Big Tech as the new landlords, marketing in the age of DtC.
Direct-to-Consumer (DtC) platforms are omni present in today's online retail. They enable consumers to stand out in the crowd, with easy and transparant e-commerce. But what are the key elements of their marketing approach?
This article has been published earlier in Dutch retail magazine RetailTrends
In Amsterdam you can hardly miss them this summer. Men who walk on trendy moccasin shoes by Rivieras, wearing shorts from Mr Marvis, with a matching polo from Joe Merino. Their fashionable sunglasses might be bought from Polette.
People want to distinguish themselves with how they dress and live, and Direct-to-Consumer platforms serve as the ultimate enablers. The US is ahead of Europe, with a vast array of brands. Trendy wooden toothbrushes are delivered automatically every month through a subscription to wearebristle.com. Pants are bought at Bonobos.com and of course sport shoes at Allbirds.com, Silicon Valley tech worker's favourite. Your dog will get an exciting surprise box from Barkbox.com every month, and buying a mattress is super easy via Casper.com. Diapers are coming via a subscription from Lillydoo.com and you can buy trendy suitcases at Awaytravel.com
Cut out the middelman
Whatever product you might consider buying, there are DtC platforms that will offer it. In the US they call this 'warbying', derived from US eyewear retailer Warby Parker, one the earliest DtCs. The core idea is to cut out the middleman. DtCs are convinced that it's better to invest mark ups in the customer proposition; in design, service or a lower price. They don't want to depend on the quirks of a physical retailer. DtCs aim to be the owner of the customer data and take control of the total customer experience. They are obsessed with renewing a category and in changing old paradigms.
Many of these new formats neglect the ruling "long tail" idea, but often opt for the "very best choice", concentrating on just one product or category. Hipster favorite Rivieras, originally from France, sells only one kind of summer shoe based on a Spanish moccasin, though in numerous fashionable designs. Dutch Mr Marvis does exactly the same in shorts. Successful DtCs are breaking down high mark ups, which often existed in physical retail markets. Michael Dubin, CEO of the Dollar Shave Club, knew that this was the weakness of Gilette, among others. That also applied to Warby Parker, the online eyewear store that has turned the optical industry (with huge gross margins) upside down in the US. Pauline Cousseau, from Amsterdam based Polette.com, brought this idea to the Netherlands. She already offers designer glasses (frames and glasses) for €15 and still makes 35% gross margin. With that price, Polette's price points are even set below physical hard discounters like the Dutch Hans Anders. Everlane.com (fair fashion essentials) went even a step further, offering maximum transparency regarding pricing. Everlane shows the actual costs per item on its website, for how much they sell (mark up of 2-3x) and how much a comparable item would cost in traditional retail (5-7x).
DtC brands offer a very simple customer journey which is often hopelessly complex in the comparable physical retail world. As an example: consider buying a mattress in a mattress shop, with all the tricks and complexity and then head over to Casper.com to compare. On top of that, Casper even offers a 100 days trial with a free return. Many DtC platforms make the customer journey simple and fun, the design is often light and transparent. The User Experience of DtCs does not resemble that of platforms such as Amazon: with many buttons, banners and distractions. You will never see a button like: "customers who viewed this item also viewed.....".
DtCs often focus on early adapters and millennials. They are obsessed with creating strong awareness via Facebook and YouTube, often through User Generated Content and social engagement. SEO and referral marketing are important; Casper even makes multiple landing pages for many different search terms. Others are driving traffic with a celebrity or influencers, but that can become quite expensive. Kim Kardashian asks $500,000 for just one Instagram post. Dollar Shave Club was much more cost effective: its success has been built on the famous "viral commercial" (see below), which probably cost less than 10% of what Kim's post would have cost. The commercial has been watched more than 26 million times on YouTube. It's the ultimate dream of every DtC marketer.
The landlord is a tech company from Silicon Valley
Meanwhile the customer acquisition costs (CAC) for DtC brands are increasing rapidly. Rates have risen sharply: Adstage claims that CPM (the cost per 1000 adviews) and CPC (cost per click) on Facebook have more than doubled (Q1 2018 versus Q1 2017). Facebook and Google have actually become the new landlords of online "retail property". In the new DtC world, retail property is simply called CAC and the landlord is a tech company from Silicon Valley. So much for change.
Competition is very fierce and if a DtC is not on page one of search results things might become critical. The temptation rises to use traffic of market places like Amazon or BOL in the Netherlands. But for most DtC players this feels like sleeping with the devil. Before you know it you are a product on a marketplace instead of a brand. In addition to lowering CAC, increasing the Customer Lifetime Value (CLV) is an option for some, but not all. Recurring revenues from subscriptions might help, Casper has even started renting out mattresses.
DtCs are getting popular as the new tenants of the hip shopping streets of the big cities, replacing the empty shop fronts of the old economy, sometimes with just a 'stoppable billboard'. For Warby Parker, which already has more than 100 stores in the US, it is a mature retail operation. Online furniture brand Made.com started operating physical showrooms. The data on Made.com's platform show where and in which cities these showrooms should be located. Polette does the same. Rivieras goes one step further, starting with "wholesaling" at Lafayette and Zalando.
It is quite possible to hang on for a while pushing traffic, but if the marketing machine is on full throttle and even stores are being opened, investors might need very deep pockets. Many DtC brands are funded by venture capital, and they are eager on returns. So in the end, many DtCs seize to operate. But new ones will start all over again. After all, the idea of consumers wanting to differentiate themselves from the rest, spotting something new and exciting will not stop. DtCs offer very convenient customer journeys, with way better priced products. This combination is ideal, not just for a summer outfit.