Decades ago, technology rewrote the old business adage, “he who has the most gold wins,” to “he who owns the factory wins.” But huge capital and production capacity are no longer real barriers to entry. The new truth is this: She who has the idea — the brand — wins.
And nowhere is that concept playing out more disruptively than in the direct-to-consumer market (DTC). Brands can bypass traditional selling gatekeepers (wholesalers and retailers) and transact directly with consumers. The better-for-you space — food, beverage, nutrition, beauty, pet — is ripe for this disruption; in fact, we have three projects in the studio right now for DTC BFY clients. (How’s that for alphabet soup?)
An article in AdAge calls these brands “venture-funded, young, agile startups,” and they draw upon the marketing, innovation, and rapid-launch strategies common in tech. It’s tough to get a handle on how many DTC brands are out there, but their impact is significant: DTC advertising increased by 50% over the past year, according to a November 2019 Forbes article. All of these brands are young, less than a decade old; the buzziest ones include:
- and, yes, Peloton
Why DTC Brands Are Rising
DTC is booming for two primary reasons. First, people are more willing to buy stuff online. We’re comfortable with the idea of purchasing an item that we haven’t seen, felt, tasted, or tried on. And we’re OK with spending a couple thousand dollars on a mattress; we’ve overcome any risk aversion to online shopping. Ecommerce suits busy modern life and appeal to time-starved people who have reasonable discretionary income.
Second, selling direct is so much more comfortable for marketers and investors because there’s a formula: Spend X doing Y generates Z results. There’s a bright line connecting online ad spending to sales conversion and revenue because it’s totally traceable. The path to entry is relatively smooth: Online sellers don’t have to commit to carrying huge inventory, pay slotting fees, convince retail buyers, and for a retail category review in order to start getting product in-store. You just need a commerce-enabled website of your own or an Amazon landing page.
Differences in Retail Channels
Consumer expectations and selling strategies vary by channel. So let’s look at some of those differences:
In the true DTC channel — i.e., your own website — you as the brand marketer fully control the customer experience. This is where your consumer education effort, which is the foundational platform of the Brand Ecosystem, is grounded. All your social media and digital marketing points to your website. Here’s where you talk about your brand’s WHY, the problems you solve in the consumer’s world and, finally, the features and benefits of your products. If she opts to buy from you here, you have ultimate control over how she progresses to the sale and how you communicate with her afterward.
In the e-commerce world — i.e., Amazon or Walmart.com — your brand is competing in the slogfest, one of hundreds or thousands of products a customer’s search might turn up. She’ll be more likely to choose you if she knows your brand and its reputation. Let’s face it: shopping on Amazon or a big-box retailer’s site is kind of a dismal experience — impersonal and overwhelming. But the consumer is essentially trading convenience and price for a lesser experience. The benefit of e-commerce is that your brand gets wider exposure to consumers who don’t already know you.
The physical retail environment retains the capability to surprise and delight the shopper. She’ll have higher expectations in-store, and brands have the opportunity to make a much bigger impact. Yes, she may still buy online, but that choice will be driven by how she interacts with your brand in the real world.
From Online to Brick & Mortar Retailing
We recently worked with a brand that sold exclusively DTC for six months before launching into a physical retail initiative. For this brand, like many others, DTC was the runway to brick and mortar retailing. According to a MediaRadar report: “Of the top 20 DTC companies, 30% had their own stores, 25% sold products in other retailers, and another 15% used both their own stores and other retailers. Interestingly, many DTC firms have partnered with only one retailer on an exclusive basis.”
For example, Casper mattresses are available at select Target stores, and the brand has its own freestanding stores in the NYC metro area. Thinx, the women’s underwear brand, is available from Nordstrom. Harry’s razors and Quip toothbrushes sell at Target.
It makes sense that DTC brands are eyeing retail, because DTC — while it’s growing by double digits and represents billions of dollars in sales — still accounts for just a fraction of the overall market. A DTC brand may be killing it, but direct selling in most categories represents perhaps 6% to 14% of total market. So if this is you, you might be leaving tons of money on the table.
A few notes on making a successful transition from online selling to physical retail:
1) There has to be a reason for people to believe in your brand beyond your products’ features and benefits. Your brand is bigger than that: It’s the promises you make to your world and the ways in which you keep them. You’ll never compete in the retail environment — where you have little control — without a real WHY.
2) Your why has to appeal to the retailer, not just the consumer; in order to secure shelf space, you have to convince the retailer that your brand strategy and product offering are compelling enough to choose you.
3) Because you will have the least amount of control with a retailer, you can’t rely on the same kind of data you relied on for DTC and e-commerce.
4) Your packaging has to work at retail as well as online. It needs to make an emotional connection — quickly — to the consumer. She doesn’t see just the front of your box or bag in an online search; she’s seeing it in the swarm of similar items on the shelf. The consumer’s decision at retail happens in milliseconds; e-commerce is a more leisurely shopping experience, as someone might browse 20 options before choosing. Straddling both online and offline channels and getting it right will help you win.
If you’re eyeing a shift from direct selling to brick-and-mortar, or your brand is a DTC startup, we can help you make the most of your channels. Let’s talk.