Direct to millennials, in Bharat

Consumers outside of India’s top eight cities accounted for just 10 percent of revenue for Wakefit, an online sleep and home solutions startup, when the company launched in 2016. The tide has steadily reversed over the last four years. Wakefit, which ships about 1,500 mattresses every day, now earns 50 percent of its revenue from Tier II and III cities, and beyond.

Over the last few years Wakefit has made deliveries to some of the most remote locations in India, including Jammu & Kashmir, Ladakh, and Andaman & Nicobar Islands.

The number of online-first brands has grown sharply in India in the last three years, and much of the growth is coming from outside India’s major metropolises. Over 400 million Indians have come online in the last four years, thanks to affordable smartphones and rock-bottom data plans. Millennials in every nook and cranny of India are earning more, aspiring for more and embracing ecommerce.
Referrals from friends and social media influencers play a large role in how they discover new products, brands and trends.

There were 60 online-first brands in India with over $5 million in revenue in March 2020, 3x more than there were three years ago, according to data from Tracxn and Venture Intelligence. A CEO poll done by Sequoia India of 10 leading online brands, including boAt, Wakefit, Healthkart, Mamaearth, Zivame, Bewakoof, Purplle, WOW Skin Science, Lifelong, and Bombay Shaving Company, shows that about 50 percent of this cohort’s revenue, on average, comes from outside India’s top eight cities.

This market presents a massive opportunity to new-age online brands that can deliver innovative products, a strong value proposition and a fantastic customer experience for India’s emerging consumers

Build community and engagement as a moat
‘Sasta sundar’, or ‘inexpensive and beautiful’, has long been the mantra for the average value-seeking middle-class Indian consumer. Building trust is critical, which is hard to do when consumers can’t touch or test out your products to gauge quality. Online brands are achieving this by investing heavily in customer service, encouraging customers to leave ratings and reviews and using influencers to drive awareness.

Purplle, an online beauty retailer, works with over 1,000 influencers to drive product awareness, create localised content and build a deep connect with consumers. Some of these influencers, who started with just 1,000 followers, have grown to ~1 million+ followers over time.

One of the best ways to build both aspiration and trust is to create communities of your loyal and power customers, which can be a deep and powerful moat.

boAt, which sells affordable and fashionable audio products and accessories, has disrupted the likes of Bose, Xiaomi and JBL in just three short years. By leveraging celebrity brand ambassadors and doubling down on community, they’ve been able to quickly build a sense of trust and exclusivity. Members, called boAtheads, get invites to online events, concerts and early access to product releases. When boAt launched their new category of smart wearables in July 2020, it became the fastest selling wearable on Amazon this year thanks to the response from the boAThead community.

Lean in on innovation and customer love

Traditional CPG brands have reached Indian consumers through a vast network of 10 million retailers, and that deep distribution network has been their biggest strength. The rise of ecommerce has changed the equation for many categories, like fashion, beauty, health and wellness, homeware, electronics and lifestyle products. Online-first challenger brands are leading disruption with superior products, a continual cycle of R&D-led innovation and a laser-like focus on delighting the customer.

Mamaearth, an online-first clean label skin care brand, has gained customer love and trust by being paranoid about product quality – a key point of differentiation in a market where consumers are increasingly conscious about the ingredients that go onto their skin. Mamaearth Co-Founder Ghazal Alagh personally samples products from every batch produced by their facility each night—and that’s after a mandatory 10-step quality control process. On Diwali last year, Mamaearth received 1,500 orders in a single day from Tier II and III cities.

Winners are also going the extra mile to hold their customers’ hands throughout the consumer journey.

Lifelong, an online kitchen and home appliance brand, surveys at least 500 customers, including a large mix from Tier II/III cities, every month, to create a continual feedback loop that drives product development. They also provide product demos and after-sales customer support in seven languages, over WhatsApp video and Zoom. It’s a whole new level of connection for customers in smaller cities and towns, who typically have nowhere to turn for help after they purchase a product from their local mom-and-pop retailer.

Lifelong hit on the idea for a foldable treadmill through these conversations. Customers said they wanted to get fitter – but panned the idea of a traditional treadmill because it would take up half their living room. The category is now a hot seller for Lifelong.

Chart an omni-channel path to profitability

The rise of direct-to-consumer (DTC) brands in the US has been followed by a fall as customer acquisition costs continued to rise due to increased competition. Many US brands focused on growth over profitability and overspent on marketing. They also chose to keep distribution exclusive to their own DTC channels, leading to a higher customer acquisition cost.

While they’ve remained ‘online first’, the most successful challenger brands in India have chosen an omni-channel approach—selling on Amazon, Flipkart and others, and in many cases, physical retail, too. Their own DTC channels are just one of many they use to drive distribution.

Wakefit, for example, has built a profitable pan-India brand by leveraging Amazon and Flipkart alongside their own website. While their core focus has been on product innovation and customer service, their value proposition is underscored by competitive prices, a 100-day return policy, doorstep delivery, and depth of online reviews across platforms. Quality products, superior customer service and strong customer ratings drove word of mouth, driving down customer acquisition costs. This created a flywheel effect that’s made their model profitable from day one.

The rise of ecommerce has changed the balance of power between brands, distributors, retailers and customers. There’s a huge opportunity for innovative startups that build brands with the millennial Bharat in mind. Brands that create high quality products at affordable prices and find new ways to engage customers online, at every step of the consumer journey, will redefine the future of retail in India.

This column was originally published on Forbes.