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Why Your Brand Should Pivot From DTC to Retail—and How to Do It Right

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By Jason Vaught

The move isn’t without risks, but CPG companies can mitigate them

Direct-to-consumer brands are rethinking their channel strategy, specifically a return to retail, and for a handful of good reasons. While the pivot takes a contrarian stance on the “unavoidable” takeover of online commerce, smart brands are leaning into national retail relationships with a physical and digital footprint.

On the surface, the timing of this shift seems odd. Considering the pandemic’s acceleration of ecommerce sales, many assumed retail revenues would fall off the cataclysmic cliff to certain death. But immediate revenue potential doesn’t always equate to profitability. When considering the burn rate consumer packaged goods brands are experiencing in the DTC model, the proof is in the non-GMO, sustainably packed pudding. There is unavoidable evidence for a CPG brand’s need to pivot.

Within the DTC realm, underlying factors negatively affect the ability of moderately priced CPG and fast-moving consumer goods (FMCG) brands to show black on their profit and loss statements. While we weigh the scale differently for each category, the outcome is predominantly the same. The removal of third-party cookies, the low barrier to entry, and the supply and demand of digital DTC marketing platforms create a challenge for almost every CPG sector.

Whether you’re a new brand challenging a category, an existing brand that transitioned away from retail, or an existing DTC brand looking to pivot for the first time, you’ll need to learn how to navigate the return-to-retail terrain and what it takes to succeed on both physical and digital shelves.

Why pivot to retail?

Retailers are constantly innovating, creating seamless integration between their online and IRL storefronts. This integration presents two primary reasons for getting your hands on the in-store action.

First, your brand can embrace a retailer’s online opportunities. Retailers want brands committed to supporting and performing in-store, in-app and online; pivoting to retail presents opportunities to leverage a retailer’s first-party data for specific consumer targeting. Second, the numbers don’t lie: Projections for 2024 suggest 72% of retail sales will occur offline.

No matter how you slice it, brick-and-mortar stores are still the predominant driver of purchases. Brands willing to buck the DTC-only trend are reaching the largest consumer demographic while establishing deep, sustainable relationships that can lead to future online opportunities.

Why pivot away from DTC?

On the flip side, there are reasons to shift your attention. Whether choosing to promote through organic brand strategies, taking the paid ad approach or a combination of both, the high customer acquisition costs of DTC are not attractive to investors looking for a scalable brand.

There’s also the limitation of DTC reach: With 74% of shoppers making purchases in-store, building mainstream brand awareness exclusively online is nearly impossible. Even successful DTC brands, such as Bulletproof, eventually reach a point where they need partners like Whole Foods to further their growth and meet revenue expectations.

And there’s the false assumption that DTC leads to greater customer loyalty than working with traditional retailers. In fact, the most prominent form of brand loyalty is when the consumer views your products across many digital and physical touch points.

When not to pivot

Not every brand is ready for retail. With retail partnerships comes responsibility. To win in retail, you must have your ducks in a row:

  • Supply chain: Do you have the capability to support retail growth consistently?
  • Proof of concept: Can you guarantee a good sales velocity to keep your distribution?
  • Legal compliance: Are you ready to meet the contractual obligations?
  • Capital: Do you have enough funding to support the channel?
  • Competition: Within a retail environment with multiple and different competitors, is your brand differentiated and competitive? Do you lose an advantage only available online?

There are plenty of failed examples where a DTC company poorly shifted to retail commerce. While the details differ, the overarching theme is always the same: These brands wrongly assumed their existing awareness and marketing were enough to support these channels.

How to pivot successfully

Retail brands must take a strategic approach, provide product differentiation and have the resources to compete against the big-name, traditional brands that dominate their category. Whether it results from being too ambitious or simply a lack of experience, many brands may fail against existing retail shelf competitors.

Moving from the DTC approach to traditional retail isn’t without risks, but CPG companies can mitigate these risks by addressing four areas.

Establish the right partner(s)

On the other end of the CPG channel spectrum are consumer brands trying to be everything to everyone. As such, these brands approach all physical retail partners for their product category without considering how one affects the other. Having too many retail partners can cause shelf dilution, capital constraints, having too many promotions to manage or losing distribution due to poor product-shopper fit.

Develop a concise value proposition

Being concise in your product messaging is a practice that should exist across all consumer channels, but it’s especially true for in-store presentations. With limited attention spans and competitors sitting within your product’s line of sight, the speed and eloquence with which you communicate your point of differentiation matters.

Customer loyalty is constantly at odds with the retail environment, so engaging in this form of commerce requires more attention to how effectively your packaging design and in-store presentation reach the consumer.

