When we’re talking about “revolution”, “innovation”, “disruption” we associate these concepts more with product innovation than with anything else. We rarely think of innovation as a new way of doing business or of serving our clients.
The Direct to Consumer Revolution deals precisely with this type of innovation: new players are using new approaches and tools to establish a new – and more profound – relationship with their customers. This is what is happening in many so-called “established” industries: markets large enough to accommodate the next billion dollar company; industries that have high entry barriers characterised by the presence of just a few players; sectors that tend to be “commoditised”, where there have been no significant product innovations in recent years.
Direct to consumer brands are the new digital-native players that vertically integrate their value chain and redefine the boundaries of some specific industries. In the US market they are already well established in various sectors, from Food & Beverage to home accessories, from the world of clothing to the world of cosmetics.
What is the impact of these brands on the market? First of all, they erode traditional brands’ market shares: this is evident with Gillette, which in less than 6 years – from 2010 to 2016 – has seen its presence on the razors market reduced from 70% to 54%, due to competition from new players like Dollar Shave Club or Harry’s. They manage to ride the digital disruption wave where markets are responding positively to it (such as the US online cosmetic market, which grew by +24% in 2018). They make the difference even where online growth is flat or stagnant, like in the US furniture market where Burrow is still growing by +20% month on month. Finally, they attract the so-called “funds destined for innovation”: up until 2018 DTC brands raised about $4bn in Venture Capital funds.
Not all established brands are sitting on their hands, however: there are numerous acquisitions of these new players by well-known names in various sectors (P&G, Nestlé); they are setting up incubators and accelerators (e.g., Mars Petcare with its Leap Venture Studio) or, again, they go “direct” themselves, as in the case of Nike which in 2015 planned to reach $50bn worth of revenue through direct channels only.
What is their recipe for success? Research has identified 5 pillars:
- Take care of everything: The DTCs pay particular attention to the entire journey and to all moments in which they have the opportunity to communicate with their customers, such communication being focused not solely on the product or on the moment of purchase. This obsessive attention to detail means that a large number of them have solved specific pain points, filling the gap that many established brands have left uncovered for years.
- Embrace your customer: DTCs focus on their customers’ needs. This allows them to communicate better and more effectively (thanks to tone of voice and to clear, strong statements, such as The Reformation case); they respond effectively to these needs, not only through the product itself but also through service. Finally, they design their products starting from their customers’ input, every moment of contact being crucial for information-gathering purposes.
- Go straight on: they go direct. Going direct means being able to reduce overheads, offer products at more affordable prices and take advantage of digital channels to “sell”. But that’s not all. It means knowing your customers so well that you have the luxury of cashing in on this relationship in different ways by maximising all the touchpoints.
- Simplify complexity: They have no storage problems, they sell online. Yet they focus on being efficient and offering few products, constantly immersed in a customer feedback loop in order to continually improve their portfolio.
- Stand for something: When they talk about their brand, they’re not necessarily telling you about the product, rather, the values they believe in. How? They embrace causes and debates by taking the floor; they recount the care and skill employed when making the ethical and responsible choice of raw materials and processes; they let you dream, focusing on enabling experiences rather than on the product they sell.
When we talk about “innovation” we are led to mainly associate this concept with product innovation, while DTC brands are facing traditional industries with new tools and approaches, focusing (and making a difference) on experience, services, new models of business, the composition of their portfolios and not least, communication.
In the era of following up on and customer knowledge, it is so much easier. But it is not just a tool. DTC Brands are showing us how crucial it is to look not just at the product, but also at the market, its users and business challenges with fresh eyes and perspectives in order to succeed in innovation.