Digital Essay: The direct-to-consumer brand revolution by Ross Molloy

by Ross Molloy, strategy director, Wavemaker

In years to come we will tell our grandchildren that once upon a time we had to wait,” said the Lippincott Sense Perspective. Today, connected consumers are on-demand and live completely in flow, and as for tomorrow, these expectations are set to increase tenfold. Why the need for speed? Because that is what happens when technological trends meet human needs.

The smartphone phenomenon has multithreaded the modern purchase journey; users can seamlessly find, order and shop available products whenever the moment strikes. This adopted behaviour can be seen through the rise in e-commerce, which is set to grow by 16 per cent to be worth $49bn in the UAE & Saudi Arabia by 2022, according to BMI Research Report.

Technology is propelling e-commerce capabilities even further as recent developments in both visual and voice search continue to create even more possibilities for any-time ‘moment commerce’.

The unbundled modern supply chains are now more rentable, fluid and affordable than previous static systems and this technological evolution has led to the collapse of barriers to entry for all new entrants. This has triggered a surge of own-label brands to move upstream and laser-access consumers at scale without the retailer middlemen, according to the IAB Direct Brand Economy Report.

Direct-to-consumer (DTC) brands are both digitally native and vertically integrated and sell a wide range of products online from food meals to beauty, apparel subscriptions and everything else in between. They are focused on select verticals or services and are obsessed with the individual who buys them. They are both seamless and magnetic and break the advertising status quo of deciding to either do performance marketing or build the brand. They use shoppable advertising on premium visual social platforms to spread the word and convert intent all in one place.

Brands gaining overnight traction include Bonobos, Warby Parker and Glossier. And, in the region brands, like Mr Draper, which removes the pain of shopping for males through offering a completely personalised online shopping experience which is delivered end-to-end and hassle free.

Using back-end software technology like Shopify they can easily set up an e-commerce experience and immediately start trading online. Through leveraging the reach and targeting capabilities of social media they can scale their distribution efforts powerfully. Through this agile trading model and friction-free supply chain they can keep prices down while returning up to five times more contribution margins on items sold compared with their traditional e-commerce rivals (says the IAB’s, 21st century brand economy report).

Coupled with this operating freedom is their distinctive advantage in one-to-one customer intimacy. Through having a 360-degree view of their entire consumer experience, they can track and learn from every transaction and interaction as they are captured. Through applying this direct customer data in new sophisticated ways, they can create precision marketing at scale to accelerate growth and increase their customers’ lifetime value, as DTC brands can cultivate three times faster than the average e-commerce retailer brand (according to Internet Retailer). They are not strictly handcuffed to digital either and are now expanding their offline footprint to open physical stores too.

However, these niche pioneers also bring complications to the table. This wave of new challengers has welcomed a swarm of imposter brands that similarly shine at the front end but fall way short on the back end with poor fulfilment experiences and shipping malfunctions. These negative experiences can spread across the landscape and deter potential omni shoppers from trying or repurchasing these brands indefinitely.

The second major constraint is sustainability. They grow fast inside their verticals but require dynamic buying models to quickly extend their offerings to wider product ranges that serve their customers while increasing average order volumes and driving growth in the long term.

This new reality has created a paradigm shift in the world of packaged goods and retail. Legacy brands need to find new ways to get their products in front of consumers, delivered to their own schedule, in ways that are hyper-convenient to them. How can traditional brands thrive in this new age of direct-to-consumer commerce?

Traditional brands are adapting to this new distribution in three ways:

R&D & innovation: Through making technology their DNA, established companies are pivoting their raison d’être to enhance their customer experiences. L’Oreal sent notice of this ambition through its acquisition of Canadian AR company Modiface, which allows users to conduct virtual make-up tests using their product ranges on mobile before they decide to buy them. Their mission has switched from a beauty seller to a beauty technology solutions company with a cutting edge in digital.

Sustainable acquisitions: With more physical stores shutting down by the day across the globe, established players are seeking ways to reach and connect with new customers at scale via digital channels. Acquisitions can prove mutually beneficial as the web-only brands must scale more and access a wider base of customers while legacy companies need to win online while they transform to the omnichannel model of the future.

Personalisation at scale: Traditional brands are using their resources and scale advantage to adapt and leverage personalisation to build accurate, usable consumer data that serves the needs of their individual customers. This iterative approach drives longer term shopper loyalty while negating the desire to switch or try the unknown. This can be seen with Nestle’s new one-to-one nutritional assistance prerogative, where the brand recently launched a pilot program in Japan called the “Wellness Ambassador”. This DNA-based programme collects samples from 100,000 participants and sends them unique smoothie capsules personally formulated for their exclusive health needs.

What does all this change mean for the consumer? The number of available products has massively expanded, giving consumers more choice than ever before. But people crave simplicity and mostly want this burden of choice removed so that they can make reliable decisions, consistently and pain-free. They want a seamless buying experience from brands they trust, who make their lives easier. They want to live in flow.