Business Trends: The Direct to Consumer (D2C) Playbook - Navjot Kaur
In the episode today, we have Navjor Kaur, Vice President at a Venture Capital firm that provides growth capital to early stage consumer brands. We go through the playbook of building a D2C Brand covering functions such as Marketing, Logistics, Manufacturing, Hiring.
What is Direct to Consumer (D2C)?
Direct to Consumer Business Model: In this business model you cut out all the middlemen that exist in the traditional supply chain - your wholesaler & retailer primarily. You leverage the internet and build your presence online to directly sell to the consumer. You save up on the margin that would've to be distributed across the supply chain and can utilize that to build your brand and generate traffic on your website.
The D2C Playbook
Given the role, Navjot ends up advising and evaluating a lot of D2C companies. She has looked at D2C companies across different phases of growth and has provided us with a playbook of what it takes to build a D2C brand. We look at how to lay down the fundamentals for a D2C business and talk about functions such as marketing, logistics, manufacturing, hiring to really understand the nuances in relation to building a D2C brand. If you run a D2C or have aspirations to build one, this is a must listen for you.
D2C Guide Transcript
A rough transcript of the conversation about D2C that we had with Navjot - there may be several mistakes in this transcript.
Siddharth: Hello and welcome to another episode of the Indian Dream Trends where we explore new markets and ideas that are set to explode in the next few years. For our latest edition of trends we are covering the Direct to Consumer or D2C business model. In this business model you cut out all the middlemen that exist in the traditional supply chain. Your wholesaler and retailer primarily. You leverage the Internet and build your presence online to directly sell to the consumer. You save up on the margin that would have to be distributed across the supply chain and can utilise that to build your brand and generate traffic on your website.
In the episode today, we have Navjot Kaur a Vice President at a Venture Capital firm that provides growth capital to early-stage consumer brands. Given her role, Navjot both ends up advising and evaluating a lot of data, and D2C companies. She has looked at companies across different phases of growth and has provided us with a playbook of what it takes to build a D2C brand. We will look at how to lay down the fundamentals for a D2C business and talk about functions such as marketing, logistics, manufacturing, hiring to really understand the nuances in relation to building a D2C brand.
If you run a D2C brand or have aspirations to build one, this is a must listen for you. Also, we have released a newsletter on D2C covering the opportunities and some predictions about this space. Links are in the show notes so do check it out. Let's jump into the episode.
Thank you so much for joining us today Navjot. I'm very excited for the conversation that we're about to have on direct to consumer brands.
Tell me why has D2C sort of picked up in the last few years? Why are we seeing a day to see a boom, what's happening in the industry to lead to this?
D2C Is seeing a big boom. So let me tell you why. Let me paint a quick picture here. So earlier back in the day, 10-20 years back when we were in school, when our parents were younger we had a duopoly.
We had very few brands in a particular space or in a particular sector. When you you thought of school shoes, you thought of Bata. Ice cream, at least where I grew up, there was predominantly Quality Walls. Cameras, they were Kodak cameras. So there were very few brands and I think a lot of the reason, the big reason why that happened was because of mass media. But why, how? Huge sections of audiences were bombarded with the same kind of product. Hence products were also made for large mass audience and they were advertised to a large mass audience.
I think with technology coming in, the ability to target people and customise for them specifically created an ability for brands to reach out to different types of customers. After this, they didn't have to really make just one Bata shoe. You could actually get different kinds of shoes and now you can literally customise your shoe.
All this happened because of the giants like Facebook and Google. Facebook and Google have actually enabled the whole event-based campaigns and affinity-based campaigns, where you can actually reach out your customer basis whether they like low fat milk or whatever kind of milk they like.
So that's kind of amazing because now different niches get formed and different audiences get formed. Hence brands can actually go after those niche audiences, so it's no longer or mass blob of Industry or sector. Within that segment there are multiple sub segments that exist that brands can actually play into.
From a customer point of view, that's a huge win for a customer because they no longer have to buy the same shoes or the same camera or the same furniture that you know that everyone was going to the same shop for. They can actually customise their furniture, they can customise their spectacles. They can do a lot more and that's the power that the customer has these days.
Over the past few years, people have been talking about how data is the new oil, and just talking about data, data, data, data. I think with the big rise of D2C that you're seeing now, this is the final, maybe not the final form, but this is a form that these entire data analytics and this big data is taking.
I don't know if you guys have done this, but you can actually go to Google and you can see your user profile, your ad profile which the advertiser sees. So I did that a few months ago. And I saw what data that Google had on me. Like okay, this guys is these many years old, he's married. He is this. He is this. He likes this he likes this and I was so freaked out by it that. Since then I become very privacy focused.
But anyway, the point is that the point is that these advertisers are able to use this kind of profiles that Google and Facebook are making and able to make these hyper targeted ads because of which you know these small niche brands are able to make a dent which earlier like you were saying that all the ads had to be mass. And therefore, the product had to be mass. But now you know that shift is very interesting and it happened. I guess 4 or 5 years ago is really the start of when you see the big boom of that happening in India, especially with the big adoption of Internet across the country.
I think Jio helped the Internet penetration and helped these brands reach larger audiences than they previously had.
E Commerce works as people are more likely to give e commerce a shot than they were earlier right? From that perspective everything aligns as to why there's a D2C boom right now. E commerce paved the way and now there’s a change in the business model.
ITC’s and the FMCG companies have built costly distribution channels over the years and continue to leverage to launch new products. You're basically skipping all of that and you're saying that I'm going to make a point on the website or I'm going to make a destination on the Internet where my audience can come in and checkout that the product is in order and I'm going to directly ship it to them, right? On paper at least, what that does is it take away. It brings you back the margin that you were potentially giving out to the wholesaler or to the retailer to build out the distribution.
From that perspective D2C makes sense. It's a way to build brands for niche audiences. With Facebook and Google, it's become possible to target these niche audiences.
