Consumers continue to adopt and buy on online retail channels, which now contributes more than 12 per cent of the UAE’s total retail, or $8 billion in sales in 2021.
Online marketplaces have captured a big portion of the online market as they provide economies of scale in marketing, logistics and technology. Offline brands have historically trusted these marketplaces for their own online sales, especially during the pandemic when speed of go-to-market was more important than at any time in the past.
However, relying on marketplaces alone can result in limited control over end-to-end consumer experience for brands and retailers because of lack of sufficient consumer data, limited brand loyalty and higher commissions. Furthermore, consumers are becoming more nuanced and demanding in what they want.
A subtle shift
For example, product discovery which was traditionally done via online search is now moving to own brand websites and social media. Pricing, product variety, loyalty programmes and delivery experience are increasingly important. These factors are easier to control if you have higher control of the channel.
A direct-to-consumers (D2C) route can help address these challenges and also eliminates the challenges of trust and authenticity of products. In D2C, brands create an app or website to reach consumers directly, thus providing higher degree of control over the customer journey.
We are already seeing evidence of brands leveraging D2C. For example, Al Shaya launched seven brands online in the last year itself. This is in addition to their marketplace, Tamanna.com. Namshi, Amazon and noon have also realized the potential and launched their own private labels. Apple and Samsung have been promoting their online D2C channels for some time now.
Going direct
Consumers are already adopting D2C channels wholeheartedly with one out of five consumers buying a product on D2C channel online in 2021. However, consumer adoption varies significantly across sectors and countries. One thing that is constant is the role of influencers in D2C.
Influencers play a critical role in D2C with majority of consumers using this medium for product discovery. Social commerce players such as Tiktok and Instagram can play a critical role to any D2C strategy. They can help establish trust, especially in newer digitally native brands.
All this has resulted in more than $1 billion sales on online D2C channels in UAE market in 2021. We expect this trend to continue to accelerate as brands explore D2C. To put this in context, D2C online retail penetration in UAE is already significantly higher than that of China and India.
Although, online D2C channels does empower brands to improve their relationship with consumers, it needs to be thoroughly assessed based on the category, customer focus and resource availability. As a starting point, the initial investments required for a superior experience could be prohibitive - any sub-standard service provision will adversely impact the positioning of the brand.
