With very few exceptions, a digitally vertical native brand (DNVB) that succeeds over the long term will have command over three core components. To CMO-level operators, these core components develop a virtuous sales cycle. The top brands: foster organic (word of mouth) community, convert social following into revenue, and optimize performance marketing spend.
But there are hazards to consider, especially when balance isn’t a priority for a brand. When a DNVB depends too heavily on one of the three components, growth will stall. In an upcoming report commissioned by 2PM and Common Thread Collective, the firm’s Managing Partner Taylor Holiday and I discuss the limits of a DNVB’s proverbial adolescent years.
The teenage years: from start to the end of a brand’s natural growth.
It’s how brands position themselves for the next phase of growth that separates them from their competitors. For brands, the teenage years can look different. Here are three cases:
- Dependency: grassroots community. An online kitchenware brand has a coveted, quarterly brochure. The production of the brochure is 60% of all marketing spend. Historically, it has converted well. Sales have begun to stall as fresh entrants eat away at their grassroots awareness by spending heavily on performance marketing. Rather than competing to amplify their sales through social channels and performance marketing, they spend more on the next quarter’s brochure. This exacerbates the problem and opens them to more of an issue once brochure sales falter.
- Dependency: performance marketing. An online dress shirt brand builds a strategy around Facebook marketing. They hyper target potential customers and reach them again and again. But the cost per thousand (CPM) for DNVB advertising has risen 50% per year over the last three years. It’s not sustainable and as such, the brand begins to lose to competing brands with word-of-mouth influence and great social capital.
- Dependency: social. A CPG beauty brand is backed by a high-powered celebrity. Each instagram post generates 100,000 clicks to the brand’s site and sales are nearly automatic to the tune of a 7% conversion rate. But Instagram’s algorithm changes to deemphasize promotional posts that aren’t run through Facebook’s ad server. Traffic decreases and there is no performance marketing system in place.
For DNVBs, it’s often easier to stick with what works at the expense of missing out on efficient, long term growth. In a recent article on eCommerce innovation and DNVBs, Internet Retailer’s James Risley got something completely wrong.
DNVBs’ ability to create unique products and connect with niche audiences insulates them from some competition with Amazon.com Inc. (No. 1) and other big retailers. And the direct-to-consumer model keeps prices down as well, making their unique wears more affordable to the niche or mass-market audience they want to draw.
Brands are not at all insulated. In fact, you’re beginning to see well-funded startups and brand conglomerates go after early-stage retailers even earlier, these days. When direct to consumer shoe brand Atoms launched, Allbirds immediately went on the offensive. And fashion retailers, including Stitch Fix, were met with opposition very early on.
Amazon has launched their version of nearly every product offering on the market. Brands don’t win by insulating themselves. Quite the opposite, they succeed by branching into new channels and reaching the customers that are adjacent to their most passionate advocates. Eventually every DNVB faces the incumbent, but first they have to get out of their own way.
To leave adolescence behind, diversification is often a necessity. There are several brands who’ve successfully navigated brand adolescence:
Originally (and passionately) online-only, Warby Parker began opening up retail locations to influence customers who were hesitant to purchase without touching the product.
Though Harry’s was competing with Gillette by marketing directly to consumers and getting to customers before they made it to stores, the razor brand eventually partnered with Target stores to compete with Gillette head to head.
Rihanna’s Fenty Beauty is driven by the superstar’s social following. However, to reach new potential customers, she began paying for traditional advertising in major cities. This allowed her to back off promoting the product so often through her primary channel – Instagram.
For C-Suite level marketers, there is a three-part operational exercise that can go a long way in identifying best practices for a DNVB’s demand generation program.
- Identify the most important variables that drive your brand’s success.
- Collect and interpret data from a range of market research materials to better evaluate marketing mix strategies.
- Develop marketing recommendations that are fact-based and free of inference.
Diversification, within reason, is often the outcome of this exercise. To move beyond the early days of a brand’s growth, it is necessary to meet potential customers half way. This means reinvesting in new marketing verticals is a worthwhile strategy. Advantage goes to the brands that see this and act on it before the market makes the decision for them.
Read more of Issue No. 283.
By Web Smith | Edited by Meghan Terwilliger | About 2PM