Now tell me what? What are the current trends that are you seeing? What are the current trends you're seeing in the D2C market today? What we understood researching those personal care & beauty brands, that happened in the last 3 - 4 years ago. Big Giant brands that have just been built D2C and now are going offline. Are there particular categories that are coming up that you see where there's more action when it comes to data?
Yeah, absolutely so right now.
I think you know the beauty of D2C is that you know so many different models are getting disrupted. Earlier we were seeing the shift to online was basically a payment shift, right where people were paying online. Now people are actually consuming and buying online. They are watching, they are resorting to online for entertainment. And for education, for doctor visits for that matter, and shopping, of course.
People are shopping online across not just fashion, but yes, beauty people are buying. Mattress is online, people are buying furniture online. People are buying specs online, groceries, kitchenware, home décor. Everything is online and from a customer perspective, if you look at the broad categories of home and home care, if you look at personal care beauty, if you look at fashion, if you look at food and beverages, every single category has gone online - not just the large category but sub category. Within food you're not just buying food online, there's packaged food. There's groceries there's restaurant food.
Even the sub categories are all completely going online these days, so the trend is here today and I think over it has given a very interesting push where you know a lot of categories which were on the brink have actually gone online. We're seeing in cases where there was, let's say a 70/30 split of offline online where 70% of the businesses were offline are now actually 30% offline.
These trends are definitely here to stay.
Interesting, I think you now when you put it out. That way you write almost all categories of consumption. Have somehow or the other gone online from entertainment, education where there's no physical product per say, but even to groceries and FMCG products. These are all hardcore physical products. Everything has gone online. And there are various versions of reaching the consume.
There are some brands that have been built on top of Amazon Marketplace. Some brands have been built through social media presence, through good content and community, and are leveraging that content and community to sell their product. I'm with you on that.
I think we are also convinced that D2C has become an interesting way to start a brand. I'm not, and this is something that will get to at a later point, I'm not sure if pure play D2C is good enough to build scale in India. I think you can start off as D2C, build your brand and then also leverage other online marketplaces and then eventually go offline. Also, once you have a certain economics of scale through online, like some brand recognition and all of that. A lot of brands are doing that, right?
So D2C has become definitely become an interesting way to start a brand, to experiment with an idea that you might have to see if there's an audience for it, and if there are takers for it or not. That brings me to a broader discussion topic that I wanted to discuss with you, and this is something you know, given the role that you’re doing
at Fireside. This is something that you probably have to live day in and day out. If we were to look at starting a D2C brand, what different functions do we need to keep in the company? What are the different functions that we need to look at? And what's the high-level playbook? Obviously one podcast, one discussion is not good enough to go into details of every different function, but I thought it would be good to go through the functions and look at what's different about D2C when when you compare it to traditional brands.
Right, so I think the first and foremost thing is marketing. How do you reach your audience? How do you find that niche that we were talking about? Can you throw some light on what's happening in the industry? How are people doing? How are people doing this?
I think just taking a step back and then jumping into marketing, I think there are a couple of buildings blocks which are the obvious ones. There's the technology you need to set up your website. You need to make sure that it's a functional one, which nowadays with Shopify, Shopify Plus is extremely easy.The entire service providers have made it very simple for people to actually build that basic technology and go online. The next is setting up your logistics delivery and again we have Dehlivery another aggregators in the space which have made it super easy for these guys to figure out the logistics and delivery.
Then we have the actual HR and the team which is managing the entire strategy of the structure of how the D2C should be run. Their responsibilities and roles of who will be doing what, and of course, finding the right audience, which is a big chunk and marketing, is actually a very big important part here, because it is basis these Google/Facebook capabilities that you can reach out to your audience.
You need to understand really who your audience is and before that you really need to understand what your brand is.
So another another one is payments where you have to select the right payment partner. India is still a big Cod cash on delivery economy. You need to kind of figure what you want your payment Partners online to be but also to remember how you want to kind of work your way through if your business has 80% cash On Delivery.
The good news is that we have a supplier or service provider in each of these areas. For delivery you have Ship Rockets, Vama ships of the world who aggregating for you. But if you want to go direct there is Dehlivery. For payments you have razor pay you have PayU, you have a bunch of these providers. Also you need your CRM and your customer support so you have all the marketing automation guys of Web Engage, More Engage which will actually help you manage your customers. You have your push. Notifications. I mean you know the communication space you have push alert, you have sent me. You have all these service providers for your CRM and even your chat support you have yellow Messenger, you have Zendesk etcetera.
All these guys come in together when you are actually building out your website. I would actually think of this as the fundamental setup or playbook, where your website, your delivery or cash, even website provider your CRM, chat, marketing automation, all of them kind of come together. These are actually the basics that you need to get going to launch your product and launch your business
Another set would be you know who is going to be managing it. So what is Org structure going to be looking like at different stages and eventually the main thing is who's the customer you're going after and how do you kind of get the first 1,000 or 10,000 customers? And who will you know picking those guys from the marketing Internet active user base that country has.
Thank you so much for laying out the building blocks. I think these are the absolute fundamentals. As you rightly pointed out, these are the absolute fundamentals when it comes to building a D2C brand assuming you’ve figured out the product. If you go deeper into each of those functions, right? Let's start with building that audience and selling your first 1000 or finding a first 1000 customers of 10,000 customers. How have you seen people do it? What are or some sort of techniques that people using to do that?
So that's an interesting one. To build a D2C brand and to get your first 1000 or 10,000 customers, there has to be a core differentiation. Why someone would come to the DTC brand. If you're building me too brand, which is readily available and there are five other competitors in the market place or in the offline channel, then there is very little reason given for someone to come to your D2C channel.
So the differentiation can be a product differentiation, audience differentiation, it can be an experiential differentiation.
