Rajat Chaudhary
Direct to Consumer E-commerce
What is Direct to Consumer E-commerce
D2C, or Direct to Customer, is a low barrier-to-entry eCommerce strategy that allows
manufacturers and CPG brands to sell directly to the consumer[3]. It bypasses the
conventional method of negotiating with a retailer or reseller to get your product on the
market. In D2C, brands sell directly to the consumer through an online medium. Going
D2C has many advantages, with competitive pricing being a major benefactor for
consumers. Other advantages include having direct contact with consumers to get a
better understanding of them, and being able to freely experiment with new product
releases and test them with a segment of your consumer-based to gain their feedback.
But going D2C is not easy. It is imperative that you have a D2C-specific strategy in place
to be heard and noticed by your target market.
Pros & Cons of D2C E-commerce
Pros- In the direct-to-consumer channel, brands don’t have to share sales profits
with other parties[1]. They can sell at MRP instead of wholesale pricing (typically
50% of retail). With the middleman (the retailer) out of the equation, your brand
captures all the profit.
In addition, brands retain marketing control, meaning that your story will come
across as you intended. Your message goes straight to the consumer without
becoming diluted or confused.
Pricing control is another advantage in the D2C space. Some retailers may choose
to ignore minimum advertised pricing (MAP) because they’re big enough or not
paying attention.
Cons- The major disadvantage for brands selling direct to consumer is that they
can’t share costs. (This is the other side of the “don’t have to share profits” coin.)
Your brand bears all costs, from customer acquisition (ads, campaigns, etc.) to
discounts and promotions to a brand’s marketing budget.
Rajat Chaudhary
Xiaomi in D2C E-commerce
The following case study will help you understand how Xiaomi used the D2C E-
commerce strategy to increase the number of customers and revenues and challenges
they faced when they came up with this idea.
About the company-
Xiaomi Corporation is a Chinese electronics company founded in April 2010 and
headquartered in Beijing. Xiaomi makes and invests in smartphones, mobile
apps, laptops, bags, earphones, shoes, fitness bands, and many other products. [3] Xiaomi
is also the fourth company after Apple, Samsung and Huawei to have self-developed
mobile phone chip capabilities.[4]
Use of D2C E-commerce-
Xiaomi’s core distribution strategy is centered around its direct to consumer (DTC)
model. While companies like Apple need to go through the process of sourcing,
manufacturing, warehousing and finally distribution, Xiaomi sells majority of its products
through its e-commerce platform. This strategy not only reduces real estate costs, but
also more quickly delivers the products with the latest technology to its customers. To
keep its inventory cost down, Xiaomi deploys a flash sale strategy whereby only a
limited quantity of phones is sold online each week, further increasing the demand and
awareness for the products.
Challenges faced by Xiaomi-
Competing with retailers- When Xiaomi come with D2C e-commerce strategy,
the biggest challenge for Xiaomi is having to compete with retailers like Amazon,
Flipkart etc. These retailers already have experience in selling to consumers and a
good understanding of their clients and the retail market.
Order fulfillment- As Xiaomi was new in D2C industry they often struggle with
order fulfillment. Not only does Xiaomi have to ship their products, but they also
need to compete with Amazon and many other online retailers with next-day
shipping.
Marketing, sales and customer service- Xiaomi need to start looking after their
marketing strategies and sales strategies. This often requires hiring a new team
for every country because at start Xiaomi controls its operations from China only,
so managing Indian market from there was a tough task for them.
Consumer benefits- Since D2C was newly introduced in Indian market at the time
of Xiaomi entrance, consumers are less likely interested to order direct from
manufacturers website because there is no discounts available there and also the
time of delivery is not accurate as compared to online retailers like Amazon,
Flipkart etc.
Rajat Chaudhary
Benefits gained by Xiaomi-
An omnichannel experience- A huge benefit which Xiaomi have in D2C e-
commerce strategy is that they get full control of all their activities, from
packaging to marketing. Meaning they can also create an omnichannel
experience for their end-consumers.
More control over brand reputation- As the traditional retailer business model,
a manufacturer has little control when their products are being sold by retailers.
But in the case of Xiaomi in D2C e-commerce strategy they have the control over
its marketing efforts and sales strategies, and it puts the company directly in
contact with the end-consumer. Xiaomi’s D2C strategy gives a them total control
of its customers’ experience from the research phase to purchase.
Truly understanding your customers- Manufacturers who have a traditional
retailer business model rarely interact with the consumers who have purchased
their products. So, they don’t have many opportunities to get to know their end-
consumers, other than by conducting target market research to try to gain a
better understanding of their likes and dislikes. But for Xiaomi they have full
control over their products and get to understand their customers closely about
what type of products they like and what benefits they are expecting, by keeping
all that in mind they improved themselves to such extent that now if anybody
wants to buy something from Xiaomi then they first visit their website.
Conclusion-
At first Xiaomi faced a lot of challenges on their D2C strategy because consumers
don’t believe that much on buying directly thorough manufacturers because
there are no discounts and offers available. But because of their D2C strategy
they are in direct contact of their customers and learnt about their behavior and
improved themselves. This helped them remove the retailers from the chain and
get to know about their customers more closely, this also increased their sales
because now if anybody visit their website, they get to know about their other
products also.
References-
1- https://www.sana-commerce.com/e-commerce-terms/what-is-d2c-e-commerce/#:~:text=Direct%2Dto
%2Dconsumer%20e%2D,who%20will%20consume%20their%20produce.
2- https://digital.hbs.edu/platform-digit/submission/from-zero-to-hero-xiaomis-short-journey-into-
becoming-one-of-the-biggest-tech-giants-in-the-world/#:~:text=Direct%20to%20Consumer
%20Platform&text=While%20companies%20like%20Apple%20need,through%20its%20e%2Dcommerce
%20platform.
3- https://www.coredna.com/blogs/direct-to-consumer#:~:text=D2C%2C%20or%20Direct%20to
%20Customer,your%20product%20on%20the%20market.
