. This builds their trust in the brand and may help them move online in the future. We are also looking at strengthening our presence by communicating and advertising in local languages and making our logistics smoother.”

To keep up with the growing demands of the industry and ensure effective scale in the tier 2 and beyond cities, brands are also opting for collaborating and partnering with the kiranas to increase their sales and awareness. Keeping in mind the reach and the loyal base of these shops, D2C brands can garner the attention of their TG with much ease as compared to the traditional methods to gain their trust.

Backing that up, Carmesi’s Johri said, “People in tier 2 & tier 3 cities are used to buying their essentials from local kirana stores near their house and a brand like Carmesi is not available at any kirana stores at all. And this is the biggest bottleneck in the adoption of the brand in these cities”.

And thus, there is no denying that it is imperative for D2C brands and Kiranas to work together to complement each other’s growth and scale of sales and business.