No. 316: The Rise of “O2O”

In a recent report in the Minnesota Star-Tribune, Jackie Crosby details Target’s latest plan with their recently rebranded media company – Roundel.

Target Corp. does more than just sell merchandise to shoppers. Since 2016, it also has operated a separate, in-house media company that creates digital advertising for a host of major brands and businesses, not all of whom sell products at Target stores.

According to the recently-named president of Roundel, Kristi Argyilan believes that the in-house agency “represents a different way of thinking.” Target serves as a bridge between its customers and nearly 1,000 business partners in a novel way: “We infuse math — the insights and analytics that make our media company successful, with magic — the great, guest-focused design and shopping experiences that differentiate Target.” Roundel develops ad campaigns for Target.com and about 150 digital platforms like Pinterest and Instagram.

Facebook’s foray into Instagram eCommerce was more defensive than analysts have so-far remarked.

The Star-Tribune report noted that the retailer isn’t the only company reconsidering the strength of an in-house media business. Walmart debuted an overhaul to Walmart Media Group in recent months. In addition, Amazon generated $10 billion in advertising in 2018 per the report. With Target, the report indicated, a new advertising identity would show to potential new clients that offerings extend beyond Target.com display ads. For Roundel – data and advertising design aren’t the differentiators, the physical stores are. The agency’s hope is to pioneer the analytics to correctly determine online-to-offline sales efficacy.

Target gets you every time

Most of us underestimate the potential at the intersection of performance marketing and physical retailers like Target. Outside of Foursquare’s private data, there isn’t yet a sufficient means of quantifying the marketing influence that the internet has on the traditional DTC-era consumer who also shops in physical environments. I’ll try to explain with my recent, one-off anecdote.

On a recent visit to Target, I was searching for place mats when I walked past the Quip display along the main corridor. On a mission to spend no more than $30, I felt pulled to the display like a tractor beam. Without the physical display, a Quip purchase would have remained a long-term “maybe.” As such, I disregarded my $30 commitment and picked up a Quip box. But this funnel began long before that walk past the display of battery-powered toothbrushes.

Observations:

  • Awareness of the product: I’d read about it in tech media and retail publications (top funnel), I’d seen the product in searches (middle funnel), and I’ve passively noticed a few retargeting advertisements over the past several months. None of this visibility moved me closer to the sale.
  • The packaging design: structurally unique when compared to the incumbent brands like Oral-B, Philips Sonicare. The box, itself, was taller. Target stockists have no choice but to place the product on the top shelf – prioritizing the Quip over the likes of traditional devices.
  • Branding: The colors popped and the design was superior, because the incumbent devices all possessed some variation of blue and white packaging.
  • Value: The price was 30-60% cheaper than the conventional, powered toothbrush.

Familiarity, appeal, and price were factors in my decision to purchase. But Target isn’t the only retailer that is competing to develop an O2O-capable, in-house media business. Walmart has overhauled its team – with the anticipation of a long period of growth. And Amazon generated $10 billion in advertising in 2018. Display advertising through Target, Walmart, and Amazon has been used to offset the rising costs of traditional advertising services like Facebook and Google. We expect this to grow. Digiday+ recently surveyed 71 media buying executives in March 2019. Nearly 80% anticipated increased spend on Amazon.com, 20% of the executives were planning to spend more on Walmart.com, and 14% were scheduled to spend more on Target.com through their reinvented advertising house.

ट्विटर पर वेब स्मिथ

Target is a retail marvel, you walk in for one $20 item and you leave $140 poorer. There isn’t a brick and mortar retailer that is better for certain DTCs. It’s the ultimate retargeting ad.

Fostering DTC brand relationships has been a strategic advantage for the Minnesota retailer; no marketplace retailer has more of them. There are few companies with DTC recruitment initiatives to match Target’s recent partnership speed. The retailer selects rising brands, markets them with prime real estate, and presents great products within an environment known for soliciting impulsive purchases. Even so, the largest DTC brands have taken the digital-to-physical sales funnel into their own hands.

The online-to-offline Sales Funnel

In No. 272: A Path Forward, I discussed the positives of DTC brands operating within existing retail developments, improved sales potential, foot traffic KPIs, and the decline of Tier B and C malls.