There has to be a reason, a specific reason why someone is coming to a D2C brand to actually directly consume directly purchase from the brand itself. So in some cases you know the experience is completely different where people get loyalty points, they love the checkout flow. They get to learn a lot more about the product on their own website. They get to see the different products features which they wouldn't have been able to understand on a marketplace or offline or buying independently. Maybe there's a lot of social proof there. Maybe there's a lot of you know features there, so that's an experience or a content engagement that a D2C platform can build, and that's how they can actually convince an audience to come and buy from them. So I think having your own platform, you have that power to engage, speak, interact a lot more with the customer.
And that can actually really help you understand what the customer wants and accordingly pitch your and accordingly acquire your first 1,000 first 10,000 customers. There are a lot of audiences which are untapped, or which do know, about a certain product. Especially if you're building a niche product, it's a very powerful way to actually go to you know that exact audience set. Get them on your website and actually, provide for that unmet demand or untapped need that they have.
I think to get the 1st thousand or 10,000 customers, I think a brand really needs to identify exactly who they are targeting and through maybe content or through the products that they have, differentiated products that they have to a specific audience that hasn't had the chance to buy this. That that's where a brand should start with the first 1000.
If I can put this in context, right? So it's it's hard to go out and sell another toothpaste. You know using D2C? But it might be viable to sell toothpaste to people who have braces, for example, right? That's an niche, where if you can develop certain kind of toothpaste, that's good for people who have braces. That's something that can be taken D2C because it's a differentiated need that you're focusing on a niche customer segment that you’re focusing on.
So yeah, exactly. If you look at another example of an example of say baby foods or baby products or baby clothes. Parents are extremely anxious people, right? They want the right product for the newborn baby, especially if it's the first child. So you know, I think a D2c product can really target them and the power of that is, you get a platform to really convince, educate, influence a customer who already has a need by the way.
And it's not like babies were not being born five years 10 years ago, but right now, with the clutter of products and with the clutter of with the more consciousness of going more clean and making sure that the baby is not consuming anything which is chemically produced, or the fabric that they're using is correct, there is already an audience sitting out there which wants to be more educated.
I think that's a good way of doing the to see or finding a niche where you're not just selling another baby cereal, or clothing or toys, but actually a differentiated, maybe non-toxic or better for you. Or you know, just catering to more, giving more comfort to the fears that people have, so it typically becomes more psychographic than demographic. And that's a very interesting space that we are seeing are actually targeting the psychology rather than you know just plane jane, the demographic of a person.
So I have a question over here and I want to be the devil's advocate. We've been talking about differentiation and I feel like one of the things that I've been seeing in the entire D2C space is that, OK, we talk about the differentiation in terms of product, audience, experience, whatever. But what I've also seen is that there's a lot of differentiation that's going on in terms of the marketing dollars are being spent right. You get the VC money and then you just out spend your competitor. That also seems to be a form of the sensation. Is that something that you have seen?
Right, I think this is a very common phenomena, but it's very unsustainable because the idea is eventually to build a brand, and if a company is selling products and selling discounted products, that's not necessarily sustainable in the long run. While that can get a lot of visibility and you can bombard the market with a lot of low-cost products, and that's very good for quick wins. But the moment discounting goes away then, if you're building a brand which is a discounted brand, then what happens in the future?
And that's a very important point, because unit economics should be and have to be sustainable in the long run, otherwise it doesn't make sense because anyone can come and do that. Anyone can discount the brand in the short term, but you know what happens to unit economics in the long term.
Okay, what we're established so far just doing a recap of what we've discussed so far. We've talked about why the DTC rush has happened, and I think everybody can see what's left to that. We've also spoken about the differentiated product. You need to have in the market for you to build that audience - I need to focus on a niche.
Let's say I've done all of that. Now I I have a product you know, a specific product for a particular niche. Maybe let's just continue the thought on toothpaste for braces. For people who people have braces, right? I don't even know if that's a need or not, but let's let's run it around with it for now. Tell me, what do I do from a marketing standpoint? I have the website ready. I have my social handles ready, do people then just spend on Google, Facebook ads or there's a lot of content push or these go hand in hand? How are people building from, let's say, the first 1000 customers to repeatable set of 10 thousand or 15,000 customers?
Okay, so first. I mean, once you have your 1000 customers in, when are growing from there. I think even for both, even to get the 1000 and above customers, I think it's very important to build the content piece. And now with social media it's free for you, almost free. I mean yes, of course there's a cost involved to create content where it's almost free to kind of create content and put it out there and you know that building your presence. Yes to make it more discoverable you have to pay for it. But to just create that content and you know keep talking about who you are, what you stand for is very important because once you start pushing, paying marketing dollars to get to acquire customers they need to come and understand who you are?
I think those building blocks are important where content is already ready. Your brand thought is already ready. You know what you're going to speak to your customer about and what they kind of understand about you. I would say that understanding and building a brand story comes before an very strongly comes before going and acquiring customers. So a lot of times you know brands have very loose brand identity, which makes the entire marketing dollar spends very weak.
As you know, the customer comes back and doesn't really understand what it's about, whether they fit into this brand or not. So actually, building out a good strong brand identity and then seeing who matches that brand identity and going after those kind of customers than vice versa. A lot of brands tend to get that wrong and that is actually just bad ROI on your marketing dollars. Just by doing that I think our marketing dollar efficiency spend efficiency increases and what one needs to do after that is yes, spend money on social media to acquire new customers of course. But also spend some money to retain the existing guys. Very important to do that because a lot of brands also what we do is once customers acquired that customer gets no attention in terms of marketing dollars, which is actually, you know that actually creates a leaky funnel where retention marketing is really not given enough thought and the old guys slip away. Which are your actually, your top 1000 - 10 thousand guys.
