DTC: direct to consumer heaven or overhyped?
There is currently a wave of hype within the marketing and startup world around Digitally Native Vertical Brands (DNVBs): brands that start and build themselves online.
They offer products to niche audiences, focusing on rapid delivery, and many offer high levels of customisability.
Truly the latest threat to established brands – or is it?
The first thing I want to address in this article is jargon. Marketing and start-ups are full of reinvention, often not in the way we’d expect. There is a lot of unnecessary rebranding of established terms. We hear constantly about the abbreviations and names of supposedly new ideas.
Part of this is rediscovery, while other parts could be interpreted as a way to build hype by touting the new and shiny. For those just getting started in business, it’s probably a mixture of both.
Dig a little deeper and most things are just new names, not new concepts. The hype is publicity, so be aware of that in future.
But what would I know? I’m just a marketer.
Well, not quite just a marketer. I had a very small online shop years ago selling alternative streetwear that I designed and printed, and sold purely online. I controlled the whole process from concept to delivery. I was by definition an early adopter of the DNVB trend.
That was all the way back in 2012. I started small and sold consistently over a year or two. It wasn’t big, but it was nice supplemental income and customers loved it. In time I had enquiries made from the outside world. Enquiries from those bizarre, old fashioned squares on the street we call shops, those things made of bricks and mortar. They would ring me or email me to ask about stocking products in bulk. The margins were thin and the bulk discount made them thinner, so I wasn’t happy about this.
As a DNVB I thought this was old fashioned and ridiculous – no one purchases things in shops anymore. Everything has totally changed. Why should I as an entrepreneur give hefty discounts when I could simply sell those products directly to consumers who wanted them?
I couldn’t have been more wrong, but back then I wasn’t a marketer. Just some weirdo creative person who thought he knew everything.
Since then, I’ve been in marketing for about five years, but back then I had no clue what I was doing. My information was limited and my assumptions wildly incorrect; I was fed information from questionable sources, and inevitably my customers dried up and I had to close my online shop for good in 2014.
It was fun while it lasted, and it did also teach me some valuable lessons about marketing – albeit only in hindsight.
My first mistake was not recognising the reality of DNVB and the reality of my situtation. Like many, I thought that self-belief and perseverance were more important than understanding the market and how things work in the real world.
I got into a discussion about this topic on Twitter with Tom Roach, Managing Partner, Effectiveness, BBH London and Tom Goodwin, Head of Innovation at Zenith, Publicis. Tom Roach made the point that, “DNVB/D2C is really just a launch phase for brands today, and if brands really want to make it big and get beyond launch, they’ll still need to invest in mass retail partners and media to do so.”
This is exactly what I didn’t do. I failed to capitalise on media interviews and partnership opportunities under the misinformed idea that if I built it, they would come.
DNVB is simply a springboard for starters to get started. It’s cheap, sometimes free and you can manage it all by yourself. DNVB is more about breaking down barriers to entry than it is about competing with global giants.
DNVBs are not competing with global giants and they will never topple them; that is not how markets work. Let’s take a commonly-cited example: Dollar Shave Club. Despite the hype surrounding this disruptive brand, public reports suggest that the company did not in fact make any profits from its founding in 2011 until its purchase by Unilever in 2016, instead relying on investor funding. A Fortune article from May 2016 – two months before the acquisition by Unilever – noted that “The company, which has so far raised $160 million from Silicon Valley investors, has not posted a profit since its founding”.
Some would argue that the acquisition by Unilever is proof of how great the brand is; but I’d argue it was more so that Unilever could capitalise on the systems and processes in place at Dollar Shave Club to apply efficiency savings across their portfolio. I could be wrong, but that’s my hunch.
On Twitter, Tom Goodwin cited the example of another disruptive razor brand – Harry’s. “The path to success is really shown by Harrys, lose lots of money, make one product, establish brand, make more SKU’s, get distribution in Target. It’s just for every Harry’s there are probably 10,000 failures.”
Another important thing to remember is that not all consumers are online, and not all people will see brands online. It’s naive to think that it’s a completely different world now. It’s far better to be modern in your approach. What I mean by that is cater to all needs: if people want it online, sell it online, and if they want it in a shop, sell it in a shop.
It’s also worth mentioning that Byron Sharp, Director of the Ehrenberg-Bass Institute for Marketing Science and a celebrated expert on loyalty programs, hammers in the importance of mental and physical availability to brand growth. Getting products in shops all over the place as well as selling online is part of that.
Even those DNVBs that start strongly eventually begin to fall foul of the law of diminishing returns. An initial flood of hype and custom may come to those strongest of DNVB launches, but over time they will die down and only a small minority of people will come back to buy again. Revenue won’t even be sustainable, let alone profit.
To grow and sustain, DNVBs need to keep their options open to reach their target market. I made the mistake, idiotically, of not doing so. I turned down interviews in magazines and I refused to stock in specialist shops. I could have had my clothes in Germany, Sweden and London. That is how my DNVB would have grown.
I failed to do my job as an entrepreneur because I had no understanding of marketing at that time.
The digerati will say that DNVB is the future for business and that massive brands can learn from them. I’m sure many can learn from them, as I mentioned regarding Dollar Shave Club – but the idea that a new era of disruptive competition being ushered in is pants.
It’s the usual “everything is dying” noise; ignore it and investigate. Read beyond the headlines.
On a solidly positive note, I think the future is rosier than that: DNVB or small online shops or whatever you want to call them are brilliant. They allow people from working-class backgrounds who may not otherwise have had a network or access to capital to launch their businesses. They have a chance now, and that in itself is absolutely wonderful.
But we must remember that DNVB is just the start of something bigger. It is not a replacement or a new way to do things.
Thanks for reading.
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