To scale, direct-to-consumer brands will need to advertise

by Nigel Hollis | February 11, 2019

As Marsha Appel points out, we have been here before. Direct-to-consumer (DTC) is not a new business model, it is an old one. What is different is the technology that facilitates the business model. What is not different is that people still buy the brands that are meaningful to them.

You could argue that direct-to-consumer brands started with itinerant peddlers selling pots and pans, but perhaps more comparable would be direct mail, starting Montgomery Ward’s one-page catalogue in August 1872 and followed by Sears just over two decades later. In the 19th Century railways and the postal system were the technologies that enabled a new business model. Today it is the internet and door-to-door delivery services.

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The initial success of Montgomery Ward was founded the desire of people living in rural areas to gain access to “city” goods not available locally and you could argue that DTC brands today are providing similar, if more nuanced, access to goods and services which are more meaningful to the people that buy them. Whether it is clothes, cosmetics or green products, there are a multitude of brands trying to satisfy specific needs. Maybe it is custom hair colouring, personalised clothing advice or cosmetics inspiration but whatever it is, someone will be trying to sell it direct.

The thing that intrigues me is whether or not any of these businesses will be able to scale beyond a niche audience (assuming that the founders want to do so). It is notable that better known DTC brands like Graze, Walker and Company and Bonobos have chosen to sell to far bigger and more established enterprises. Why? Perhaps the answer lies in this statement by Tristan Walker,

 “Having access to P&G’s outstanding technology, capabilities and expertise helps us to further realize (our) vision, giving us the power to scale and bring new products to people of colour, while staying true to our mission and continuing to nurture the loyal community we’ve worked hard to build.”

The challenges of scaling a business go far beyond technology and infrastructure. In her article Appel suggests that while many DTC companies prefer to handle marketing in-house they are starting to find that social media is not enough to fuel growth at scale. I believe that this is going to prove true for many DTC brands that seek to grow longer-term.

Just like Lululemon, if they want to scale, DTC brands are going to find that passionate advocates are not enough to extend interest beyond a bubble of people with similar needs. While traditional advertising will not make up for a poor business model (it may even hasten the company’s demise) it does enable a brand to reach beyond its echo chamber and can make it meaningful to new customers.

What do you think? Assuming that they want to do so, do DTC brands need to invest in traditional advertising? Please share your thoughts. 

2 comments

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  1. Lee Smith, February 12, 2019

    Interesting topic, Nigel!  Other issues crop up around a) operational business models (P&G is set up to ship by the truck-load, and doesn't know HOW to send single packs to consumers, or how to deal with damaged packages, late delivery, exchangind items etc.  and b) how many different businesses is a person wiling to deal with to fill their fridge every week?  Fashion and cosmetics border on long-cycle, so Bonobos or Lululemon can work well, but what about Maille mustard?  

    Dollar Shave Club is an excellent example of where DTC can work -- I see it as the problem-solving built into the brand promise.  

    I agree that traditional advertising will be an inevitable part of DTC brands' futures.  

    Lee 

  2. Dave Cesaro, February 11, 2019
    DTC brands absolutely need to invest in traditional advertising. Many, already are. Recent articles from eMarketer and others have pointed to the increase in "traditional" advertising media spend from DTC brands like Amazon, eBay and Rakuten. If these traditional media channels weren't working, the fail fast DTC brands wouldn't continue to utilize them. I have seen first hand how direct mail can grow a brand. Jet.com, prior to the Walmart acquisition, utilized direct mail to drive awareness and adoption. Solo mailing as many as 10 million postcards every month. Did it work? Absolutely. Jet.com went from virtually zero users to over 4 million active customers in about 18 months. And look at what Amazon did to take advantage of the demise of Toy's R Us. They solo mailed a multi-page toy catalog to millions of households this past holiday. Traditional media is essential for DTC enterprises to thrive, grow and prosper.

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