Prepare your supply chain

In DTC, being out of stock may lead to a preorder. In retail, however, it leads to a lost sale.

Supply chain mishaps are risky for your brand and the retailer. Whether direct-to-retailer or through a wholesale channel, overhaul your supply chain to ensure consistent on time in full rates for customer orders so you are a reliable vendor and good partner. Help your buyer ensure you have enough orders in the system to cover any incremental volume coming from a promotion or big event you know is coming up.

Prepare data to support the channel

Assumptions serve no purpose when engaging in commerce with national grocers and retailers. To enter any retail door, you must have consumer data proving why your brand will be a top category performer.

The modern retail store has advanced insights from internal point-of-sale data and eye-tracking technology. Brands mirroring this data-driven intentionality will build stronger relationships with their retail partners.

The most predictive consumer data comes through testing buyer behavior in a simulated environment—we call this purchase intent testing, where we separate what consumers say they want from how they make buying decisions while at a retail shelf. This test measures the effectiveness of the packaging and its ability to lead to purchase selection, which commonly happens in 3-12 seconds.

At this stage of the buyer journey, we simulate these choices by inserting your product into a set of leading products you are likely to compete with. We then measure the performance of various packaging design candidates in the marketplace.

 

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SmashBrand

The benefits of retail partnerships

Having looked at the why and the how, let’s look at what success looks like after winning in retail. Here are five ways that retail differs from a DTC strategy.

Greater reach and wider brand awareness: Walmart received more than 230 million visits in 2022. Even though this number is down from prior years, 1% of this figure is more visitors than nearly every DTC brand receives to its website.

Access to valuable customer data and analytics: While not every brand asks, retail partners can provide deep insights helping you understand who buys your product and who does not. Collectively, you can better meet the needs of consumers who match your buyer persona.

Opportunities for product innovation and co-branding: Whether through white-label products or cross-brand collaboration, creative co-branding opportunities only happen when you work with the retailer.

Building a loyal customer base through in-store experiences: The more we push to a digital world, the greater consumer desire for a curated retail experience becomes. In-store demonstrations encourage greater brand resonance, so you get two for the price of one in your shopper marketing: direct influence on the in-store sale, plus a broader brand awareness driver, which may halo to other stores and channels.

It opens the door to click-and-mortar: Being on Target.com is not nearly as powerful as being available within their app for in-store pickup. As retailers innovate, click-and-mortar will continue to grow, and you will want to be part of this action.

Ready to transition into retail?

If you are a CPG brand currently using or weighing a DTC model, it may be time to consider a pivot back to retail. These partnerships offer opportunities to reach a larger consumer demographic, establish sustainable relationships and embrace online opportunities. By engaging in retail action, brands can achieve long-term growth and success.

Feature Image Credit: Mattes/Getty Images

By Jason Vaught

Jason Vaught is the director of content and marketing for SmashBrand.

Sourced from ADWEEK

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Levi’s Rejiggers Leadership Team for a Digital Future

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Levi Strauss & Co. (LS&Co.) is recalibrating its leadership team to better serve the heritage company’s digital and direct-to-consumer (DTC) channels. The company announced Tuesday a series of leadership and role changes, effective Nov. 1, designed to strengthen the emerging channels and enable the company to respond more quickly and effectively in the marketplace.

The two business segments are helping to offset declines in Levi’s in-store and wholesale sales. Levi’s global digital business, which includes its e-commerce sites, as well as the online business of its pure-play and traditional wholesale customers, comprised nearly a quarter of total Q3 revenues, doubling the company’s digital footprint from the prior year.

“By doubling down on the company’s key growth drivers—the continued strengthening of our greatest asset, the Levi’s brand; leading with DTC and diversifying our business; and fully embracing digital to transform our operations and processes—we are capitalizing on the opportunities created by the global pandemic, which has accelerated changes in consumer behaviour and the competitive landscape,” said Chip Bergh, LS&Co. president and CEO.

To build on the existing strength of the Levi’s brand, the company is promoting its chief marketing officer, Jen Sey, to brand president. The Levi’s brand organization will bring together marketing, design, merchandising and brand experience to drive a “centre-led vision and execute with a consumer-centric focus globally.”

Liz O’Neill will become chief operations officer and leverage LS&Co.’s global supply chain by driving digitization, sustainability and agility, including the ongoing rollout of the company’s F.L.X. technology.

Seth Ellison, previously executive vice president and president, Europe, is being promoted to chief commercial officer (CCO), leading the company’s global commercial operations. As CCO, Ellison will adapt the company’s DTC-first mindset for Europe to amplify commercial growth across all channels and markets.

