Competing for Your Own Customers? Five Ways to Navigate the Direct-to-Consumer Space
It’s becoming rare for consumers to distinguish between brands and retailers. To them, all brands are retailers and all retailers are brands. But for the majority of retail’s history, most brands sold to consumers through third-party retailers, who owned the direct relationship with shoppers.
It was only a decade or so ago that brands began playing the part of retailer. Now, they’re not only responsible for delivering on their values and larger brand promise, but also for managing each step along the path to purchase and maintaining relationships with shoppers and consumers.
Retailers have also started playing the part of brands, emphasizing their unique differentiators — things such as speed, value and convenience — to establish themselves as more than just places to shop, but better overall experiences.
All of this has introduced a completely new retail ecosystem, within which brands and retailers co-exist and operate, rather than follow a clear division of labor and respect long-standing boundaries.
Here are five ways brands and retailers of all persuasions must navigate this new ecosystem and where technology and data can help.
1. Brands and retailers must understand their “genetic makeup.”
A brand’s DNA was once defined by where it sells it goods (in-store or online). Now it’s defined by how it gets its goods to the consumer (direct or via third-party).
This distinction is important, as a brand’s genetic makeup is also its roadmap to market. It informs its approach to everything from marketing and customer service to warehousing, fulfillment and overall operations. It also reveals gaps in technology and data that brands and retailers will each need to fill.
Consider the newer generation of direct-to-consumer (d2c) brands — the Warby Parkers, Caspers and Allbirds of the world — that started with direct connections to their customers. These brands almost instinctively look for new ways to get closer to existing and future customers. But it was only fairly recently that they began learning how to do this through the more traditional channel of brick-and-mortar stores.
Classic brands such as Nike and Under Armour, on the other hand, are on the reverse journey. They have the in-store game down but have had to introduce consumer-direct infrastructures and learn how to own, nurture and understand the relationship with their customers.
2. Traditional brands and retailers need data insights to humanize their approach, execute more quickly ... and compete with D2C natives.
Traditional brands and retailers don’t only need to navigate each other, they have to compete with a new breed of direct-to-consumer companies. One of many distinctions of these companies is that they often have Chief Growth Officers (CGOs), rather than CMOs. Like CMOs, one of the CGO’s first priorities is to do a phenomenal job of brand storytelling. From there, the CGO quickly couples marketing efforts with rigorous analytics and execution capabilities.
Because D2C companies do not typically work through a retail middleman to gain insight into their customers, they get quick feedback on their products directly from their customers, allowing them to iterate on better versions of the product faster.
Customers no longer feel like they’re just buying a mattress, a pair of glasses or a new skin-beauty-apparel product. Instead, they feel integral to the development of that product. This creates a whole new level of loyalty and engagement that’s out of reach to traditional brands. And it’s a primary reason why several D2C brands have double-digit market share in categories such as mattresses, eyewear and skincare that were very recently thought to be slow-moving, well-established categories.
3. Growing by new customer acquisition alone is expensive (and short-lived) when brands and retailers are all competing for the same customers.
Across all brands in the direct-to-consumer space, the first wave of digital and ecommerce was all about customer acquisition and driving short-term growth. This has resulted in two phenomena that are unsustainable in the long run. First, when everyone is focused on customer acquisition as the only lever to drive growth, the cost of acquisition grows dramatically on the main platforms. Facebook and Google essentially become the new mall you’re paying exorbitant rents to. Second, brands end up spending a premium to acquire customers that will never buy more than once; on average, 80 percent of ecommerce buyers today will only buy once from that brand.
4. Prioritize customer retention as a necessary growth strategy.
The only way to combat this vicious cycle is to focus on customer retention. D2C brands have a distinct edge here as they’re often well-equipped with the actionable data insights necessary in both the acquisition and retention phases. During the expensive initial acquisition loop they can focus far more acutely on their ideal customer profiles, by putting insights such as predicted lifetime value and product and category affinity to work on their seed customer base and targeting other customers that behave like them.
As brands acquire new customers, they gain even more insights that they can put to work as they move directly into retention strategies. Some specific advantages these brands have are insights into individual customers’ next-best-purchase and the cadence of their product replenishment cycles, and the ability to optimize their email communications on an individual basis — at scale — to lower unsubscribe rates.
Driving growth through acquisition alone isn't sustainable. At the core of every great business is a profitable-retainable customer base. The saying "80 percent of my revenue comes from 20 percent of my customers" is true for a lot of retailers. Which begs the questions: “Why don’t retailers focus on making that 20 percent bigger?” “Why spend all those dollars acquiring customers who buy just once?” The retailers that are focused on striking the right balance between acquisition and retention currently have an advantage over those that don’t.
5. Move beyond the inventory-merchant-marketer triangle. Retailer and brand interactions traditionally involved difficult tradeoffs between what merchants wanted to sell to achieve revenue and margin goals and what marketers wanted to focus on to drive brand value. This introduced a painful dynamic and cumbersome manual process that was often the foundation upon which brands and retailers determined which products to promote, what messages to drive into the market and what incentives to offer to generate demand.
Digitally native (and digitally evolved) brands have a huge advantage here. Thanks to sophisticated analytics, software and data science skills, it’s become almost second nature for these brands to apply insights gathered on their customers at an individual level. They can easily factor in shoppers’ propensity to purchase, their likelihood of opening and acting on a communication, and the next best product or offer to serve them.
This level of insight transcends the traditional inventory-merchant-marketer triangle and allows the marketer and merchant to use personalization as a sustainable way of driving both brand message and business goals without the suboptimal tradeoffs that traditional brands had.
Fayez Mohamood is CEO of Bluecore, a retail marketing technology company that works with more than 400 retailers to launch highly personalized campaigns at scale.