I think a very strong insight that I have seen and you learn from is spending enough money on retention marketing. Now you can go after, you can spend money on social media and retain them and you can also use your CRM When your free tools which are available to you to actually keep these guys engaged keep them coming back. That retention marketing, which is definitely something very important. Otherwise month on month the brand is just spending the same amount of money or more money acquiring a new set of customers.
From what I'm hearing, initially, after you get your brand story down is a lot of experimentation to really see if the brand Story is sticking with the particular needs that you were going after. If there are other niches that are resonating with it, if not, can you go back and make some changes In the messaging that you have in the branding that you have the content that you have right. Without that, you're absolutely right. Without that, Google and Facebook can get you initial set, of customers.
But if they're not going to come back and buy again, this is never going to be a profitable venture, because it’s a leaky funnel and you're always playing the likes of Google and Facebook to get your transactions.
That is an underrated sort of topic about retention marketing, and I think there's going to be a lot more interesting things that will happen in the next few years around retention marketing.
What I’m seeing is that D2C is a community play in the end. What you have to build is you have to use your content. You have to build community around that niche. They're coming back to differentiated product, differentiated audience, differentiated Niche, and once you build that community around that niche, that's when you're going to stop that leaky funnel. And also, when it comes down to a community building project, you need to have a strong mission statement At the start. You need to be able to say that, I am making this toothpaste because I want all people with braces to have a better life or I want people with braces to have able to clean their teeth better. I don't even know what problems people with braces have. But if you have that strong mission then you can leave rally the troops around the mission. You can have a strong community and that strong community, the strong content and all that stuff will get a lot of repeat customer.
And just an add on to the point of content, right? I think what I've seen is the content is not always to make a sale happen. It's not always to push a particular product, but the content is identifying your community or your target customer and seeing what other problems that they have, that could be an extension of the product that you're solving and letting the content sort of help them with the with the problems they are facing. So that way the brand affinity that's built, from a customer perspective is much higher because you're solving something for them and not really just shoving down product.
Is that is that what you've seen also?
Right, absolutely I think content is an enabler to or speak to the customer, either to tell them something and also to get a communication back from them and thankfully with social media, you can do both. It's a two-way communication. It's a direct communication with your customer. You can literally understand your launch and relaunch strategies basis this. So I've seen a bunch of companies right now who are doing this and have been doing this where they've literally used their content and community and hence the communication. To understand what the customer wants.
So a couple of companies are actually launching products and in the past six months they've launched 2 new products basis what the audience actually told them. Their first 10,000 customers told them what they wanted and they went out and Built those products.
While there is another company which is actually, you know they went to market with a product and they got initial feed feedback and they were able to relaunch that product very quickly. Basis what the customer didn't like now these things were something you know things which would never happen 20 years ago with the large FMCG were never able to actually talk to the customers ground up.
That's definitely happening with content and community and I think you know what Sahil said about content actually is solving a problem or detecting a problem and helping you solve it. So for a brand, I think content and hence Community building becomes extremely strong. And you know, I would again tie this back to brand because at the end of the day you are solving these problems, you are getting the stickiness and what's happening in the end is that you're getting brand credibility.
So that brand thought right now when we look at marketing. Yes, it's great to spend money and do a lot of performance marketing and acquire customers. But what are we doing to actually engage those customers? Listen to those customers, retain those customers and hence create a brand and not just an acquisition machine.
so back in the day when you know people in when I say brand and the emphasis on brand and if this is on brand identity before going to market. Emphasis on band creation while going to marketing market is basically back in the day People would really focus on that. for example you know if I say washing powder, what? What is the third word that comes to your mind? You know I mean and my guess would be it would be Nirma, right? And If I said it in a in a singsong way, maybe you would get that.
How many brands today can actually do that and how are they? I mean, that's one way of creating a brand right? And how can you actually get to a point where people think of you when they think of all category? So yeah, I would say contentm community, everything would actually tie back to solving our customer’s problem and eventually creating a brand. So you're not constantly paying to acquire people.
Who in India is doing this well for in the D2C space?
In India, I think Sugar is doing a great job with the content and community. So they actually put out a lot of content which speaks about how to do this and how to do that and how to do that. It's not a product push when it's actually educating customers. And even though the beauty personal care market is huge in India, the reality is that a lot of women who are starting to use makeup or who use makeup they still don't know. And there's always like, you know, this content is always around to re-educate people on what to do. I think sugar is doing that really well, creating great content without a product push. Another one comes to mind is Boat, you know Boat actually got built on their entire community of Boat heads. You know the whole culture and the whole cultish community. If I may, you know that's that's how Boat actually got built as a brand and created a differentiation between itself and all other guys who also you know selling the same thing.
So now that you're talking, you spoke about the importance of content and since we are on a content based platform right now podcast, I just want to point out to everybody that content is very important. It's not easy to make content and if somebody wants to sponsor as and have their plug over here that the Indian Dreampodcast is sponsored by Blank. So yeah, please sponsor us, we're fantastic content piece and will be happy to help.
Okay, so that part that brings me to looking at marketing from a different sort of subparts, right? So we've discussed the content marketing piece and community building and we briefly touched upon performance marketing. I don't think we need to go too deep into it because there's enough and more content around performance marketing that's out there. One thing that I want to touch on that's getting really hot lately is influencer marketing.
00:32:44 Speaker 2
And I've seen a lot of D2C brands lately. Specifically, you know using Instagram influencers, YouTube influencers, Twitter influencers to podcast influencers are being leveraged to take the message to newer set of audiences and the way they're doing it is also very less like it was done in age old, where you know there was a there was content that was going on and there used to be a break. Think about any TV show or any sports or anything they used to be celebrated. They Come in and talk about a particular product right? Those were traditional ads and at the end of the day what they were trying to do is using this celebrity power to influence their potential consumers to buy that.
So it's nothing new per se, but what's happening is newer set of influencers have popped up. Micro celebrities have popped up who are talking about using the product. They are plugging the product in Innovative ways. Stand up Comedians are plugging the product in innovative ways. What's happening. What's your point of view on that? On influencer marketing in general?