Marc Rosen, executive vice president and president, Americas, is taking on an additional role leading a new Digital Enterprise Office. In this capacity, Rosen will work with technology, business, data and artificial intelligence experts across the company to set the company’s “enterprise-wide” digital plan.

The business leaders will report to Bergh. “With an industry-leading management team, LS&Co. is fortunate to have a group of leaders who have been driving long-term value and are well-positioned to drive this focus for the next chapter of our growth,” he said.

Feature Image Credit: Levi’s: Courtesy

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Sourced from Sourcing Journal

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Why this CEO says ‘staying nimble’ is key to the success of direct-to-consumer businesses

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The last decade generated a new category of digital-first, direct-to-consumer businesses that upended how consumer goods were created, priced, marketed, and sold. My company, Mack Weldon, is one of them. Brands like ours have touched nearly every consumer category from cooking pans to mattresses (and yes, even men’s underwear).

This generation of disruptive brands has been propelled by emergent social media, access to capital, and generational shifts in shopping habits and brand perception. It has been the decade of direct-to-consumer.

Then the coronavirus crisis arrived.

While digitally-born and e-commerce-driven businesses are among the best equipped to survive this crisis, the catalysts that drove the DTC boom have changed. The assumptions made about the market, as little as five months ago, are no longer true.

What does the business landscape look like in the era after the pandemic? Here are four things you should hesitate to assume about DTC businesses.

A new outlook toward brick-and-mortar

DTC brands left their digital perches and started opening stores in the last few years. It was a boon both to brands looking to expand their reach and to landlords who were keen to place relevant tenants in their projects. This will all change.

Brands—whether legacy or digital—will be more cautious about when and where they open up doors. We at Mack Weldon opened our first shop last year at the Hudson Yards mall in New York City and had plans to expand through directly-operated stores and third-party partnerships.

Now, we’re looking harder at those plans. How will consumers respond to physical retail when the pandemic recedes and how permanent will those changes be? We’re being careful, but we also realize there will be timely opportunities for leases and new, more flexible formats in desirable locations.

Easy money to launch and expand

The DTC boom was largely driven by access to capital. Venture capital and private equity money fueled the formation and expansion of scores of new brands. According to data from CB Insights, consumer brands have raised more than $3 billion since 2012, and about half of that money was raised in 2018 alone.

But recent market trends and the pandemic have pulled the plug on easy money. High-profile flameouts, including WeWork and Brandless, coupled with an increasingly more expensive digital advertising landscape, changed the calculus for investors. Can new brands make enough noise in a competitive market? Can existing brands find both scale and profitability in this new environment?

Going forward, investors will be more circumspect about opportunities, valuations will come down to earth, and marketing and distribution strategies will be scrutinized. Financing will still find its way to high-quality brands and business models where the unit economics support profitability, but the volume of deals and subsequent valuations will be rightsized.

A return to the original marketing playbook

The digital-first, performance-driven marketing playbook that fueled so much success—ours included—needs an overhaul. Before COVID-19, ad rates on the major networks were climbing and price arbitrage all but nonexistent to support major growth. Once the pandemic took hold, some scale opportunities returned, but it’s clear that as demand comes back into the system, we all need new ways to drive cost-effective, new customer acquisition. For us, we are contemplating our first major video ad test including OTT and linear TV—as well as continuing to invest in channels such as podcasts and radio.

Further, the COVID-19 situation forced all of us to take a hard look at our marketing plans and make some major pivots. We heavily revised our marketing calendar and product launches in order to offer products relevant to our consumers facing drawn-out quarantines. Specifically, we revised the tone of our emails, ads, and social media to be authentic, empathetic, and human, and we prioritized imagery highlighting how our products work well in a WFH environment. What purpose can a brand such as ours serve at a time like this? The customer relationship must go beyond email campaigns and sales promotions. If you meet customers where they are today—they will reward you over the medium and in the long term with loyalty.

Lastly, the pandemic is shifting e-commerce demographics. According to First Insight, online shopping among baby boomers jumped 120% in March of this year as the pandemic finally forced these consumers online. Is there a new population for digital-first brands to access, and if so, how will we reach them?

Business leaders can use this time to adapt the cadence, tone, tactics, and audience focus of their marketing efforts.

There’s enough room for everyone

The first decade of the DTC period has come to an end, and the pandemic is accelerating the rules of its next chapter. We’ve already begun to see some high-profile bankruptcies in J.Crew and Neiman Marcus, and there will inevitably be more.  Consolidation is on the horizon—anticipate smaller companies joining forces and larger incumbents making acquisitions motivated by more rational valuations and opportunities.

