Every brand is now investing in a D2C strategy. They are building SEO friendly websites, running social media campaigns and hiring more and more data miners and scientists. But is D2C possible when it comes to the business of electronic components like semiconductors, PCBs and displays? The answers are shocking, and surprising!
Thanks to Shark Tank India, almost every brand is now looking to formulate and implement a ‘Direct to Customer/Consumer (D2C)’ strategy. This D2C term was probably mentioned in every pitch that aired on Shark Tank India Episodes. This strategy might not be rocket science for consumer electronic brands, but the same is nothing less than a peril for manufacturers selling to these consumer electronics and other electronic brands. In simpler words, it might be simpler to target consumers when selling a smart watch, but would it be the same if a smartwatch display manufacturer wanted to sell directly to a smartwatch brand?
A peek into the origins of the past, and the roots of D2C become evidently clear. The strategy was first, and continues to be used by newer, smaller brands to reach out to their customers ‘directly’. Many of these newer, smaller (also spelled startups) brands are now giving the bigger ones a run for their money. The D2C approach was probably taken to bypass the world of business that was dictated by various channels of distributors.
“Any Quantum business for components, D2C cannot happen because they have their own strategy, and it is the same traditional strategy the manufacturing companies have been following for decades. The bandwidth won’t allow the manufacturers to change their strategy. A lot of these companies, fortunately or unfortunately, are designed in a way that they can’t follow the D2C strategy,” says Avneet Singh Marwah, CEO, Super Plastronics Private Limited, a Kodak brand licensee.
Manufacture, pack, distribute
The world of electronics, whether smartphones or semiconductor equipment, is all about cut-throat business. The D2C strategy is revolutionising this world as the brands are adopting the manufacture, pack and distribute approach. Though this approach works in any industry, the electronics industry has a special fit for the same. This holds true for the B2B vertical of electronics as well! How?
Let’s take an example of a lifestyle electronics brand which retails smartbands, smartwatches, smart wearables and other such lifestyle accessories. The likes of me & you are the end consumers of such brands. Going D2C for such brands includes making a website, running social media campaigns and one-on-one marketing to sell goods. The primary aim is to reach the consumer without travelling on roads (whether digital or physical) built by distributors and e-commerce marketplaces. The benefits D2C offers to such brands start with them being able to offer their products at a better margin to consumers. This is because the share charged by the distributors and e-commerce marketplaces becomes zero!
The second benefit these get is the pure data of customers. Distributors and market places, may or may not, share the complete credentials of a consumer. However, when a consumer is buying directly from the brand, his/her entire data gets shared with the consumer. While it might be naive to explain the importance of data, the same can enable future sales. A brand, for that matter any brand, would like to market a new product it has launched, to its existing clientele. This is for reasons including better marketing, customer acquisition, and better chances of conversion!
B2B electronics, when compared to B2C electronics, is a much smaller universe. The number of companies fabricating semiconductors, display panels, and other such components can be easily counted on fingers. The number of brands incorporating these components into final products, like the lifestyle brand mentioned earlier, is bigger, but not so big that their records become difficult to make, update and handle. But with such a smaller world, is D2C possible in electronics B2B?
The perils of a manufacturer
The answer to the question is complicated, and the complication arises from the type of
business being done in the world of electronics. For instance, a brand looking to design a new product in most of the cases will directly reach out to the design house, the design houses can easily reach out to brands with new designs that they deem fit for the brand’s portfolio of products. It might not be wrong to say that the D2C model is already established here. However, when it comes to sourcing components, the brands try to do the same via super stockists. The primary reasons – choices and availability!
In fact, choices and availability are the two main reasons that brands want to buy from distributors and super stockists. This does not mean that the brands are not keen to buy directly from manufacturers. A lot of brands want to source directly from manufacturers but the majority of manufacturers prefer to follow the traditional channel distribution method because it is more profitable and less painful to them.
“Selling to distributors is a less-hectic process than selling to direct consumers for us. If a component, or a set of components, needs to be changed due to modifications or faults, the end consumer does not sit on our head 24 hours. Working with a group of distributors allows and gives us time to improvise without handling much pressure as the same is done by the distributor,” explains a leading executive of a company which designs and manufactures components for the electronics industry.
The executive further explains that investing in a team and campaigns focusing on their end consumers is an additional cost. A cost that might not be able to guarantee results. Selling to a distributor, on the other hand, is comparatively easier as the distributors usually invest in forecast reports and order components for five to six months in advance. Trying to establish a team that zones out potential customers, then targeting them is an expensive and time consuming process as per the individual. Distributors, as per him, already dedicate a lot of energy, money and time to do the same. “They are better at the same than most of the manufacturers,” the individual adds.