Influencer marketing is very powerful these days, especially with more and more people using. You know social media. And actually learning from social media what they need to do and hence you know right there from that Channel if they hear it from the horse’s mouth that use this is what you need to buy that actually solve their problem that credibility and trust. influencer marketing channel also is now can be segmented into different parts.
So there are the large influences which have a million plus followers and then there are on the other side the micro and nano influencers, which may have say 20 thousand 10,000 followers and you know up to say 50,000 followers. on YouTube on Instagram and the stickiness or the engagement rate of these nanom micro versus macro is very different. Very interesting. So I think from brands also depending on what stage they are at they could definitely leverage. Maybe a small brand may not be able to leverage a large influencer, but there's always there is definitely a market for these. Micro and Nano Influencers, which have equal if not more engagement rates with the audience.
So in fact, a lot of times we see that you know you notice that influencers when they put up a post or a video on YouTube, Instagram organically, the reach is different from when it is a branded post. So you know sometimes you'll notice that the reach or the engagement is slightly lower when it's a branded post. Of course, because organic posts get Higer reach and higher engagement. But you know in case of nano and micro influencers, a lot of times these guys have even more engagement rates which is good news for small start ups because it's not that it's you know these big influences are out of reach so large and small start ups both can leverage the influence of market. I think there's definitely a market there ready to be influenced and these are definitely strong channels. People tend to believe these regular ordinary people more there is You know a friendly face.
There are a couple of others which have come and gone. So definitely yeah interesting space to explore.
You're right on the micro influencers, but what's also happening is for smaller start-ups the nano influencers are also OK working in a barter system where users send them the product and they talk about the product's on different social channels, right? So the influencer marketing is also channel of marketing that is being leveraged by smaller and bigger brands to increase the size of the audience that they can cater to.
So marketing itself from what it looks like has been subdivided and so many more things that you can now do within the marketing piece where I'm going to skip a certain few functions and go back to the organisation structure that you were speaking about from a hiring perspective and team building perspective.
Do you think the smaller D2C brands have enough sort of Cash in the bank to build a proper marketing team. From what it looks like, this is a lot of work and a lot of thought needs to go into How do you do retention marketing? How do content marketing? How do you influencer marketing? What kind of org structures have you seen in the market?
The org structures are dynamic depending on the stage of the company, so the company typically starts with the some very small team in house. maybe a couple of guys who are working on marketing. Sometimes even the founder doing it where you basically need To reach out and build your top of funnel. so you need to go out to the market and tell people you exist and why they should buy this product to come to your website and convert and by. So for performance marketing or campaign marketing Or you know your digital marketing, There's typically one guy who's doing all of it. A couple of people who are doing all of it may be aided by someone who's making the creatives.
And then you know, as the start-up scale a little bit, maybe get some funding - Typically this gets outsourced. They still don't have enough scale Or resources to actually get a whole full blown in House team for marketing. So what happens is that when these digital marketing agencies come in and they are very critical in the role of the company because the company is spending a significant amount of its revenue in marketing and In acquiring these customers.
Then the selection of the right agency comes in where depending on what you want to focus on and what you want to spend on what the need is, whether its performance, marketing with a mix of SEO with a mix of influencer, ET cetera, they come in, you know what channels. YouTube, Google, Facebook, Instagram.
The thought needs to go into where exactly they want to go with what strategy. These agencies typically help you with that, and then I think when the start-up becomes a lot bigger, it just makes sense to have all these capabilities back in house where a dedicated team is looking into all these areas thinking brand, thinking company products, new launches, and you know day in and day out creating all of these marketing campaigns for the company.
And then in the last part, basically you would in House teams would typically have someone for performance, someone for retention, maybe D2C growth head where everybody reports to that person. Even someone from a product perspective with product and UI UX experience making sure that that person is aiding and enabling the retention and acquisition funnels. So that's what the eventual team would look like with maybe social media experts and a creative team.
So eventually this entire piece comes back in house.
So if you can put all of this together from a marketing perspective. I come from a B2B background where everything is part of the funnel where there are leads and there are warm leads and there's demos that have happened and there's something that's happening and then there’s conversion. I'm assuming it's the same way that you look at from D2C perspective. So can you help us put all of this on a funnel to really understand - How does the entire thing work from getting somebody interested to selling them something.
Right, so I think here I like to use an acronym called AIDA, which is a commonly used one. A is for a Awareness. Which is the top of the funnel where you actually get people to aware about this category. Slash product slash brand. I stands for interest where affinity based if someone's interest already interested in this kind of product has bought a competitive product, knows about your product, so affinity and interest based targeting happens at the middle level funnel which is interest. D is desire which is the bottom funnel which where you know in marketing audiences are targeted where people already know have already purchased are already ready to buy another product are targeted and then the conversion happens. Then there's action which is the last A which they've landed on your page and they've actually converted. So this is typically the funnel of top of the funnel, middle of funnel and bottom of the funnel.
Which leads to conversion and then it doesn't end. Then the last pieces remarketing retargeting to the same customer base.
I think that's a that's a handy way of categorising different things, right? For example, performance marketing is to build your top of the funnel to get a lot of people aware about your brand and potentially even get them to the page. Influencer is again the same thing. It's creating more awareness versus retention content community is basically taking them from desire to Action and that's a handy way of putting at it and brands people who are looking to enter this industry need to be aware of How do you really optimise across the different across the funnel? Maybe initially more top of the funnel. In terms of spends - what kind of spends have you seen? You know people doing in retention marketing? I know you said that you know, not a lot of start ups focusing that it's underrated. What did? What do you think is a good rule of thumb in terms of what should you spend on retention marketing when you're starting out?
