CPG VS DTC: A Race to the Bottom...line

CPG (consumer packaged goods) have engageD DTC in And what will cleverly be called the race to the bottom.

Perhaps the most attractive reason that DTC marketing has become such a viable new potential revenue source for some very large conglomerates attracting the likes of CPG powerhouses Procter and Gamble and PepsiCo. May be rooted in the fact the DTC brands have access to all of their owned channels and data those channels have accumulated. We aren’t just talking about a flashy Instagram page or a top-notch SMS campaign… customer data is paving the pro-list when it comes to reasons these brands are buying and incubating digitally native brands. These invaluable insights are forcing a head turn for even the most retail-ready CPG brands and finally considering them a force to be reckoned with- or in typical capitalist fashion-purchased.

Further evidence can also be seen by some of the largest brands in personal care. Unilever acquired dollar shave club, one of the most famous DTC brands from the original rise of direct to consumer personal care products. These large conglomerates are developing ways to incubate these into “experiments” in DTC revenue with a self-served side of insights they previously had no access to.  Along with a desire to drop reliance on the costs of a ton of brick and mortar or physical store fronts, allocating previously retail-reserved budgets to producing top tier content, partnerships, and most notably the ultimate cool factor of affiliate and influencer relationships will possibly leave DTC brands that lack proper preparedness in the dust.

The Road will never be easy for digitally native brand. When you think of a brand like Recess, who shortly after their launch touted a hefty accumulation of over 40,000 email list subscribers, native brands are still very expensive to market- but not in the way you might think. A heavy emphasis on the brand and it’s owned channesl VS more traditional advertising methods, raise the initial cost of creating a viral-worthy brand. A brand like recess justifies these costs with an impressive DTC sales number from heavily branded owned media channels but some brands go through series of investment and are forced to build fast resulting in an unattainable growth model and they fail to live up to their initial valuation. 

In January 2020, personal care conglomerate Procter & Gamble snagged Billie, a line of beauty and personal care razors for women. Though coverage has lacked with the current economic landscape, this sale is an important moment for DTC brands looking to be acquired or move into the personal care space. As this brand now has the powerhouse backing (and expenditure) of one of the most successful beauty personal care incubators of all time.  

If we take a look at DTC as an entrepreneurship culture in America, Ivy league schools become somewhat of a breeding ground for their success. Aside from the unwavering solidarity of these pedigrees, true friendships with true intent to make a different can and do happen. DTC veteran glasses brand Warby Parker was an idea from four friends  from Wharton school of business. One of the WB co founders Jeff Raider also went on to found Harry's, a popular DTC brand who also ranks among the top dollar successes.

When we talk about the race to the bottom and what makes it such a compelling study in marketing- aside from attracting consumers and companies looking to avoid exorbitant retail mark ups or price flexibility in general- by selling directly to consumers online you can offer a combination of design, quality, and service along with lower prices as you control the entire customer journey. Is this attraction not the telltale sign of a good business goals brought to life? It will be interesting to see how these shifts in ownership play a role in these high transparency, down-to-earth brand values in the future.

Though a major catalyst for DTC success, expensive and innovative branding emphasizes heavily just how much direct to consumer marketing still lacks the infrastructure to grow at scale.

Inc.com estimates that 400+ D to C startups have collectively raised $3 billion in venture capital since 2012. Though a major catalyst for DTC success, expensive and innovative branding emphasizes heavily just how much direct to consumer marketing still lacks the infrastructure to grow at scale. For example, in order to provide advanced segmentation and true customizations that have become a cornerstone of great DTC marketing and advertising,  hundreds of pathways have to be built out taking expensive hours from designers, marketers, copywriters, and developers. This isn't necessarily a viable alternative for a small brand with a small budget coming into the space as a second mover. 

Furthermore “millenizalization” as the base consumer group driving these purchases ,though these consumers come complete with the beautiful apex of very high purchasing power and a chronic disloyalty to large “big-box”brands, forces all DTC brands to compete heavily in the same spaces for the same customers using classic millennial-sales digital infrastructure like Facebook or Instagram ads or social media and affiliate marketing. This is yet another reason why owned assets such as email or SMS or content marketing will (and have always) played the largest in the overall revenue-driving modalities of the marketing mix.

In the health wellness and beauty sector, we are lucky we can bank on the golden unicorn that is known as the repeat purchase, which can drive up to 80% of base revenue for a healthy DTC channel.  If you are a product that needs or can be  bought on a continual basis you can rely on a source of lifetime value to yield base results and fuel your more experimental efforts in acquisitions- a much more costly channel . Continuing to find opportunities to provide value can maximize that potential and increase the velocity at which your brand becomes a generator of brand advocated and thus, in turn, a lifestyle brand.  

The last great piece of DTC, which has played a pivotal role in the space’s innovative and unique approach to simplistic living with technical luxury is allowing entrepreneurs this amazing opportunity to build a brand based on pillars that they truly believe in and creating simple and effective products that truly make the world a better place. Being so close to the consumer allows you to take their feedback immediately and change and be better. In a Socio-economic climate like we are today, there is a tremendous value for the brand that can have that sort of transparency and agile voice.