In 2016 Unilever bought Dollar Shave Club, a startup that ditched traditional marketing and distribution to sell male grooming products direct to consumers. The price was reportedly $1bn; a hefty sum for a business that sends razors in the post. So why was Dollar Shave club worth so much?
Well, first off it allowed Unilever take on P&G and its Gillette brand. Dollar Shave Club had form in mocking Gillette. "Do you like spending $20 a month on brand-name razors? Nineteen go to Roger Federer," quipped CEO Michael Dubin in one of its ads. Direct consumer relationship and an agile supply chain was the second reason. Unilever realised that Dollar Shave Club was a new type of brand that is taking advantage of a shift in how the consumer economy operates. And it seems these new types of brands are on the up. They are responsible for growth in most consumer categories according to new research from the Interactive Advertising Bureau (IAB) in the US.
Randall Rothenberg, IAB chief executive, defines a direct brand as one that puts customers at the heart of all its activities. "With a direct brand, you can talk directly to them and they listen to you and will respond, either literally back to you, or in how they create their products moving forward," he says. "You don't just buy them from a store and that's it. You can buy them online, and they have stores sometimes too. The main thing is that they really want to have a relationship with you; they built their company to be able to listen to what you think, and want you to participate in the work they do."
That means nurturing and maintaining direct relationships at all costs. Even if that means missing out on short-term gains.
"Many direct brands will sacrifice short-term revenue, like distributing their products through third parties, if that revenue means losing visibility into, and control of the experience and data inherent in a direct relationship with their customers," Rothenberg says.
This new approach to brand building is, of course, made possible by the internet. It facilitates direct dialogue between consumers and companies - bypassing intermediaries like ad agencies, publishers, and retailers. Plus it allows businesses to ditch capital-intensive, owned and operated supply chains in favour of capital-flexible, leased or rented supply chains. But it requires a rigorous approach to collecting and interrogating data.
"First-party data is the life blood of the new direct brand economy," says Rothenberg. "The greater the number of digital consumer relationships, the more the first-party data that continually improves every other enterprise function. The better your products, the more acute your customer value analysis, the more refined your pricing, the more precise your real-time analytics and offers, the more competitive your company becomes."
Most direct brands are small according to the IAB. But they are making their presence felt. Gillette's share of the US men's razors business fell from 70pc in 2010 to 54pc in 2016, with most of that share shifting to Dollar Shave Club, Harry's and other direct players. In the mattress category, companies like Leesa and Casper have captured around 10pc of the market. Brands like Allbirds, Jack Erwin, and M.Gemi now account for 15pc of the shoe market.
You could argue that these are no more than modern challenger brands, using modern methods to harry the larger incumbents. Rothenberg believes it's something more than this. "We are in the middle of an epochal and permanent shift in the consumer economy," he says. "Consumers are demanding a new kind of dialogue with brands and those that deliver a great direct brand experience can expect to be rewarded." So it's no surprise that other larger brands are adopting direct tactics. Unilever has stated that "experience platforms and ecommerce" will account for nearly one-third of sales by 2022. While Nike says its direct to consumer sales will grow from $6.6bn (€5.2bn) in 2015 to $16bn ($12.8bn) by 2020.
The big question is of course, should agencies and publishers be worried? After all, if businesses start selling directly to consumers, they are the ones who stand to lose out. "Publishers, agencies, data providers, and other key stakeholders need to be paying attention to this dramatic change in the consumer economy," says Rothenberg. "They need to rise to the challenge of working within this new direct brand paradigm. For those that are able to pivot and adapt to the new normal there is a great opportunity for growth. But it's really about partnership and building things together moving forward - the age of gatekeepers is over."
Sunday Indo Business