So that also differs from state to state. And yes, I think you You got it absolutely right that most a lot of start ups actually don't focus on retention marketing. That means they will spend ₹100 a month, but the entire ₹100 will go towards finding a new customer and that nothing will be done in that hundred ruppes to actually go back and talk to the guy who's already bought the product. so typically. This happens because people feel like organically The old customers will come back. Why that doesn't work is because there are still a lot of competitors. If you are not targeting your own customer? Your competitor is what people end up doing right now. A lot of companies that I've seen actually spending zero to 10% in retention marketing, which is extremely low. So to begin with, you know when when the customer base is extremely small Of course you need to acquire those first set of customers, but once those first set of customers have been acquired, I would say a healthy, you know 25 to 50 even 50% budget for retention Marketing would be healthy to have. when the company scales again then you can bring that back and you can play around with within that framework and within that range of 25 to 50. But you know 50 is not a bad number as well. I think that would surprise a lot of companies that you know - Why should I spend 50% of my money to target again the same customer who's already bought. The reason is because your stickability will increase, your LTV will increase and you know these are the guys are going to create a brand for you. They will make it cheaper. I mean you will not need to nudge a guy who's already bought from you three times. Maybe you need to match that person one time so the cost of acquisition is well and this is like proven this is with data etcetera where your conversion rate for new customers would maybe be 2% or 1%. Or you know Click through rate Will be lower, but what with, you know, retention marketing, the returns and conversions are always double, so you can. It's it's very normal to see a 4% or 5% conversion or click through. On re marketing campaigns.
Okay, I think that also you know if you build up stickability what it also does is if they really like the product, the chances of word of mouth happening also increases versus somebody who just used the product once might not go out and speak about it compared to somebody who's used it 2-4 times will go out and speak to their friends and family About hey I'm using this product and this is just pure free customer at that point in time.
What do you mean by retention marketing? Can you give us a few examples of that?
Sure. So basically there are two kinds of broadly two kinds of campaigns you can run right, which is to acquire a new customer who's never bought. So suppose I started chocolate brand, you know? Siddharth is already friendly or customer who's tried it and you are not so you know I'll spend $100 trying to acquire you and your friends and family. And I won't spend anything for Siddharth.
What I'm saying is that you should spend money on your existing customer. You should target through Facebook and Google ads etcetera The same guy who already bought your product. You should not assume that that person who's already once bought your product. You spent money, you acquired them three months ago, they bought your product and they went away. You should not assume that they don't need to be targeted. They again need to be targeted. They need to know they need to see that ad again. So that's what I mean by retention marketing.
Yeah, I think this is also where SMS marketing comes into picture and I hate to see it. You know, I've tried a bunch of DTC brands and some of them that I don't end up liking. I obviously won't go out and order again, but the frequency of their SMS’s is at least good retention marketing from that perspective to get me back to remind me that this brand exists.
Fair, okay, I think that that covers from a very high level of what goes into building the marketing function of when you're launching a D2C brand, let's move on to the other stuff, logistics and maybe manufacturing. We combine these two right.
what I've seen primarily is from a manufacturing perspective - most of the D2C brands are relying on contract manufacturing and that goes to the fact that hey one manufacturing is not their Expertise and 2nd the kind of capital expenditure expenditure that's required to set up a manufacturing facility is very high. Hence they outsource the manufacturing aspect of it, The packaging aspect of it, and they provide the branding that goes on the packaging and stuff like that, right? Is that the norm? Would you say that's the norm or have you seen people getting into the manufacturing and also do indeed to see?
I think it's a mixed bag, but I see more of you know of the contract manufacturing part where a lot of brands actually don't do them.
But there are a lot of product focused brands which will actually you know really Product obsessed founders have actually, you know, hit the RnD buttons right and everything and they in house manufacturing. So it's a mixed bag but.
I guess I guess the capital requirement then changes and you need to go out and raise accordingly to the manufacturing I would assume.
00:47:46 Speaker 1
yes and no. I mean, there is a slight differentiation. See you when you're paying to the contract manufacturer also, you're paying for the cause you're paying for their services. It's just that they know how to do that better, so they manage it better. And you know, for example, like I think Kama or Forest essentials, one of them does contract manufacturing and the other does the in house manufacturing.
Let me put it this way, I think the right way to put it would be if the founder or the founding team has a product manufacturing and R&D expertise, they should go ahead and have it in house. If they don't then they definitely can’t have it in house because that's the Co founding teams capability anyway, and if it's there available in the market then it should be contract manufacture.
Think Okay, now I think that's a that's a good thumb rule to have in terms of deciding how to go about it.
Now logistics right?
This is also fairly complicated. Different types of products have different kinds of needs, but more or less I've seen that if the product is not perishable, the supply chain aspect of it has been sorted out in India for in the last five to seven years.
And as you pointed out initially, aggregators like Ship Rocket that can sort of help your ecommerce brand manage their logistics completely on one platform or players like dehlivery And you know, ecom express that are just focusing on the E Commerce segment.
What are some of the Nuances that people need to think of when they are building their logistics.
Sure, so I think again this is in the stages and I'd like to answer this depending on what stage of the company the brand is in.
if it's a small brand, is starting out? Typically what happens is they start with their own logistics to some extent where the warehouse is their own. They manage the warehouse on their own while they outsourced delivery. so delivery is typically always outsourced anyway, and they start their own warehouse, they tracked the returns refunds RTO’s, which is very important - RTO in today's D2C business. What is important here is they get a very good hands on knowledge of what is working and what is not.
