What We’ve Already Learned From Direct-To-Consumer Companies

Data-Driven Thinking” is written by members of the media community and contains fresh ideas on the digital revolution in media.

Today’s column is written by Jay Friedman, president and partner at Goodway Group.

The direct-to-consumer (DTC) space may have begun with Warby Parker, Dollar Shave Club and other pioneers, but it is populated today with brands in nearly every category.

Looking specifically for running sunglasses? They can be brought to you directly from Goodr. Deodorant? Native will ship it direct to you with a marketing persona happier than Mary Poppins.

We’ve seen this movie before. Twenty years ago, there was a website for everything. Many of the companies behind them went public, and nearly as many were shuttered shortly thereafter. But, the lesson isn’t that most of these won’t make it (which they won’t).

The lesson is that there is a fundamental change occurring in how people think of, identify with and purchase brands. Just as with any other categorical overpopulation – from ‘90s websites to 2010s ad networks – the underlying change is worth paying attention to.

Clorox’s CMO publicly admitted that DTC brands pose a threat to traditional CPG companies. This is a CPG giant, which has spent billions of dollars in advertising and marketing over its brands’ lifetimes. Yet, Clorox appears to be legitimately concerned that an upstart DTC Liquid-Plumr competitor could emerge that people would rather order online.

How did this happen?

First, one of the brands’ biggest advantages has always been distribution. It takes a lot of corporate horsepower and effort to sell into major retailers. Direct shipping destroys this advantage overnight.

Second, a new brand operates under different financial rules. To achieve escape velocity and scale within its category, the brand can operate at a heavy loss to gain share and loyalty.

Third, upstarts can create any brand and purchase experience they want and own it all the way through. They own the website, the follow-up communication, the packaging and shipping materials and – best of all – the customer data. DTC brands aren’t beholden to the shopping experience at a Target or Macy’s.

All of this means that a very dull-sounding product can be made exciting and create strong customer loyalty and advocacy. Unilever acquired Dollar Shave Club in part because of its Net Promoter Score.

But acquiring DTC companies can’t be the best path for traditional marketers, can it? After spending billions of dollars – or hundreds of billions of dollars, in some cases – on brand equity, is it really better to toss that out the window and start over?

Not necessarily. Enter mar tech and ad tech.

One major differentiator for DTC brands is their treatment of advertising as an investment. Not “investment” in the way some holding companies have retitled their media buyers as “investment managers.”

Advertising is a real, ROI-producing line item on their books. While P&G's Marc Pritchard talks about how much advertising money he’s not spending, DTC upstarts don’t care whether they spend a lot or a little. They only care that what they spend is measurable and meaningfully contributes to their profitability.

Again, access to first-party data is vitally important. I have no doubt major CPG companies could (and probably should) spend significantly less on advertising. But, while these companies are spending heavily on traditional demo-based media, DTC upstarts are creating sophisticated models for finding new customers and retaining the loyalty of current ones. In this way, retailers absolutely must change their relationships with brands and find a way to share first-party data with the companies whose products they sell. At a minimum, they should connect credit and debit cards to every SKU bought and provide that data back to CPGs. The retailers’ future depends on this partnership working well, too.

Every consumer brand is susceptible to cannibalization by an upstart DTC brand with nothing to lose and a new-era approach to advertising and marketing. Existing brands and their retail partners must change the game they’re playing to avoid complete disruption, as has happened in so many other industries.

Follow Jay Friedman (@jaymfriedman) and AdExchanger (@adexchanger) on Twitter.

 

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