There are 1,100+ malls in America and approximately 320 are graded Tier A. We have an oversupply of malls but that does not mean that traditional, anchored shopping centers no longer have a place in modern consumerism. Tier A malls have yet to see their best years. We expect their footfall traffic KPIs to grow, while B and C tiered malls continue a drift toward repurposed real estate.

O2O or “online-to-offline” commerce is a strategy that develops consumer affinity through digital channels and then brings consumers into physical settings to purchase in-store. The brand treats online and offline channels as complimentary offerings. The advantage of this model is three-fold: these retailers can assess consumer behaviors, share payment information between online and offline channels, and targeted consumers can be served at the top of the digital funnel for eventual offline purchase (or vice versa). Facebook’s foray into Instagram eCommerce was more defensive than analysts have so-far remarked.

We compiled a list of 14 brands that have publicly reported revenues in the Top 1000 and one retailer who has yet to publicly report revenue. The following DTC brands have almost exclusively avoided marketplace wholesale deals in exchange for focusing on direct sales through physical locations.

[table id=43 /]

Whether through advertising agencies like Roundel or through their own channels, these brands have benefited from a growing means of commerce: online-to-offline. With the exception of Casper, which is partially owned by Target, these top digital natives have insourced all brick and mortar sales to their direct channels. As the ability to attribute sales improves, we anticipate an increased use of O2O for customer acquisition. For performance marketers who are judged by conversion rates and return on ad spend (ROAS), O2O is a welcomed opportunity to develop new methodologies for sales attribution and new advertising models to increase targeted foot traffic for retailers straddling the digital and the physical.

Read the latest curation here.

वेब स्मिथ की रिपोर्ट | लगभग 2 बजे

No. 310: The Bonobos Curve

bonoboscurve.jpg

The history of digitally native vertical brands (DNVBs) goes back just 12 years. However, the framing of the industry has evolved and so has its terminology. Appointed by Bonobos’ founder and current Walmart executive Andy Dunn in 2016, the DNVB acronym has given way to a simpler version: “DTC” or direct-to-consumer. It rolls off of the tongue and it’s all-encompassing – reporters, analysts, and sources like 2PM and Lean Luxe can apply the terminology across the board. For Bonobos and Dunn, there is symbolism in the paths of the company and the executive. It’s emblematic of the curve that many companies and executives will follow.

By the end of this, you may see how short-sighted the DTC descriptor can be. I believe that the acronym should be viewed as a title of a sales channel or perhaps an emblem of a retailer’s core competency. It’s a misnomer when product manufacturers are appointed the title DTC, as if it’s main channel denotes the character of the entire company. To the mere observer, the consumer has evolved. To operators within digitally native retail, it’s a complicated conversation.

Platforms like Shopify democratized opportunity for early-stage product manufacturers. Led by Tobias Lütke, the CEO led the burgeoning commerce platform at the onset of the Great Recession of 2008 and remains there today. Under his leadership, the company is trading at a $22 billion market capitalization. The timing of Shopify’s ascension is significant. By 2009, the Wall Street Journal was publishing articles like “Recession turns malls into ghost towns.” And given the lack of eCommerce presence for many of the brands that lived and died by big box retail, the macroeconomic effects on the worst recession of this lifetime thwarted brand sustainability. In some cases, the product manufacturers had to seek bankruptcy protection as overall consumer demanded dwindled between 2007 and 2010. This era of web-first retail was fortuitous, it happened at the weakest point for traditional brands in the last 60 years.

The retail industry has changed, not the consumer.

Younger brands had few if any places to turn to effectively market their products. With their lean teams and inexpensive architecture, these brands were capable of surviving the treacherous waters of American consumerism. In 2013, this is what Kevin Lavelle and I wrote for the Wall Street Journal in 2013:

Startups like ours can focus our energy on developing our product, service and brand because of the platforms and tools available today. With the emergence of new web applications and plugins, the face of e-commerce is changing dramatically. A business can launch a product or service worldwide and reach millions without the massive infrastructure investment required just a few short years ago.

[…]

Platforms such as Shopify and Stitch Labs have enabled Mizzen+Main, along with myriad other companies, to focus on brand and product first — essentially democratizing e-commerce. That’s not revolutionary news, but with the robust, cloud-based add-ons available, we really can run an entire business with two partners in two states and nearly all systems run virtually. 

Most challenger brands focused on direct to consumer sales in 2007-2014 because distribution through the likes of department stores, Walmart, and Target were inside games navigated by industry veterans. Coupled with this historic economic downturn, there was little to no access to those channels. And when their were, ERP technology was difficult for newer brands to adopt. In short, those distribution deals were difficult to land.