So while when you have your own warehouse and you've outsourced the delivery, you're working very closely with the delivery partners and your customers to understand. Okay how the returns are working. You know what products are getting returned, how often, what is the refund process? How's that panning out, how many RTO’s are happening. RTO is when the delivery companies trying to deliver to your Customer but is unable to. so you know they'll make three attempts, and after the third time the product will come back to you. So it's not like the customer received it and did not like it and return it. That's a return when the customer returns it. When the customer was never able to get the product, its RTO. This happens in you know pin codes where which are not reachable and this is a big problem. A lot of companies see a big percentage.
you need to have your own warehouse and work very closely with the delivery partners to really understand your refunds, RTO’s returns how they are working and once you get a good handle on this and after this, once you scale you will be able to outsource to a third party warehouse. So till then it's a good idea to keep it in house and fix these problems, These gaps and figure out your working capital needs. Because of these RTO’s refunds and returns.
Once you have all of that basic blueprint in place, you can start scaling. You can outsource and once you outsource you know there are delivery, there warehouses which are available third party warehouses which will stock your supplier and which will be integrated to delivery services. Here. What you can do is you can actually work with multiple delivery partners. earlier in your own warehouse when you're starting out, you're working with one delivery partner because it's basically a pain when you're very, very small to integrate with multiple delivery partners.
So when you're working with a third party warehouse, you can integrate with, you know, multiple delivery partners. In some of them, you know, reach XYZ PIN codes, while the others have a different kind of reach, and they have all different features which you can leverage together. Plus third party warehousing is also basis variable costing, so you pay as you use and which is kind of still helpful for the company when the company is still growing and really kind of understanding what the demand is because suddenly you have a surge in demand but you don't know how much to account for warehouse.
So this variable pricing will help you at that growth stage, and then once you kind of understood your demand and demand levels, etc.
Then it's always good to again come back at a high volume. It's good to come back to your own warehouse, build your own warehouse where you have your cost fixed and you don't have to pay variably. You can collaborate again with different delivery partners to get the last mile done, etcetera. Will again the dehlivery Shadowfax is of the world coming.
Makes sense, I really like how you divide it and how you been dividing for every function on the different stages. I think for our listeners will give them a good perspective on how things need to scale as the organisations scaled and also points to the fact that this is regardless of what you do but specifically D2C is an evolving game. So your strategies and your functions will keep evolving with the period of time as your company grows.
Okay, in terms of leadership team, what are the absolute you know must have in terms of expertise when you're starting out a D2C brand versus what are somethings that you can eventually hire for as you scale? I think that's a big differentiation for people to understand if they are suited to go out and build a D2C brand right?
So I think again in different stages. When we start It's basically the founder who's kind of got a very good understanding or is trying to get a very good understanding of who the market is. Who are these guys were coming into my website and buying, which is where data again is extremely important to really understand the behaviour. so you know where there is the founder or whether it's someone else in the team. Someone needs to keep a very close eye on what the customer, who the audience is and what are they buying, which product is working not working.
What are the areas that in India you know with D2C everything it becomes Pan India. You're cutting across state.
Then a pin code. So where is it actually? Where does my customer actually live and does it actually reach my customer in time All the products that I'm selling. so to begin with, someone needs to really understand this process well. So there has to be someone who's doing supply chain right? There has to be someone who's understanding customers, right? And there has to be someone who's actually, you know, keeping all the data handy to make those decisions and quick decisions.
What about the supply chain? I mean you know getting the product from the manufacturer or manufacturing it, making sure it stocked if its diwali season and there's an increase in demand, then you know there's enough inventory for that. If there is leans over his head, the market, and you know there's no one buying the product, then there's enough space in the warehouse to keep stock inventory. Or if you're in a third party warehouse, then you're not paying You know extra for your invented. so someone has to do the entire inventory planning that's extremely important because that person is responsible for actually getting the product delivered and fulfil the entire fulfilment piece lies with this person.
Then and on the customer facing side, inventory is the back inside, and on a customer facing site - Someone needs to kind of really understand who is buying what. Coming at what rate, how much you know CAP am I spending like what is the cost of acquisition to get this customer versus that customer. So is this customer cheaper? Is that customers cheaper? who needed what who's spending, how much? How much are they spending? What is the frequency at which they are buying? So both sides need to be married very well and that's how those are the two main people and those are the two main pillars.
It could be two people who are doing that to Begin with. And as the company scales they’ll definitely need more and more people under these two pillars to start building out this, You know synchronicity and yeah, so I think when in stage two when the company scales and it's a growth phase, then typically in both sections more people are hired. Supply chain gets divided further and you know the whole customer D2c facing team gets divided further again.
In the whole marketing piece of acquiring retaining product expertise and experts kick in where people actually looking at your website and constantly improving it. Maybe they'll be a landing page customization where someone who buys very frequently and buys the same product will see a different landing page versus someone else. The checkout flows could be different for certain people, so all those optimizations on the front end and even on the back end depending on that are very important. So I think those that's how you structure your org as you grow.
Okay, tell me this is this is just a question that popped up in my head right now from what you've seen in the market, what's been the hardest role to fulfil in these D2C organisations and the reason why I'm asking this is will give our listeners some perspective on if they want to enter this industry and if they have a relevant skill set that might fit this in demand role, it might be good to go out and get experience in one of the D2C companies. So what's been that role that's been really hard to fill in the in the D2C ecosystem.
So I think in the D2C a lot lies with the, you know, getting the right customers and getting them at the right price. So I would I would go back to you know, maybe the performance marketer, but it's not I wouldn't say I would say it's an important role to fill. I wouldn't say its a hard role because these days you know there is a lot of talent. I think it's important, but why it becomes hard is, you know, the entire fitting is this role fitting into what the company wants.
So it's not really a role where Okay, you can create 10 performance marketing executives or ten D2C heads or growth hackers and you can copy paste them into different D2C companies. They become very. The roles become very custom to the company and I think the hard part or the important part is how this particular person in this particular role will in a unique way solve the problem of this particular company.
It's not a very by the book written by the book CV. You have to customise this role as per the company.
Okay, I guess that's what makes it hard right? By the virtue of that. In fact, I would assume that there are only few people who have the exact relevant experience that you are trying to market, and you probably have to get them from your competitors. But for everyone else, you need a culture and value within the organisation. That makes it very easy for them to understand what exactly are you doing in hand.
