Analysis of Yojana Magazine : "Direct to Consumer Model''_00.1
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Analysis of Yojana Magazine : ”Direct to Consumer Model’’

Context

The D2C economic model gained prevalence in recent years as small businesses increasingly gained momentum again around the economies of the world.

Was the D2C present in the Past

  • Before the advent of large modern economies and consequently, globalisation, individuals around the world preferred buying locally, and in fact that was the only channel of economic activity known to man marked by the low development status of transportation and communication platforms.
  • What has now become an economic model, ‘direct-to-consumer’ (D2C) was the only way individuals and businesses ran economic activities for a long time.
  • The manner in which direct-to-consumer models function now is vastly different from how they functioned before modem economies were built with the onset of the internet, wider and diverse consumer base, specialised firms and industries, and the general development over the years.
  • The point, however, is that the model was prevalent then because most businesses operating around the world were small in size, often limited to one township or locality.

About Atmanirbhar Bharat Abhiyan

  • Atmanirbhar Bharat Abhiyaan or Self-reliant India campaign is the vision of new India envisaged by the Hon’ble Prime Minister Shri Narendra Modi. On 12 May 2020.
  • The aim is to make the country and its citizens independent and self-reliant in all senses.
  • There are five pillars of Aatma Nirbhar Bharat – Economy, Infrastructure, System, Vibrant Demography and Demand.
  • Finance Minister further announces Government Reforms and Enablers across Seven Sectors under Aatmanirbhar Bharat Abhiyaan.
  • The government took several bold reforms such as Supply Chain Reforms for Agriculture, Rational Tax Systems, Simple & Clear Laws, Capable Human Resource and Strong Financial System.
  • Direct-to-consumer Model became a part of our economic system via a much more positive phenomenon, so to say, called Atmanirbhar Bharat.

What is India’s Self-reliance Model?

  • It has several different meanings in several different contexts and the context India chose relied heavily on digitisation.
  • In the words of the Prime Minister, “When India speaks of becoming self-reliant, it doesn’t advocate a self-centred system.
  • In India’s self-reliance, there is a concern for the whole world’s happiness, cooperation, and peace.
  • Digital India has, thus, been an integral part of Atrnanirbhar Bharat, and it is Digital India that has enabled and continues to facilitate the Indian direct-to-consumer market.
  • For example, now, a tea brand combining the goodness of typical Indian tea and Ayurveda, can reach the doorstep of consumers without a single brick and mortar setup, powered by a higher reach of smartphones and increasing broadband connections.
  • With the help of a radical supply chain, it eliminates unnecessary middlemen, sources premium teas and superfoods from renowned gardens in India, packages them garden-fresh, and brings them to the consumer’s doorstep.
  • Many such Indian startups have leveraged the digitisation revolution in the country and entered the direct-to-consumer market in recent times.
  • It is certainly mass digitisation that has contributed to the success of D2C MODEL.
  • As of 2021, D2C startups of India have been able to raise USD 783 million only in the first 7 months of the year.

Salient Features of D2C Model

  • Direct-to-consumer is preferred by sellers and also enjoys popularity among investors.
  • The model allows businesses to experiment with distribution models and change them according to the fast-changing needs of society and the economy.
  • Covid-19 happens to be the best example of why flexible distribution channels are a new norm for all businesses.
  • D2C also facilitates better consumer insights owing to the close connection between consumers and producers, allowing for smooth feedback and review mechanism.
  • The new-age consumer is becoming increasingly aware and demands end-to-end attention from producers or sellers.
  • The D2C model will perhaps become some sort of a revolution in the near future if consumer demands continue to rise.
  • Product differentiation is another feature that the D2C model facilitates when sellers have the power to make immediate changes in the consumer interaction setup.
  • The D2C model also facilitates easy liquidation of business in a situation of failure, offering a relatively convenient exit to entrepreneurs who can then move their capabilities to other, more productive businesses, causing minimum loss to the individual and economy.

What change is happening in India through the direct-to-consumer model ?

  • Now, entrepreneurship is leaving the elite circles of the country and reaching the grassroots minds of India.
  • This not to say that there haven’t been entrepreneurs in India who have risen out of the margins of the society to create the now uber-successful businesses but to highlight that the high cost of business operations and monopoly of middlemen made entrepreneurship a sort of ‘elitist’ profession.
  • Even if individuals created great products and ideas, the end goal, reaching consumers, remained a challenge for most entrepreneurs before the advent of mass digitisation.
  • Digitisation has powered grassroots entrepreneurship by giving power to business owners to create their own terms of business and reach consumers without using extensive capital for building physical infrastructure.
  • Essentially, D2C, through digitisation, has shortened the time it takes for a business to hit breakeven by reducing the cost side of the equation and enabling business owners to make quick profits.
  • Success, when measured purely on profit parameters, can now be achieved sooner by an entrepreneur owing to the reduced non-monetary investment, time.
  • More young entrepreneurs feel empowered to take up entrepreneurship because the time input does not contradict with responsibilities of these young founders towards their families.
  • When speaking of enablers, a niche segment of digitisation, digital payments has had a tremendous impact on the success of online retail.
  • Before digital payments became a household phenomenon, the online retail industry favoured the buyers unfairly over the sellers by shifting the risk cost that is to be borne by buyers and sellers alike, only on the sellers in economic interaction.
  • While the sellers had to bear the cost of manufacturing and partly the cost of delivery, the buyers were free to exit the contract at any point with the cash-on-delivery system.
  • The buyers essentially had no risk share in the contract.
  • Digital payments system empowered entrepreneurs to distribute the risk in an economic contract by imposing monetary liability on buyers as well.
  • Many new businesses choose to function only on an online payment system until the positive word of mouth makes cash on delivery a less risky alternative.
  • This risk distribution has given the same platform to online retailers as that of offline retailers while the cost aspect still remains skewed in favour of digital businesses.
  • While the online D2C market has been facilitated by businesses like the digital payments industry, the D2C market itself has created additional business segments in the economy like logistics start ups that go beyond wholesale deliveries to reach the doorstep of the consumer.
  • The producers directly become retailers, bypassing the wholesale market altogether.

How Atmanirbhar Bharat has created a new ecosystem in the Indian economy?

  • Atmanirbhar Bharat is powered by digitisation and the Indian entrepreneurial spirit.
  • This manifestation of Atmanirbhar Bharat could not have been highlighted at a better time when Covid-19 has forced isolation on nations around the world and traditional-supply chains have been compromised.
  • With the larger economic change being obvious, Atmanirbhar Bharat has created a more individual-level change in our economy with consumer and producer preferences changing one at a time and leading to a larger economic phenomenon which can be termed the Indian D2C revolution.

Way Forward

  • What has happened and what continues to happen is not a mass movement of the consumer but a gradual and sustainable individual shift towards digital channels that has been facilitated by Digital India, entrepreneurs, and more recently, Covid-19.
  • The economy is changing and it is being led by an individual with a smartphone in one hand and rising income in the other.
  • We have reached a position now where a new phenomenon called ‘clicks and mortar'(a term popularised as an alternative to bricks and mortar) is gaining popularity and is soon to become the next big thing.
  • With rising profits, businesses are now moving towards a hybrid model by establishing flagship stores while continuing a dominant online presence.

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