MSMEs Join the D2C Bandwagon According to a recent report by Redseer Strategy Consultants, MSMEs are expected to drive $50 Bn of e-tailing sales by FY2027

Recently Prime Minister Narendra Modi said, while addressing the B20 Summit India 2023, that India has become the face of the digital revolution in the era of Industry 4.0 where Micro, Small and Medium Enterprises (MSMEs) will play a pivotal role.

Since the pandemic, more and more MSMEs have thus been able to access national and international markets with ease. This has led to increased sales and business growth. Selling online has also helped MSMEs boost their profits by giving them more control over their inventory and distribution. It has helped them go beyond the geographies they are present in.

According to a recent report by Redseer Strategy Consultants, as e-commerce platforms adopt friendly policies, MSMEs are expected to drive $50 Bn of e-tailing sales by FY2027. The consulting and advisory firm also said that the retail market in India is projected to burgeon to $ 1.4 trillion by 2027, and MSMEs are poised to account for an impressive 65-75% of this market share.

The pandemic provided further impetus to MSMEs by allowing them the facility of digital lending to meet their credit needs. "Digital lending has become more accessible and accepted. This is further simplified through the ecosystem-based approach to lending that functions on the basis of partnerships at both the demand and supply sides of the lending spectrum," said Alok Mittal, CEO and co-founder, Indifi Technologies, in an earlier interview.

Today, MSMEs are also taking the direct-to-consumer (D2C) route, for it also seems to be the next natural progression for most of them, to capture larger and niche markets.

D2C, a level playing field for all

Many MSMEs are indeed gravitating towards the D2C avenue, which involves selling directly to end customers, and this is likely to increase with time. This strategic shift offers several tangible benefits.

"Firstly, it grants MSMEs substantial control over their brand representation and the overall customer experience, fostering brand loyalty. Secondly, D2C enables direct engagement with consumers, yielding invaluable insights into their preferences and behaviors, thereby enhancing product development and targeted marketing. Moreover, this approach can lead to improved profit margins by eliminating intermediaries, allowing businesses to retain a larger share of revenue," said Madhukar Bhardwaj, Principal, Physis Capital.

India has more than 800 leading D2C brands. Many factors have led to the evolution and growth of D2C. These include the availability of e-commerce enablers, improved logistics and delivery, and of course the internet and e-commerce penetration beyond Tier 1, and 2. With D2C growing rapidly, for MSMEs, it seems to be the next natural progression. And, many companies are making this happen for MSMEs.

For instance, recently logistics firm Delhivery announced the launch of Delhivery One — a digital shipping platform experience designed to meet the diverse needs of MSMEs, along with large D2C e-commerce brands across the country. The platform will allow small businesses to ship to more than 220 countries, leveraging Delhivery's partnership with FedEx.

Having their own digital store is also giving MSMEs the freedom to own customer data. Using this, MSMEs are able to understand conversion metrics, web traffic, etc. This helps them relook at their strategies and product innovation time and again and enhance user experience.

Challenges faced by MSMEs selling directly online

However, there are significant challenges to consider as well. Some MSMEs might lack the requisite digital marketing skills and resources for effective customer acquisition. "The costs of acquiring customers online can be high, potentially straining financial viability if not managed judiciously. Fierce competition in the online space necessitates a clear differentiation strategy, and the complexities of logistics and order fulfillment require careful attention, particularly for those new to e-commerce," said Bhardwaj.

Adequate technology infrastructure is also crucial for managing online sales, inventory, and customer interactions, he said, while adding that while the D2C route presents enticing advantages in terms of control, profit potential, and customer loyalty, it does demand careful evaluation and strategic planning, considering challenges related to skills, costs, logistics, and technology. Hence, adoption by MSMEs while increasing towards D2C, might take a gradual pace to rise over time.