DTC brands have been good at generating headlines, less good – so far – at generating profit, but, says an industry figure, all FMCG brands can learn from them.
In the second of a two-part paper, Chris Worrell, head of strategy at Wavemaker, argues that it’s too early in the lifecycle of DTC brands to assess their lasting impact or to simply dismiss them as a fad.
“But all the opportunities available to them are available to [FMCG brands],” he says. “We need to make a call on whether it is profitable to pursue them.” (For more, read WARC’s report: Future fit communications planning: Exploring the big issues facing FMCG brands – and finding a way forward.)
As to how big a threat DTC brands are, opinion is divided. Critics accuse them of being unprofitable, shifting traditional ‘advertising’ dollars into unsustainable ‘customer acquisition’ costs and of failing to anticipate or cost in factors such as fulfilment, shipping and customer relations into their business model – areas normally covered by retailers.
Whatever the truth of that, DTCs appear to have landed on a formula that has appeal to a certain cohort of category buyers, Worrell notes.
“This formula exists in the form of simplicity (5 blades vs 1, 20 types of mattress vs 1), which does run counter to the innovation-led model of large FMCGs with sprawling count lines and variants, primarily launched not with the consumer in mind, but space on the shelf.”
At the same time, DTC brands have “mastered (or gamed) the digital ecosystem, using everything from influencers, SEO, content and reviews to bake virality into their model and build mass mindshare quickly”.
They’ve been able to collect data, optimise and ‘lock in’ customers to a long lifecycle relationship, so creating competitive advantage in the form of an enhanced customer experience.
Whether or not this is sustainable as a business model, says Worrell, “they have, hopefully, opened our eyes to what’s possible for all brand owners”.
Not only can FMCG brands think about experimenting with different routes to market – including subscription models, click-to-buy, trial and sampling – they can also consider how DTC brands launch in digital and scale from there.
And, of course, there is a different culture involved. “Genuine aspiration needs to be matched with a genuine commitment to creating the environment and providing the resources that will enable us to thrive and grow,” Worrell states.
Sourced from WARC