In this way, direct to consumer sales efficacy was a sort of social proof for potential big box retail contracts. These contracts are much easier to land now; big box retailers invite breakout challenger brands to their shelves. This is enabling traditionally digitally native companies to expand their physical footprints by way of owned storefronts and wholesale agreements.

Bonobos Curve: the path of diffusion from a siloed direct to consumer (DTC) method to a holistic organization of online channels (native, marketplace), physical brand stores, and wholesale partnerships.

By the time that Andy Dunn wrote the heralded rise of digitally native vertical brands, his company successfully raised over $120 million with at least a dozen Bonobos Guide Shops and a nationwide partnership with Nordstrom. In his famed blog, he discussed this in detail:

While born digitally, the DNVB need not end up digital-only. This means the brand can extend offline. Usually its offline incarnation is through its own experiential physical retail, or pop-up strategy, or highly selective partnerships. In nearly all cases of partnerships with third parties, the brand controls its external distribution versus being controlled by it.

Assuming that the economy continues to hold steady and Tier A and B malls continue redeveloping real estate to attract this new wave of brands and their followers, we will see the curve continue and with rare exception. Even companies like Glossier, who are notably opposed to diverging from DTC marketing, have begun to invest in physical retail. And there will be more. In this way, the retail has boomeranged. The retail industry has changed, not the consumer.

Below, is the “Bonobos Curve.” This is the behavioral path toward sales maturity that the brand winners of this era will pursue. As such, many of the most successful brands have relationships with Nordstrom, Macy’s, Target, Walmart, or direct partnerships with progressive mall development companies.

A typical path followed by DTC brands | Souce: 2PM

Few brands will remain online-only. In a recent conversation with Betakit, Shopify discussed their plans to address the “Bonobos Curve”:

The pair see vast opportunity for Shopify to grow in the brick-and-mortar retail market. It’s Shopify’s goal, stated Black, to span the entire ecosystem to meet the needs of all its merchants. He emphasized that it doesn’t matter if merchants approach Shopify from a Shopify Plus standpoint or from Shopify Retail, the company hopes to create seamless solutions that span both markets.

Legacy product marketers, like P&G, have equipped their brand management teams to infuse their operations with many of the same tools and practices that their challenger brands counterparts made popular. It’s true that those challenger brands will mature with online retail operations as a core competency. Given the age of many of today’s founders, digital-first competency will be as natural as walking or eating.

But DTC was never the goal of these retailers and consumerism hasn’t evolved as much as we’d like to believe. Brand traction was the goal for many brands like Bonobos and platforms like Shopify, WooCommerce, and BigCommerce leveled the digital playing fields for a while. Time will tell who holds the advantage as brands compete on traditional grounds but Andy Dunn is now a Walmart executive. And Bonobos is a Walmart brand with flagship stores and Nordstrom distribution. This represents the end of the curve and the closing of the Book of DNVB.

Read the No. 310 curation here.

वेब स्मिथ की रिपोर्ट | लगभग 2 बजे

सदस्य संक्षिप्त: लक्ष्य रिपोर्ट

टी.आर.

टारगेट, अमेज़न और वॉलमार्ट के खिलाफ त्रिकोणीय मुकाबले में है; मिनियापोलिस स्थित इस रिटेलर के प्रतिद्वंद्वियों की रणनीतियाँ इससे ज़्यादा विपरीत नहीं हो सकतीं। हर रिटेलर की रणनीति आकर्षक मुनाफ़े को बनाए रखने के उनके अलग-अलग प्रयासों को दर्शाती है, जो हार्वर्ड बिज़नेस स्कूल के प्रोफ़ेसर और लेखक क्लेटन क्रिस्टेंसन द्वारा प्रस्तुत एक मूल्य श्रृंखला नियम है।

यह सदस्य संक्षिप्त विवरण विशेष रूप से के लिए डिज़ाइन किया गया है कार्यकारी सदस्यसदस्यता को आसान बनाने के लिए, आप नीचे क्लिक कर सकते हैं और सैकड़ों रिपोर्टों, हमारी डीटीसी पावर सूची और अन्य उपकरणों तक पहुंच प्राप्त कर सकते हैं जो आपको उच्च स्तरीय निर्णय लेने में मदद करेंगे।

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