Going through my Instagram feed & stories I realised a common theme: There are a lot of new category brands’ in the feed but rarely do I see an established brand directly marketing to me aka the end consumer.
After doing some more research I found a Nielsen study that stated that “96% of traditional beauty retail channels are controlled by the top 20 cosmetics manufacturers…but on the flip side, 86% of e-commerce channels are controlled by companies outside the top 20”. This sounds a lot like a long-tail opportunity for small(er) brands.
Why is this shift happening now?
Thanks to social media and digital marketing, you are able to test – in real-time – how (new) products resonate with consumers, what kind of ads & messaging performs with what audience and how small changes (from packaging to design to ads) can have a real business impact on your brand.
In the past, new lifestyle brands’ took months if not years to develop & launch with heavy investments in (offline) retail, marketing and PR. In fact, you had to spend the majority of your budget on marketing & advertising to build a brand. And you needed a retail partner to distribute, merchandise and sell your products. And the worst of it: you had to share the gross margin with the retailer. So the partner who takes the highest margin is your retailer/distributor (taking up to 35-80% of your gross margin).
Nowadays, you only need a good product, a great digital marketing machinery and a small agile team that drives through innovation. You can look for an existing production partner (OEM or ODM), build the brand using social media, spend time & energy in your digital distribution channels (brand.com, marketplaces, etc) and you can sell directly to your (end) consumer. So you have full control over the distribution, merchandising, pricing and selling of your products. And the best of it: you retain 100% of your gross margin.
How Innovation can occur for new, up-coming brands
It is not about “stripping out the middle-men”. It is about delivering innovation to your (end) consumer. And you can use the saved margin from retail to acquire (new) customer. P&G and Unilever are known for building (big) brands’ through traditional marketing & distribution channels. The challenge they face though: (i) it takes months (if not years) to develop a new product & brand and (ii) as they have heavily invested in production facilities they have to produce for mass market. To produce for mass market means also you have to offer a good (=comparatively cheap) price to end-consumer. And to reach mass you have to go through (traditional) retail channels. But the worst about this is the following: You don’t know to whom you have sold which item. Yes, you sell to the retailer but have no idea which user bought which item at what time (not to say that you have little data-points on the full user journey).
In contrast, by starting a direct-2-consumer business you can innovate extremely fast: you can launch product A this month and then test a new product the following month. Depending on the performance of each product you double (or triple) down on the marketing investment for the better performing product. And the best of it: you have got (very) detailed information about the user journey (assuming you have set up your Conversion framework) and you know exactly which consumer bought what product at what time (and with how many touch points (path length) over how many days (time lag) and with what combination of marketing channels (from assisted conversion to top conversion paths))
But we do have our loyalty card information?
This is usually the first counter argument that we face. Yes, your Guardian, Watsons and any other retailer have a loyalty system. But you as brand owner have little to no access to these data points. And if then you don’t have a full picture of the user journey (from prospecting to acquisition to conversion behaviour). On top of it: your loyalty card user are not your “average” consumer. This is a self-selected group of (heavy) user so their behaviour is not necessarily representative for most (or all) of your customer.
Is Retail dead then?
No, retail is not dead and will continue to exist. Also with direct-2-consumer (or “digitally born brands’”) you will have to go eventually offline. However, it will be likely through an innovative format (see Alibaba’s new retail concept) and always linked to some form of digital touchpoint. But going through retail first and then “testing” it online is an outdated (and especially expensive) approach. And you can prove that (offline) retail can work as long as you can get repeated orders via your brand.com. So for this, pop-up stores are a great way to test and broaden your prospective audience.
To prove that we believe in Direct-2-Consumer businesses we have launched brand-nation.com with a focus on creating digital DNA brands’ or as we say it “the consumer goods company of the 21st century”. We have launched successfully our first direct-2-consumer brand (www.sen-natural.com) and have proven that within only 8 weeks you can create a beauty & cosmetics brand from scratch (from sourcing, to tech-stack, digital marketing & analytics set-up) and successfully launch it. On top of it, we have run countless experiments since launch and identified what are the best performing (digital) marketing activities for which product. We have gathered a lot of (daily) insights and are innovating from packaging to marketing deliverables based on the (end) consumer feedback. This would not have been possible in the past – unless we would have the (financial) backing of Unilever or P&G 😃
It is still early stage (we only launched in Dec 2018) and I am sure we will fail with (and learn from) some of our initiatives. But I truly believe that the future lies in direct-2-consumer businesses and to make it a case we aim to launch more brands via brand-nation.com.