(originally posted in Pipecandy Newsletter #102)
Year 2050. Humans have been hit by a severe virus that has led them to be incapacitated but with smart (or dumb) as ever cognitive capabilities. Machines are producing. Economy is flourishing. We all need our vegan, sustainable, “grown on the trees” Doritos farmed at the urban farms of long-defunct coworking spaces, now called WeSowed & WeReaped. The doorbell rings and the DTC Doritos is delivered! Except that the year is 2019. Greta Thunberg hadn’t spoken yet. But all DTC brands and their investors had such a resistance towards physical brick-and-mortar stores that they hallucinated that we will never leave homes and that we will all order from Instagram.
We all know how long that pot cooked. DTC brands are setting up shops, pop-ups and even coming to your nearest Target. So how long before they cozy up to marketplaces? Whose punditry is going to shine a veneer of inevitability to what is, well…inevitable? We are taking the bull by its horns and doing some really hard arm-chair led punditry, delivered to you from the airports. If we sound gruff, it’s the airport chairs and noisy kids!
Physical stores were a ‘No-No’ once!
Remember when DTC brands started hitting the retail scene? It was that decade when store closures were starting to ramp up. Every expert and non-expert had a column on how DTC brands were going to eat up offline retail, but it didn’t take long for everyone to realize that offline retail wasn’t going anywhere.
90% of retail in the US today still happens in brick-and-mortar stores and DTC brands have largely adapted. PipeCandy’s own numbers show that at least 30% of DTC brands today have/have had a physical presence (either through their own store or via retailers or pop-ups). The cost of acquiring customers online via Facebook and Instagram is anywhere between 3x to 10x today compared to a decade ago depending on the category. If you don’t have a physical store or forge partnerships, you most certainly will bleed dollars.
Why else would Everlane, which stuck to its guns once about staying exclusively online, ultimately cave and open a physical store?
The reluctance is historic
Historically, DTC brands have been hesitant to sell on marketplaces. In late 2018, when Amazon courted a few DTC brands to sell on its platform, most of them shot it down. On the face of it, understandably so. The few MBA-type D2C founders knew their ilk (Bezos) well. The shark tank variety of founders cared for customer experience and avoided Amazon. Look, the reasons are right. But let’s relook at them, because unless we have another choice – VCs have found out that the only tech in D2C actually belongs to Instagram.
Resistance #1: “We don’t know who the customer is!”
Yes, but you’d know a statistically significant number of customers from your DTC channels. Can’t they inform your product, marketing and packaging decisions with reasonable statistical confidence?
Selling on marketplaces isn’t an either/or decision. It is a part of the portfolio. The goal is sales and not customer data.
Resistance #2: Our own channels are growing well
Good for you (or sorry for you that you have to say this to keep the investors on your cap table)! But are you socialist enough to reject more dollars?
Estimates show that at least 60% of all retail brands opt to sell on Amazon because it offers a way to reach millions of customers.
Let’s look at some numbers.
There are over 220 million internet shoppers in the US today, driving over $500 billion in eCommerce sales. Guess what? 50% of those eCommerce sales come from Marketplaces. What’s more? Amazon, like it or not, is half of all eCommerce.
We’d like to think that there’s no such thing as bad traffic!
Moreover, estimates show that only 2% of all online shoppers (4.5 million) prefer to purchase from an inpidual brand. PipeCandy’s data shows that there are some 20,000 brands doing DTC. Imagine all of them turned a blind eye to marketplaces (Amazon or any other). They’d be repeatedly fighting over the 2%, while the bulk of searches, traffic, and transactions continue to happen on marketplaces.
Resistance #3: “We still don’t know who the customer is!”
Yes, the very premise of going DTC is to build communities that identify with your brand values. If that is true, can’t your community pull in your customers from Amazon? Isn’t community the antidote to the de-identification that marketplaces inflict upon you? These days when we say brands are all about experiences, can’t a part of that experience be designed to make amazon customers opt-in and invite themselves to the party?
Also, Amazon, for its part, is taking measures to help brands gain visibility into customer loyalty and acquisition data. It has rolled out a set of four metrics called “new-to-brand” (NTB) to help brands identify strategies that can drive customer acquisition and business growth on Amazon. NTB metrics distinguish whether an ad-attributed purchase was made by a repeat customer or a “new” customer, which Amazon defines as someone who bought a brand’s product on Amazon for the first time over the last year.
The insights are limited and yes, the customers are Amazon customers (not the brand’s customers) but these are signals that Amazon is serious that brands see it as more than a mere POS channel. No, don’t trust them but even at the nadir of trust deficit at Amazon and other marketplaces, the cash register still rings a symphony.
Resistance #4: What about Brand Erosion and Price Competition from copycats/private labels?
Wouldn’t there be a point in your brand-building journey where the outcomes outweigh the risks? Branding on Amazon is replaced with an algorithm informed by product reviews, sales, and clicks. It’s a system of millions of SKUs vying to rank at the top of search results, ultimately netting the sale. There is a reason why it is so factory-like!
Most products most people buy in daily life, do not need a relationship DTC brands offer. Only 4.5 million people seem to think they do! They will stick to your brand out of habit (if not for your fluffy community) even when the economy ranks eventually. But what about Amazon’s private labels?
They track keyword searches for brands on their platform. They know what people are looking for. So they will launch private labels whether or not you aid them with your data. They just won’t know the sales numbers and brand perceptions of the consumers about your brand. Isn’t that easy to acquire?
PipeCandy tracks brand perceptions across marketplaces So, yes, data is being commodified by the likes of us. Besides, Amazon’s private label strategy has more duds than wins. Why else would Casper continue to sell on Amazon when it has competition from 174 other copycat brands AND AmazonBasics!
It’s preposterous of us to argue as an outsider about your business. But, by now you’d know that we have this naive confidence to shoot our ideas every week to you! No seriously though, the writing is on the wall. Sales is going to marketplaces more and more. A little revisiting of truisms on a first-principles basis wouldn’t hurt.