Anand Ramanathan, Partner, Deloitte India; Avinash Chandani, Director, Deloitte India and Phanish Kumar, Associate Director, Deloitte India highlight how FMCG companies are enhancing their commerce models and strengthening their Direct-to-Consumer (DTC) outreach.    Covid-19 is changing customer behavior, altering purchasing patterns and engagement touchpoints. A recent Deloitte consumer survey^[1] revealed that approximately 51% consumers feel unsafe in going to brick and mortar stores and over 80% are concerned for their family’s health. Consumers are increasingly adopting digital modes of engagement and it is expected to continue. The FMCG market has been growing with an increasing share of e-commerce, additionally the outbreak of Covid-19 has further accelerated this trend through market lockdowns and social distancing requirements. FMCG companies are enhancing their commerce models and strengthening their Direct-to-Consumer (DTC) outreach to offer -

• Convenient, safe and hygienic shopping experience
• Improve customer experience and offer consistent O2O (Online to Offline) experience
• Personalised brand connect and customised offers/ deals

Digital native brands were the forerunners that leveraged digital technologies to compete with traditional players by connecting with customers directly. Companies like Nykaa, Wakefit, Lenskart, etc. were the first generation of DTC brands that focused on web-enabled retail, digital customer experience and direct distribution. Over the years, these brands have been leveraging emerging technologies to mine customer insights to offer an immersive and personalized experience. This focus and connect with customers enabled them to recover from Covid-19 impact at a relatively faster rate. Success of DTC models, coupled with the impact of Covid-19  has intensified the interest and need for traditional brands to re-look their channel mix. Why Should FMCG Companies Explore DTC Space? Fig: Why should FMCG companies consider DTC channel

1. Evolving Consumer Behaviour and Requirements: Convergence of physical and digital touchpoints in the customer purchase journey now requires brands to re-orient their engagement strategy. Customers today are seen to be more inclined towards brands that can cater to their need for personalisation, convenience and instant / social gratification. Direct customer connect and profiling becomes a prerequisite for offering a hyper-personalised experience.
2. Seamless Customer Experience: Deloitte’s recent consumer survey^[2] in the Indian market revealed the growing trend of blended commerce. Intent to purchase online across product categories was found to be:

• 41% for groceries and household items
• 53% for electronics
• 54% for apparel and footwear
• 52% for books
• 52% for restaurant food

Customers are increasingly looking for a seamless online-offline experience. DTC models can offer a consistent O2O experience via hyperlocal deliveries, e-commerce and social/ conversational commerce platforms. It is expected that some of these changes in preferences will be long-term and hence the companies need to consider adapting. Increasingly consumers are not only seeking information about the products digitally, they are also expecting to virtually experience the products. This is currently more prominent in personal care and beauty category. In near future, the touchless and remote experiences are expected to be major areas of brand experience for companies to offer.

3. Accelerated Growth of E-commerce Players: A growing millennial population today is spending substantial time online, primarily on networking, streaming content and online shopping. Growing internet and smartphone penetration is further driving this change leading to record growth of e-commerce/DTC channels in the country. Additionally, e-commerce companies are investing in in-house capabilities or partnering with delivery firms to service even the most remote customer. DTC and online channels are cannibalizing the share of GT/MT to emerge as major channel for companies making the market places powerful. To stay relevant in the future and maintain market share, it is becoming increasingly important for traditional players to focus on online/direct-to-consumer channel synergistically with existing channels.
4. Burgeoning DTC Ecosystem: Ecosystem necessary for the success of DTC models is gradually coming into place. Market conditions from customers to channel partners to logistics offer a favorable environment
   1. Customers: Internet penetration allows brands to directly connect with customers via digital marketing and targeted campaigns from day one. Companies can have a clear view of key metrics – reach, conversion, etc. to calculate their returns
   2. Technology platforms: Setting up a DTC shop has been simplified by software companies like Shopify, Magento, FB marketplace, etc. that provide ready-to-use DTC commerce platforms
   3. Last-mile delivery: Customer delivery has been simplified by emergence of express delivery companies like Dunzo, Delhivery, etc. Further, marketplace aggregators like Flipkart, Zomato, etc. have developed delivery capabilities and are ready to partner with companies to deliver their products
   4. Channel partners: Companies are leveraging their existing channel partners to offer DTC services as opposed to competing against them

 Critical Success Factors For Deploying A DTC Model To successfully deploy a Direct-to-Consumer model, companies need to consider focusing on four key components:  

1. DTC Model Selection: A wide range of DTC commerce storefront models are prevalent in the market. Companies can choose to build a vertical or horizontal marketplace based on their product portfolio. The horizontal marketplace provides one-stop storefront for complete product portfolio across categories whereas the vertical marketplace provides a portal/app focusing on specific brands or categories. Companies will need to evaluate various D2C models based on their strategic fitment with their goals and aspirations. Further, companies need to consider designing a differentiated DTC customer experience by leveraging new-age technologies like AI, AR/VR, hypermedia, curated content, etc.
2. Innovative Fulfilment Options: Companies will have to evaluate multiple fulfillment options considering the reach, delivery timelines and inventory availability. Most of the companies are providing multiple fulfillment options to consumers based on their location and desired delivery timelines at a cost. Existing channel partner network and distributors are being leveraged to reduce operating costs, improve asset utilisation and enhance quicker reach
3. Strategic Partnerships: Technology and delivery partnerships are key to creating a differentiated offering. Today companies can choose from a wide range of tech partners offering out-of-box, configurable, custom solutions. The digital platform forms the heart of the DTC experience. The other critical partnerships that companies need to evaluate are alliances with 3^rd party logistics vendors offering last mile delivery based on their reach and reliability
4. Scalable commercials: Brands entering the DTC space need to have a clearly defined pricing and logistics strategy to avoid conflicts and unviable cost structures. Economies of scale offered by wider geographical reach are countered by challenges in ensuring product availability or cost-to-serve for last mile delivery. FMCG players will have to carefully evaluate financial viability of DTC models selected to build a scalable and sustainable offering. Further, it is important for DTC to co-exist with other channels rather than compete against them when operating at a scale. All channels play a unique role in driving sales and hence their co-existence is the key for a successful play in DTC

Direct-to-Customer is poised to become a major sales channel for the future. This is evident from the investment commitments by leading e-commerce marketplace players and FMCG companies. As more and more brands enter this space, companies will need to come up with innovative value proposition with differentiated customer experience. Going forward, a simple e-commerce platform approach may be inadequate to build a superior brand experience, attract and retain loyal customers. [1] Deloitte State of the Consumer Tracker, survey results dated August 8,2020: https://www2.deloitte.com/us/en/insights/industry/retail-distribution/consumer-behavior-trends-state-of-the-consumer-tracker.html [2] Deloitte State of the Consumer Tracker, survey results dated August 8,2020: https://www2.deloitte.com/us/en/insights/industry/retail-distribution/consumer-behavior-trends-state-of-the-consumer-tracker.html