Sort of adapt their skill, set their core skill, set of performance marketing to something that could work for the organisation.
Another role that I've been thinking of and more and more companies are now hiring for is community builders or community managers, right? This isn't a role that was extremely popular a few years back. Do you think that's in demand right now, and since that not a lot of people have done this in that previous jobs, it's harder to hire for.
Yeah, so I think Community managers are the you know, the two pillars we spoke about the back end front end, The supply chain and the customer facing. So they come in, the community managers in when the company is scaling and they need more and more they need to do more to understand their customers and not just understand it but now actually start talking to the customers. Maybe build a community where even the customers are talking to each other and that is yes, it is a new role relatively and that's becoming pretty important because that's what creates your brand. That's what's brings out the core juice from a customer feedback communicate.
And yeah when it comes to hiring them and you know this is a joke within recruiters and companies as well, is it is a little broad because it's not a very defined role. Every company defines it slightly differently. But yeah, the objective is largely the same and everyone executes it differently because community can be built through different things, right? Like you can create a blog you can, it can be different formats of you know blog, video, ET cetera. They can be a completely new way of thinking about it.
So Community managers, that way the demand is there, but I think the roles are still being sketched out.
OK, I think what we've covered so far have just understand how do you really build out your marketing function? What are some of the things that you need to think about when it comes to manufacturing? Some of the things that you need to think about when it comes to logistics and warehousing and hiring the right kind of People and what you've done really well there is talk about it in different stages, so people understand how things evolve.
Well, one of the things that I think is central to building ready to see brand is how do you finance it. I, as you know, most of the founders that we talked to in are in a segment called Founder Journeys. We focused on bootstrap entrepreneurs, profitable businesses, smaller businesses. But bootstrapped businesses. From what we've seen, the ones the D2C brands that have scaled up obviously taken venture capital money. So here's my question. Is venture capital money essential to building a D2C brand in India or, yeah, that's the question. Is it essential to build a D2C brand in India?
No, I would say absolutely not. Venture capital funding is not necessary to build a D2C brand. The good news is that it's so easy to build a D2C brand these days. You know, I could start literally making soap in my house right now and make a WordPress or Shopify website and I could start selling it right to my community and then grow that community organically if I wanted.
And I don't need you to see funding for that. I just need to understand my customers and my product and the technology and the data is already there to enable me and empower me to do that. Which is why a lot of people see brands are coming up. I think what is where venture capital funding comes in is when they want to scale. When a D2C brand wants to grow to a much, much larger audience? And if they are playing in a space which has a lot of competitors and yet they want to or some competitors and they want to grow in that space.
It will be hard for them to not do it with, you know, by being bootstrapped. It's not impossible, but it's just that the other players in the market will most likely have the venture capital funding to go out and scale and reach out to a larger audience. So the limitation may come there. However, if it's a profitable D2C and if it's bootstrapped you know nothing prevents it from doing that as well, but the large difference becomes in scale so long to answer questions.
It is you can create a D2C brand, but if you want to scale then venture capital funding might come in.
And also if if your direct competitors have raised venture capital money, it's hard to fight against that with while being bootstrap, right? It's just the marketing dollars and the the eyeballs that they will capture are significantly more than you. So either you have a very, very strong community or a completely sort of IP driven product where nobody else can copy. I guess in those scenarios it might work, but if your competitors venture capital money, you have no option but to go out and raise. Also that you have, you can compete at the same level.
Okay, the other thing that I want to add from a financing perspective and this is going back to my experience in the SMEs in the financing world. In the lending world is there are a lot of interesting debt products that are coming up now in terms of bill discounting in terms of purchase financing, which enable you to raise debt to buy raw materials to discount the bills that you've already sold to larger marketplaces or corporates If that's one of your distribution channel, you get the money on the 1st week itself rather than waiting the 90 day credit period that a lot of these organisations have rights, but it helps the cash. flow
I think a lot of D2C brands have also started looking at that, specifically ones that sell to larger corporates.
Yeah, I think there are a couple of other avenues for funding so equity funding being one the second also is debt funding. Like you correctly said and another one which is very interesting which is coming the market which is your marketing funding. So like we just discussed so much on you know how marketing takes up a lot of cash from the business.
They are players like Club and get vantage who are actually funding the growth or marketing budgets of brands. So by that I mean that they will actually fund your performance marketing spends and what the model typically is that how those companies recover the money is through the sales of the brand products. So typically the more the faster you sell the faster they recover their money back and it is interesting for such brands because you know they do need a lot of a fair amount of their budgets going marketing and these guys specifically come in and solve for those marketing budget needs.
Okay, so they I would assume they also then participate in the upside. So if the marketing campaigns do really well, they take a certain percentage of the sales that you do. I’m assuming, right?
They always take a percentage of the sales. The upside is if the marketing campaign does well, they recover their money fast.
So net net their interest rate, the fixed interest rate they're recovering that quicker so net net that interest rate increases. So if you want to recover it in a year you actually recovered in six months, so your interest rate is a lot better than what it would be in one year.
Oh fantastic, that's something interesting, and for our audience we will definitely include this in the newsletter for people to dig deeper.
Would you recommend any sort of content pieces that you consume to understand more about the disease? Could be books, podcasts, YouTube videos, anything.
So if you can point to some sources that our listeners could go too.
D2C specific? Not yet. I don't have something, so do you see specific, but I think overall you know zero to 1 by Peter Thiel makes a lot of sense in a lot of D2C unit economics, and a lot of thought that goes into creating a D2C or playbook and a strategy. I think that book covers a lot of key elements.
Okay, yes, it is a fantastic book. Every entrepreneur for that matter, regardless of the two, she should be to see should read about it specifically, you're trying to create something new in the market as you do. One is a fantastic book.