SUMMARY
Gone are the days when D2C brands could scale with minimal effort. The space is competitive and with it comes the opportunity to offer something differentiated in your brand
Brands should have an omnichannel presence due to saturation on a marketing channel and with the decreasing attention span of customers, the number of touch points needs to be maximised
Lifetime value (LTV) is a very important metric for any D2C brand, and keeping your CAC/LTV ratio under control is the key to long-term success
5 years back, if you’d try to speak about D2C with someone, the most common response would be, “Do you mean B2C?” Today, D2C is one of the most common buzzwords in the consumer brands and marketing space alike.
We have certainly come a long way on the D2C road and the way up could go to over $100 Bn in the next 2-3 years. Mind-blowing, isn’t it? This brings up a few questions.
Why has the market blown up exponentially? Why does it continue to be such a hot vertical? What matters the most to grow your brand sustainably in this day and age? What metrics should you look at in the short and long term if you’re looking to build a D2C brand? Let’s take a deep dive into the answers to these questions and more.
Brand Differentiation: The Key To Building A D2C Brand In 2023
First things first. Gone are the days when all D2C brands could scale sustainably with minimal effort. The space is getting competitive every day and with it comes the opportunity to offer something differentiated in your brand.
Taking nothing away from brands like MamaEarth that have made the most of their early mover advantage in this space. However, it’s a lot tougher for a brand to replicate that success today. Why?
Plenty of reasons exist. For one, all categories have gotten cluttered with numerous brands competing for the same spot. Due to this competition, customer acquisition costs have risen tremendously.
Therefore, it comes as no surprise that brand differentiation is the key to building a D2C brand in 2023. Your brand has got to offer a better solution than your competitors, and in D2C, this boils down to innovation at the product level.
Until a few years ago, it was easier to succeed as a D2C brand even if your offering wasn’t as differentiated, but today’s D2C buyer is always on the lookout for something fresh and unique. Think about it as a category disruption. For instance, if there’s a lot of intent in the market for fashion accessories, think of fusing tech within fashion; you have an opportunity to disrupt the category.
This doesn’t mean that you can’t build a brand in the existing categories. There are many hot categories like pet food and baby care where you can build even today, but you have still got to stay true to your product quality and brand values, right from the stage of discovery to delivery. Of course, there is no need to mention that stellar customer service and experience remain as important as ever.
An Omnichannel Presence Is The Way To Go
At the same time, it is as important as ever to have an omnichannel presence in this day and age, even though it is in sharp contrast to the origin of the term ‘direct-to-consumer’.
D2C brands are theoretically supposed to only sell on their websites. However, listing on marketplaces has become necessary to beat the competition, which may end up reaping the benefits at your marketing expense.
Moreover, saturation happens quickly on a marketing channel, and given the decreasing attention span of customers, the number of touch points needed to drive them to purchase is also increasing.
For reasons like such, maintaining a presence on multiple channels is your best bet. When it comes to marketing channels, it could be Meta, Google, native, and affiliate. And when it comes to sales channels — marketplaces, your own D2C website, dark stores (for quick commerce) and retail can be considered depending on your marketing goals.
Metrics To Keep In Mind To Build Better
So where do you start today if you’re a new D2C brand? The first step would be to do a product-market fit (PMF) test. Being a company that extensively deals with early-stage brands, helping them complete the journey from 0 to 1, we have seen a lot of founders investing a lot of time and energy into their ideas without getting enough validation from the market.
In the digital age, this should be avoided because you have got everything at your disposal to validate your ideas. Go lean with branding, packaging, and extensive promotions unless you have done a PMF test. For a D2C brand, a PMF is established when your customer acquisition cost (CAC) is under control, your supply chain is fully optimised, and customer satisfaction is up to the mark. The absolute numbers against these metrics may vary across categories.
Let’s take the example of a brand that sells office chairs versus one that sells gourmet cheese. The cheese brand can afford to acquire customers at a higher price because the repeat rate can be expected to be higher in the case of an F&B brand.
A furniture brand that exclusively sells office chairs cannot expect to have a very high repeat rate unless it launches other products, so it needs to keep its customer acquisition cost in check.
Regardless of the category, though, lifetime value (LTV) is a very important metric for any D2C brand, and keeping your CAC/LTV ratio under control is the key to long-term success. There are a number of D2C brands that have been EBITDA positive from day one in the past few years, a trend that paved the way for the inception of Thrasio model companies. However, as long as you are aware of your P&L and its levers, it’s okay to burn and build, to begin with.
