Buying from online markets emerged as the lifeline to the people during the catastrophic times of the pandemic. Apart from the major e-commerce players Flipkart and Amazon, the D2C start-ups were not behind in storming the retail sector, making them one of the biggest contenders of the established e-commerce players. With cheaper data plans, less expensive smartphones, and consumption of digital content, D2C players are witnessing more online shoppers from the Tier-II and Tier-III cities of India. The growth has been so positive that a report from Avendus Capital says D2C markets to be a market worth $100 billion by 2025, which has caught the interest of the investors.
So, what is it that the D2C start-ups are doing differently to attract investors or let us put it in this way that investors are interested to invest in D2C startups?
The answer lies in the use of customer data to offer personalized shopping experiences to customers that eventually leads to sales. The start-ups have moved from the idea of randomly displaying banner ads and pop-ups on websites for reaching out to customers to more precise targeting. As the D2C start-ups eliminate the intermediaries, they get complete autonomy of their end to end business right from the receiving orders to delivery that gives them access to customer information containing customer’s geographical and socio-economic data. Data analytics helps them reduce the cost of marketing and customer acquisition.
To understand this better, we will talk about two tech-driven D2C start-ups SockSoho and Rage Coffee.
SockSoho, a D2C fashion tech-brand born in the year 2018, decided to make fashion accessible to the modern man by offering premium quality designer socks for men. A pair of socks? Yes. Their product offering is a beautiful pair of socks that should suit the feet of every man and make it as a style statement. SockSoho is backed by its in-house AI-based recommendation engines resembling Netflix and Amazon. It pushes out new sock designs in small batches to gauge customer responses and scale those products that get large orders. It also uses the messenger for marketing and A/B product testing on WhatsApp.
Apart from AI, they have adopted a multi-platform distribution strategy. But, SockSoho’s secret weapon is generating sales through WhatsApp that accounts for 70 per cent of its sales. With a user base of over 400 million, it is the most popular messaging app in India and customers find it convenient to order through it. It has also changed the narrative of limited gifting options for men by having customizable gift boxes as an option, which otherwise narrowed down either to a Pierre Cardin pen set or a wristwatch.
Y-Combinator, an American investor, who has invested in SockSoho feels that their innovative ways of leveraging technology to acquire and service customers across platforms and using A/B product testing to scale business is unusual for a fashion brand.
It is challenging to launch coffee products in India especially when the market is dominated by behemoths Nestle and HUL. Rage Coffee, a Delhi -based D2C coffee brand that offers natural vitamins infused innovative coffee products has raised funding from GetVantage, an emerging revenue-based investor for e-commerce. Founded in 2018 by Bharat Sethi, he came with a simple thought of creating great tasting coffee without spending much time in brewing and money in cafés. Rage Coffee, instead of going for a multi-social media approach, markets its brand vigorously on Instagram to increase customer engagement and collects insights from it. The collection of data helped Rage Coffee understand their users’ needs that led to innovative packaging by launching portable coffee tubes, hence no need to carry big coffee bottles.
So, coming back to the question since our story says, what attracts an investor to invest in D2C start-ups?
Leveraging technology by D2C companies to get consumer insights and coming up with innovative ideas to offer products as per their preferences, helps to scale their businesses bolstering the revenue pipeline and giving good returns and this does attract investors.