Lets understand the financial feasibility of the D2C business model taking in Hair oil product manufacturing as example.
In Earlier Days the manufacturer job was only to produce and hand it over the distribution chain which started with stockiest to distributor to retailer this also had effect on price of the product, for e.g. if 200ml of hair oil cost would come to 20 rupees the MRP would be 80 rupees as it would have to accommodate all the levels of distribution cycle and there commission. The manufacturer cost was 20 rupees which 5 rupees was his profit and 15 rupees would involve raw material, packing, salary and other expenses. Though the end consumer would pay 80 rupees the actual cost of the product would be 20 rupees.
This was the traditional way of distribution that existed in B2C model where in the manufacture was bounded by honoring the levels of distribution.
In the present D2C model where in 20 rupees being cost of production with MRP being 80 rupees the manufacturer in this model will have more profits and control over the demand and supply chain, will produce as per the requirement and inventory will not be on heavy side as lot of times inventory itself becomes dead inventory when you have shelf life products.
But the cost remains the same so where the profit of 60 rupees i.e. 80-20 rupees , but the cost of customer acquisition would take up the profit lets analyze in detail. The manufacturer would have to modernize himself with latest technology of internet, social media, mobile apps and getting accustomed to new words like CTR (Click Through Ratio) and other jargons.
The advertising budget, which wouldn’t find a mention in the earlier model here at least 7 to 8% of the sales have to be spent on advertising this created a bit of change in the mindset of MSME’s as let me spend the advertising and create Brand Equity keeping in mind building brands.
This D2C business model will definitely be helpful to MSME’s in reaching out to customers directly building brand equity but at same time investments will have to go in to building of brand as in today’s competitive market investments on advertising and marketing needs to be increased and also be willing to do R&D and spend money on it.
As entering market directly will ensure that cost per customer acquisition will increase in D2C but at same time will help in building brands and having direct control of the customers and there habits.
Interms of Financial Feasibility it can be seen that there is not much of change in price of the product but investment on building infrastructure and marketing is essential