Every now and then, we observe a pattern and foresee a trend. When this happens, we write about it. In this article, we examine the surge of Direct to Consumer (D2C) companies and what owners of these brands can do to mitigate risk.
Owners with D2C companies in their portfolio are at the high risk – high reward end of the continuum. This is often counterbalanced by acquiring more companies. But there are other ways to mitigate risk. One is to build a solid foundation that reduces vulnerability in times of turmoil. But first, let’s take a look at why D2C companies are indeed more vulnerable from a brand perspective than their B2C counterparts.
Being one hundred percent digital, D2C companies come across as more elusive. They leave no physical imprint upon the world and can appear and disappear without much commotion. But most importantly, there are no stores, no physical touchpoints where customers can interact with the brand and the products. What they lose out on is a vital aspect of relationship-building, which is one of the most essential elements in building durable brand strength. But why is brand strength even worth worrying about?
Many D2Cs look to endorsers, in the shape of influencers or a spokesperson, to build that relationship. This is a highly effective way to reach the masses in minutes. Essentially, these person-based solutions are to this sector what physical touchpoints are to traditional retailers. They create that special connection, emotion, and interaction that any successful brand thrives from. But people are far less reliable than other communication channels. And with today’s cancel culture, where companies and people easily get ostracized and thrust out of social or professional circles, things can move fast. When this happens to a spokesperson or influencer, the business needs a supporting framework to keep it still standing strong. This is where the importance of the brand comes in. Thinking about “personal as the new physical” is a clearer way of looking at this. “Personal” is tactical communication. And tactical must stem from and be counterbalanced by strategic communication. This will provide an overarching story strong enough to survive a momentary crisis. Not least financially, it softens the blow. But there are more ways than one that brand affects the bottom line
Because of the rise of influencer marketing, prices on the platforms they inhabit are skyrocketing as are influencer wages. Consequently, so are customer acquisition costs. Without strong brand recognition, the customer journey is long and arduous, with significant investments required every step of the way. A strong brand built on solid strategy allows companies to leapfrog those steps, lowering the cost of acquiring customers significantly.
Another way of standing strong in bad times is a very pleasant one: doing good. Research shows that brands with a strong commitment to ESG take less time to bounce back after a crisis. This means there are not only moral reasons for contributing to a better world, but also strong financial ones. From where we are standing, we see these types of initiatives only increasing, in line with the entire impact sector.
Our observations, insightful or not, come from years of experience working with owners of lifestyle brands and helping them realize their investment thesis, paired with a focus on brands in the impact sector. Should you find yourself in need of assessing where your own portfolio stands, we will be happy to help.