Furthermore, incumbents will likely emerge with entirely new strategies around their retail footprint and need to build a more robust, digital-first DNA. Likewise, there will be successes in this space, as brands with sound businesses can capitalize on new market realities and new customer preferences.

At my company, we’re cautiously optimistic about the next phase of DTC, bullishly looking ahead. We’re executing on our strategic plan but also keeping an eye on the future as we prepare for limited retail expansion and investment in our digital footprint and product offering.

Direct-to-consumer brands were born of ingenuity and tenacity; the pandemic is once again demanding that of the marketplace as we determine new ways to meet the needs of our customers. The most nimble of us will author the new rules together as we enter this next phase of direct-to-consumer businesses

Feature Image Credit: [Photo: Warren Wong/Unsplash]

By Brian Berger

Brian Berger is the CEO and founder of menswear basics brand Mack Weldon, which he launched in 2012. Since 2012, Mack Weldon has become a leader within the men’s apparel industry, expanding its product offerings to cover other essentials of a modern man’s wardrobe. Before founding Mack Weldon, Brian served in several leadership positions in internet and media companies, including Comcast and WebMD.

Sourced from Fast Company

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DTC—Throw Away (Almost) Everything You Know

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By Mat Zucker

Direct to Consumer as we’ve known it is over

Even prior to the COVID shutdown, the DTC market was standing on shaky grounds at the beginning of 2020. The cost of customer acquisition had been increasing with weak attribution to paid social given a crowded and diluted digital marketplace. The harsh reality hit that the primary way to gain customers was broken and eating away at cash. Brands started pouring money into omni-channel marketing and presence, and we all started seeing digital native brands on billboards, subway stations, department store pop-ups and, physical retail.

The exposure of the toxic, unsustainable organizational culture at Away opened up the pandora’s box on one of the biggest challenges for pure-play digital brands: organizational performance. Once revered within DTC industry circles, Brandless and Outdoor Voices’ demise with cash woes and organizational failures were a reality check to peers as well as the venture capital funds supporting them.

I spoke to my colleague Eunice Shin, an expert in the space. “To add to this mix, exit strategies were looking grim. Financial health was seen through a different lens from Wall Street than from VC-backed pre-IPO measures/standards,” she says, citing delayed IPO filings for AirBnB, and antitrust regulators blocking the merger of Harry’s and Edgewell. She also observes there hasn’t been another shining example of corporate acquisition such as “Dollar Shave Club” in recent times.

The DTC battle cry quickly went from scale and growth at all costs to, well, profitability at all costs. Then the pandemic shutdown hit.

For those already struggling with pre-COVID issues, it’s become even more difficult. Closures. Massive furloughs. A halt on marketing spend.

You can’t turn off marketing then expect to turn it back on and have the same position. Brands can only scale back so much before risk having to restart their entire acquisition engine, which will be incredibly expensive and just not feasible.

Signs of survival

However, there are signs of how some DTC companies are surviving, and in some cases thriving, through the crisis:

  • Organization: Digital natives have not skipped a beat in moving to a virtual workforce, speedy mobilization has been evidenced in smart and timely community and messaging moves.
  • Community building not just advertising: Showing up through digital screens with empathy, compassion and generosity has greater impact on building brand capital than in tone-deaf, expensive advertising.
  • Advertising-ready: With social ad inventory trending down, companies with cash are in pole position to take advantage in less crowded market with the paid marketing they do.
  • Supply chain advantage: Disruptions in the supply chain are creating slower shipping times, normally a distinguishing factor for DTC products. DTC brands that have more control over their operations and supply chain are in advantageous positions.

Hitting the refresh button on DTC

So what does the new DTC playbook look like now?

  1. Organize your operations. Accelerated because of the crisis, digital natives need to focus on optimizing organizational operations, building profitability controls. The furloughs may give the pause companies need to reposition how they go/grow in this new recovering market. Talent, in the right roles with the right support, will continue to be a driving differentiator in DTC.
  2. Rethink acquisition strategy. Though paid marketing on social may have found some near term relief, bets are that it won’t last for long. The principle in paid acquisition has been that if a brand spends more to acquire a customer one time than the customer spends in that one transaction, it’s doing so on the hope that the customer will love the brand, they’ll buy again and again, and tell their friends to do the same. Prior to 2020, the uneven focus had been on getting as many customers as possible for that first purchase. Brands need to broaden the focus of acquisition to include retention-based insights to retool how they target, segment and acquire. Omnichannel is not dead, but it needs ongoing data to inform prioritization of channels and the ability to quickly make those calls. I wrote about how launching products has been changing last year.
  3. Keep the service bar open and raise that bar. Marketers can’t just start conversations, but must foster ongoing engagement. Building a community with relevant content, information, and services that will have customers engaging again, and again and again. Customer service is imperative and core to brand building in the new era – poor or labored communication is not forgivable in DTC. Don’t forget social responsibility – how your brand shows up in moments of good and bad. Corporate responsibility is simply brand table stakes.

