Traditional brands and direct-to-consumer challenger brands can each learn from the other to endure the disruption caused by the COVID-19 crisis.
That’s a key takeaway from a new report conducted by Pollinate for IAB Australia called Direct Brands Australia. The research, which was conducted before the pandemic accelerated, highlighted several strengths of the direct-to-consumer brands, in particular, their nimble business models, strong customer focus and ecommerce capabilities which are virtues in the current climate.
“The market conditions, certainly in this COVID-19 world, are moving towards some of the DTC strengths that businesses have. And I think that’s an interesting perspective for us all to take on board, whether a DTC brand, a traditional brand, or media brand that delivers to all of those different customers,” said Howard Parry Husbands, CEO of Pollinate, while presenting the findings during a webinar last week.
The research recommended Australian brands review the strategies of direct brands, particularly around ecommerce, finding that the direct brand economy is achieving mainstream status and has much to offer traditional brands. In particular, digital-born brands such as Hello Fresh, Koala and Who Gives a Crap share a strong brand purpose and empathetic mission-based marketing.
“We’ve seen lots of indications that brands that are following more purposeful, practical, pragmatic, and values-based communications and marketing initiatives are certainly flourishing,” Parry Husbands said.
Initially celebrated for their disruptive business models, more recently direct to consumer brands have faced greater scrutiny of the sustainability and viability of their businesses. Now, as the model matures, DTC companies are beginning to embrace more and more a traditional model such as investing in traditional media or bricks and mortar stores.
The report recommends direct brands need to focus on six key areas to build long term sustainability including combining branding and performance in campaigns; prioritising lifetime value over customer acquisition costs and avoiding over-reliance on word of mouth and advocacy.
Parry Husbands said, “Direct businesses should continue to be customer-centric and explore the opportunity in a broader media mix, but they should look to learn from the wider media industry and traditional marketing models to drive growth without losing what’s special about them.”
The research highlights the lessons incumbent brands can use to adapt to this model. For example, understanding their distribution, taking a test and learn approach, having a clear brand purpose and positioning the brand as a master of the category.
Bullish on DTC
Tim Armstrong, the former CEO of AOL and now the founder of DTX which invests in direct to consumer brands, believes direct-to-home and direct-to-consumer businesses are going to come out stronger — if they survive.
“The direct-to-home and direct-to-consumer relationship economy is going to get much stronger,” Armstrong said during an interview with NYU Stern professor Scott Galloway last week.
Armstrong noted this is the fastest education period for consumers using digital services because circumstances have forced them into trying a new service.
“I think there is a silver lining opportunity for brands, services and software that go direct to consumer, mainly because the offline erosion … that was already happening during the digital shift, is going to happen much quicker.”
“As the economy recovers we expect direct-to-consumer to be stronger. There will be a washout of some brands but companies that are really strong and really good will emerge stronger.”
Armstrong said his advice to DTC brands in his portfolio falls into two categories: playing defence or offence depending on whether they are in a category which is highly affected by the crisis or if they sell products built for an in-home, social isolation experience.
If you sell luggage, for example, the advice is to cut costs, connect with loyal customers and try to survive the year.
“You have to run a marathon between now and the end of December and get through that. Pull your credit lines, mothball operations that don’t matter, get down to the basic products, really reach out to your current customers… There’s a marathon business model that’s about efficiency, leanness, focus and making sure you use all your resources the right way,” he said.
The second type of company whose products a purpose-built for social isolation, such as the in-home manicure kits provided by Olive & June, need to start thinking about gaining marketshare, “while taking care of all the humans around you” Armstrong said.