“Customisations can be a big headache as well. There are brands who are selling less than 1000 products a month. We have received requests from them to customise components they source from us, or our distributors, with their brand names engraved. This is not difficult to do but when each and every brand starts coming up with the same needs, the cost to our company increases. Big numbers are not a problem but small numbers are,” the individual explains.
Moreover, for someone like a Samsung or LG, it is humongous to keep track of everyone who buys their display panels. Maintenance is another key aspect followed by brands varying their orders from one thousand displays to a million displays.
Brand’s the end consumer
It is evidently clear now that brands who have end consumers like me & you, are also end consumers to manufacturers like Samsung and LG, and while these manufacturers might or might not be interested in working directly with all their end consumers, a lot of their consumers are eager to work directly with them! UBON (a well established lifestyle accessories company), SPPL (a company that manufactures TVs and other consumer electronics under several brands), and Candes (a startup dealing in electronic products) affirmed that it is on their wish list to work directly with component manufacturers. It is surprising to see that the reasons a lot of manufacturers do not want to work directly with their customers are the same ones these customers want to work with them!
“We will definitely like to buy directly from the manufacturer. The same would allow us to customise the solutions as per our need. Most of the things we procure from mediators and super stockists are the ones that we cannot customise. For instance if we are looking for a 5W chipset solution, we usually get a 3W one. If the manufacturer syncs up with us we can perhaps customise products as per our needs,” says Mandeep Arora, MD, UBON.
He adds, “We can also try to get UBON’s name engraved on chipsets to make sure that our technology secrets are not revealed to anyone.”
Customisation to this extent will also require a brand to hire a team of design engineers or work directly with the design engineers team sitting at the manufacturer’s location. This will be an added cost to the brand. The answer or the solution to the same lies in the volumes involved. A brand can hire its own design engineers’ team if the volumes are high but if the volumes are not that high, Mandeep advises, the brand can directly work with the design engineers at the manufacturers’ location.
The advantages for brands do not end up at the customisation bit only as the cost factor in itself is also a big advantage. Saving on money spent with a distributor vs money spent with a manufacturer can be used by the brands to pass on the benefits to their end consumers, and allow brands to introduce products at competitive prices.
“Every company wants to buy directly from the manufacturer. We are already buying 70 to 80 percent components and raw materials directly from the manufacturer. The manufacturers have allowed us to procure components directly for categories where the volumes are large (ceiling fans),” says Vipin Aggarwal, Co-Founder, Candes.
The advantages that Candes has experienced in direct buying from the manufacturer are multifold. The first and foremost benefit that the company experienced was during the time of lockdowns announced due to CoronaVirus. The company, during this time, was able to procure components at the same price they were ordering these earlier. Please note that there was news of traders and distributors increasing the price of such components during the Covid 19 lockdowns.
“Being a startup no middlemen was ready to give us credit but when manufacturers saw us ordering regularly they were also ready to give us the credit. There are phases when everyone requires credit and none of the manufacturers we are directly associated with have denied us the same during the last year. We will always prefer to buy from a manufacturer rather than a distributor or trader,” shares Aggarwal.
He adds, “The only reason D2C is becoming famous in India is because of the absence of middlemen. The same allows brands like us to pass on the benefits to the consumer.”
The super stockists, or the distributors, study their markets well enough to keep stocks updated for at least six months. The manufacturing companies do not usually follow this trade practice because they do not just supply to a single market like India, but to the whole world. The general or traditional sales strategy followed by a majority of component manufacturers goes through the distributor route.
“D2C, if you talk about this industry (semiconductors, displays, PCBs and more) is a far shot. Even companies are comfortable selling to distributors because they get upfront advance. Distributors normally give credit to the factories. It is a win-win scenario for everyone,” says Mandeep.
“When sourcing components it is not what I wish, but what strategy does the manufacturing company follow. I will always want to buy directly from the company but big companies only sell commodity components through distributors. These companies do not engage with us directly,” says Avneet. Do note that SPPL manufactures TVs for a lot of brands, and their volumes are generally high.
Mandeep concludes, “Businesses may be run by the use of technology, terms and conditions but they become successful because of human relations. It is impossible for technology to supersede human relations. It would be great to see how companies beat the power of relations using technology. But in my opinion it would never happen.”
Note – Every company, minus the component manufacturer, that contributed to this article is investing heavily in building a D2C strategy!
Author – Mukul Yudhveer Singh. Mukul is passionate about how technology can change lives for good, and sceptical about how the same technology can make matters complicated for the very existence of human beings.