According to Shin, “marketers are refreshing how brands see their customers, starting with a new lens on customer acquisition. Whether a digital native or not the DTC principles of authenticity and relevance is shown in how brands are showing up to customers. “Go where the customers are,” she directs. “Take it back to the customer journey, but now mix in how you’ll engage your customers in the face of personal fear and uncertainty, ominous news around the economy, and a much higher expectation in brand responsibility.”

Feature Image Credit: Getty

By Mat Zucker

Sourced from Forbes

 

 

 

 

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How New Disruptive Consumers Are Buying Brands

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Nearly half of consumers today (48 percent of all U.S consumers ages 13 and up) are disrupting the traditional purchase path, from discovery through purchase, the new study reports. These consumers are younger, have higher incomes and choose brands that aid their self-expression.

The new IAB Study confirms that word-of-mouth (WOM) recommendations are the highest-valued prompt for direct-to-consumer buyers before trying a new product.

Greater than reviews or social media Influencers.

But the concept of “brand value” is also transforming. It’s no longer about usage or “better, faster, stronger” efficacies. Rather, brand value for nearly half of today’s consumers comes from their ability to contribute opinions, suggestions and sharing the cool things they buy, wear or use on social media.

The fact that they also like to be the first of their friends to post about a purchase experience — means they’re also your first adopters.

If you’re not opening social portals for your consumers, you’re not just losing business. You’re losing the game.

These disruptor brands cater to the new cohort by building consumer loyalty and lifetime value (LTV) through cross-channel interaction.

Brands like to think of themselves as “personalities”—as a wallboard exercise. But today it’s the new rulebook. Imagine, for example, that your product is a YouTube or Instagram star: it pays to spread content across channels. Internet star Zach King, for example, is huge on Vine and YouTube, but also has a major Instagram following. Beauty blogger Huda Kattan writes blogs, but also has a presence on Instagram. Fitness model Michelle Lewin spreads her messages across a swath of social media channels, increasing her audience count each day.

Omnichannel adjacency pays off back inside the funnel: Search, shopping, plus social media sites bundled together equal traditional TV for brand discovery today. Great ads spark trial, but so do great product plus great social content.

This Is A Tipping Point Moment

How do we define brand loyalty for this new cohort? Key drivers include — following the brand on social media, telling others about the brand (WOM), and having a subscription from the brand.

But if you think Influencers are on their way out, you’re way off track. Today there are at least four types of Influencers:

Celebrity/Professional Influencers, 2) experts, 3) ‘Real’ people, and 4) Super Influencers.

According to the IAB study, Influencers are the “advertising” of the modern consumer economy. They not only wield power during initial purchase consideration — via posts, word of mouth and other methods, but also exercise their power further down the purchase funnel.

Disruptor consumers are over 2X more likely to say they only listen to Expert Influencers and 150% more likely to value online mentions by ‘Real’ people.

Roughly 1 in 3 disruptor consumers qualify as Super Influencers — a newly identified cohort who are strategic, deliberate, and prolific in their postings. They take the time and effort necessary to create brand-centric content to publicly build their personal brand. Some of their verbatims read like, “I like to share cool things I buy, wear or use on social media.” “Content I share online is an important part of who I am.” “Content I share online is an important part of how I want people to think of me.”

Not surprisingly, nearly half of these super consumers want samples and free shipping. But only one in five cares about loyalty programs.

Attention Is The Prize

The industry of attention is the largest, fastest-growing segment of the global economy. There are massive inefficiencies in how people’s attention is being extracted and traded and, for 80% of consumers, simply purchasing a brand is not enough to define loyalty: brand engagement and interaction are required.

As DōTerra CIO Todd Thompson, stated last week in Glossy, “The user experience becomes a strategic driver of revenue. Engagement with the customer sets us apart from other companies.”

Seizing people’s attention and holding onto it, represents the largest investment opportunity for companies in the next decade. It used to be that simply putting a product or service on the shelf (or on your site) put you in the game. Today, brands are not becoming thinner, they’re spreading their brandwidth at scale to become more relevant, meaningful and vital. A statement from the IAB study, “When I purchase a new direct to consumer (DTC) brand, I am expressing who I am,” is not a loose declaration. It is conflating human identity and product.

Brands are people, too.

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Author of Primal Branding

Sourced from Branding Strategy Insider

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