Are direct-to-consumer brands the future winners?

  by Nigel Hollis

Randall Rothenberg, President/CEO of the Interactive Advertising Bureau (IAB), credits 2010 as the start of the direct-to-consumer brand revolution. That was the year Warby Parker was founded. But while a few direct-to-consumer brands have become relatively famous – like Dollar Shave Club which was acquired by Unilever for $1 billion – most remain largely unknown. What will the future bring?

Of course, the answer to the question will direct-to-consumer brands be winners depends on your definition of winning. I suspect Michael Dubin, founder of Dollar Shave Club, regards the sale of his company as a win, allowing him to focus on growing the brand without the stress of running out of money.

And many direct-to-consumer brand founders might be very happy to take the profits from a much smaller business. But if venture capital funded then the pressure will be on to grow, grow, grow. But is that possible, or even desirable? Perhaps in these fragmented days most direct-to-consumer brands would be better off – more profitable – focusing on people who really value what they have to offer.

Today there are a host of small, direct-to-consumer brands. Many people have never even heard of the most popular ones. For instance, according to BrandZ in 2017 just under one in three people in the U.S. had not heard of Dollar Shave Club. And, even if they have heard of them a lot of people have yet to appreciate why the direct-to-consumer distribution model is relevant to them. Perceptions that Dollar Shave Club is meaningful lag what would be expected given familiarity with the brand.  

In the traditional world of indirect sales a lack of general awareness and meaning would be a big problem. Without growing awareness the brand was unlikely to grow further. But the modern brand has the internet on its side; people can search for products proactively rather than have to seek out named brands and their friends will pass on the word about the latest cool brand they found. Kantar Millward Brown’s data shows that brands that are perceived to be shaking things up are much more likely to be talked about in social media.

However, if a brand really wants to outgrow its digital niche my sneaking suspicion is that at some point it is going to need to resort to advertising. Brands like Google, Amazon and now Tesla have been lauded for being publicized by word of mouth alone. But what happens when the brand becomes familiar or tries to extend to a new category in which it is not the trend setter? They advertise.

I also wonder if the direct-to-consumer model itself is going to be relevant to many beyond the younger, urban crowd and very specific categories where home delivery on a regular basis makes eminent sense. Personally I struggle with the idea of juggling multiple subscription relationships and managing the flow of product to match my needs. But what do you think? Is there a finite limit on the relevance of the direct-to-consumer model or is it really the future for all?