Understanding Direct-to-Consumer Business Models

What most fashion brands get wrong about DTC merchandising: In my career, I've seen three main approaches to eCom merchandising: 1. Mirror the wholesale buy - order extra units of whatever is produced for wholesale and stock RTVs 2. "Digital Flagship" - carry the entire collection, or use DTC to feature the most "directional" pieces that wholesale accounts wouldn't touch 3. Historical Planning - tops have been growing 5% YoY for the past three years. Let's plan it up again 5% this year All three approaches ignore eCom's most critical reality: you are responsible for generating your own traffic. Your customer is not your wholesale customer. It's not the idealized customer on your design team's mood board. And it's not a function of local foot traffic. In eCom, your customer is almost entirely determined by your marketing team: what paid channels they use to advertise the brand, the styles they choose to feature, and how/where the brand shows up "in real life". For that reason, marketing, design and merchandising need to work in closer partnership if fashion brands want to maximize profitable growth. Here are five categories of product that eCom brands should represent in their assortments: 1. Core products that customers return to season after season. 2. Products developed and marketed to become tomorrow’s core. 3. Retention builders–products that appeal to the brand’s loyal customers and VIPs. 4. Products designed into the preferences of “in market” shoppers in the brand’s key acquisition channels (like Meta ads). 5. Brand statements–new ideas where the marketing team will have to work hard to drive adoption. One exception here: brands that are "hot" enough to drive trends. These brands typically sell out of new products immediately and have lines outside their stores. I'm not saying that marketing should have ownership of merchandising. But if your head of paid media says "tops in bright colors consistently perform well on Meta" it's worth listening to that. Think of each marketing channel as its own wholesale account. Your brand is the designer and the buyer, selecting the parts of the assortment that appeal most to the channel audience. Marketing channels like Meta may have a user base that is representative of the total US population, but the subsegment who converts on ads is not representative–it has its own preferences, just like a Revolve shopper is different from a Net-A-Porter shopper.

Friday take: The most important component of building a massively successful CPG brand is not promotion… It’s not having millions in funding. It’s not having perfect gross margins. It’s not having the best ads or media strategy. It’s the organic alignment of the product & “brand” itself with a large enough consumer base that prefers it over the alternatives in the marketplace. Also known as “product-market fit” Too many brands spend tons of money on promoting products that, quite frankly, don’t have enough organic demand to survive against the competition. They should look in the mirror and find ways to measure organic demand against set benchmarks instead of artificially inflating numbers. If the organic demand is not measuring up, they should focus on the following 4 areas: 1. Understand Product Positioning: -Whose lunch are the trying to steal? -How big is the addressable market? -Why would a consumer choose your product over what currently exists? 2. Branding: -Does the packaging stand out on shelf in the set? -Are the brand elements unique & “ownable”? -Does the brand have a clearly defined archetype personality & identity? -Does the brand identity strongly resonate with the target market? 3. Product: -Does it taste great? -Does it perform its function better than alternatives? -Are there unwanted side effects that diminish repeat purchases? 4. Pricing: -Is the product competitively priced or is the product differentiated enough to increase consumers willingness to pay price (WTP)? -VALUE = Consumer WTP Price - Actual Price (MSRP). Maximize the consumer value while ensuring healthy operating margins. Apple does this well

A harsh truth about growing CPG (Consumer Packaged Goods) brands: While selling DTC isn’t a necessity, overlooking this channel WILL hold you back from growth. Here are 5 tips to make your website work for you: 1/ Establish an E-commerce Presence Before anything else, you’ll need to build an online store because it’ll give you control, flexibility, and insights that channels like retail and Amazon lack. That said, if your business is already thriving on Amazon, you could start by selling merch. There’s another playbook here I’ll share in another post. 2/ Incentivize Your Customers to Shop With You If you’re considering launching DTC, create subscription models exclusive to your website to incentivize customers to shop directly and generate recurring revenue. You can also offer personalized product options for enhanced customer engagement and a unique experience. For instance, we worked with Once Upon A Farm to build a custom subscription box where customers can add their kids’s favorite flavors, catering to parents of picky eaters. Launch limited-edition or exclusive products that can only be purchased through your website to build customer loyalty. 3/ Leverage Digital Marketing Use digital marketing tactics to direct traffic to your website. If you’re not selling online yet, consider a couponing strategy to drive foot traffic to stores. Give customers access via email sign-up. Use this data to inform future brand strategy and build effective retargeting campaigns. 4/ Produce Educational Brand Content Engaging content, such as recipes or usage tips can create a personalized experience. For example, a brand offers a multi-pack of premium cookie mix. A customer might be persuaded to make the purchase when they see the list of high-quality ingredients and a list of recipes they can make with the mix. Use QR codes in retail to give customers quick access to quality content! Brij co-founder Kait Stephens can give you the full rundown on this. Don’t forget email. Create a few simple segments of customers to send content that hits home. 5/ Establish Direct Feedback Loops Provide direct communication channels to encourage customers to reach out with issues and feedback, fostering a community around your brand. & Grow! These tips help build relationships you otherwise would not have had with customers. Learn from them, foster them, and when you’re ready to invest in DTC, you’ve got a community of folks ready to engage.

Trying to launch a high-growth, 8-figure DTC brand in 2023 and want a good example? Jolie scaled to a >$25M+ run-rate in 12 months. Here’s how they did it 👇 📈 BUSINESS MODEL Co-founders Arjan Singh and Ryan Babenzien wanted to make a product that: 1️⃣ you use everyday without thinking (changing consumer behavior is nearly impossible) 2️⃣ is one-size fits all 3️⃣ is focused on your vanity 🚿 PRODUCT They chose a filtered shower head, which accomplishes their goals to a T: 1️⃣ people take showers every day without consideration 2️⃣ the shower pipe size is universal 3️⃣ the quality of our shower water is fundamental to our greatest skin and hair concerns Simple, but powerful. 📣 MARKETING Simple strategy: 🧠 Core belief: people influence people 🥅 End goal: create conversation Clear tactics: ➡ UGC Jolie seeded hundreds of units/month to people of influence in adjacent categories (e.g. food, environment, beauty). Result? 10,000 unique pieces of UGC in 18 months—lots of conversation. Their community became their sales force. ➡ OOH Jolie decided that HOW they executed OOH was as important as WHAT they executed: -Momentum: cluster activities for maximal impact, don’t spread them out -Density: - choose high-density population centers (e.g. New York) -Intention: visually arresting; provocative; specific to the medium; thoughtful; fresh 💡 TAKEAWAYS 1️⃣ Create an ongoing relationship with your customers. Scaling efficiently is important, but repeat economics drive real growth. That’s why they landed on a product that people use every day, and has subscription potential. This is the main differentiator between the great DTC businesses of today and those of yesterday. (c.f. Casper, which achieved time-to-market and scale, but couldn’t find an attractive recurring revenue opp.) 2️⃣ Build community. Getting your customers to do the heavy lifting drives powerful, low-cost growth. Network effects. 3️⃣ Brand creates moat. Instead of limiting the brand to the shower head category, Arjan and Ryan made Jolie a lens for all things water, giving them endless occasions for conversation. Watch Arjan discuss in more detail: https://lnkd.in/efTcXHD8 #advertising #scaleup #DTCmarketing #UGCmarketing #OOHmarketing