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T H E 1 0 P I L L A R S O F S U C C E S S F O R

D T C B R A N D S

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CvE is a new breed of independent marketing services partner fusing the best of a consultancy, agency and

tech company. CvE advises on marketing attribution, technology, data strategy, in-housing and also activates across all addressable media channels. CVE is a trusted partner for many DTC orientated brands in the US including Mattress Firm and Shark

Ninja and commissioned this report to explore the regional differences of how DTC brands are driving

growth through marketing in Europe.

New Digital Age, covers the latest news, insight, opinionand research on all aspects of digital media and

marketing. NDA is dedicated to providing inspirationabout the companies, technologies and peoplepowering the next wave of disruption in our

industry. Justin Pearse is Editor of New Digital Age,worked at The Drum and Digiday and was

previously Editor of New Media Age.

With thanks to all the amazing companies who contributed to the creation of this DTC report.

The world’s biggest brands built their businesses with the classic marketingpyramid based on reach and frequency and big media saliency. But timeshave changed, and many find themselves at a disadvantage against faster,sassier direct-to-consumer competitors who have cut out the middleman andtaken a digital-first approach.

It’s happening across every vertical –even the fast-moving consumergoods sector, so long dominated bythe global corporates with theirincumbent advantages of bigbudgets, loyal customers and adistribution model that requires alarge infrastructure are beingchallenged. Supply chain as aservice is now a thing andconsumers are increasingly willing tobuy direct, online. This washappening before the COVID-19 crisis,but will be accelerated as newconsumers explore and discover newdigital- first brands that can cater totheir needs for home deliveryservices.

It’s a double whammy for theincumbents, which have heavilyrelied on retailers to reach end

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consumers: without that directconnection they lack the trueengagement and the ability tocreate long-lifecycle relationships.

In this whitepaper we explore thelessons to be learnt from this newbreed of DTCs and innovators. For theforeseeable future, incumbents willcontinue to hold the bigger share, butfor many, growth has stalled, lyinginstead with the newer, shinier, morepurposeful and focused DTCs:creating a whiplash effect across theindustry.

We spoke to marketers andentrepreneurs from DTC brandsabout how they built their brandsand what, conversely, they can learnfrom the heritage brands they seekto disrupt.

The PDC Initiative

METHODOLOGY

New Digital Age & Control v Exposed (CvE) commissioned this report to explore the dynamics of how European based DTC brands have developed their marketing strategies to deliver bottom line growth. We conducted qualitative research with leaders at DTC and e-commerce brands including Otty, Piglet, Don’t Buy Her Flowers, Pip&Nut and Tails.com. Combined with CvE’s own insight from working with DTC and FMCG brands, the opinions and insight from these contributors have helped shape this report.

FMCG brands in particular have little to no direct relationships with consumers, forcing them to rely on retailers to reach end consumers. That disconnect means that true engagement and deep audience understanding is hindered.

The ability that e-commerce brands have to collect, optimise and focus on data helps to create long-lifecycle relationships. Legacy brands are playing catch up at this point, but they can adopt aspects of DTC brands’ strategies to remain relevant in the

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Early innovators such as snacking brand Graze and

Dollar Shave Club were both bought by Unilever for £150m (2018) and $1bn (2016). Graze, which started as a snacking

subscription service, now operates a hybrid model with

its products available to buy in supermarkets and stores.

future and evolving markets. It just requires focus and a digital and data-first mindset.

Take Unilever, which hasrolled out People Data

Centres in order to build one-to-one

relationships with consumers and build its direct-to consumer strategy.

The PDCs combine social media and

business analytics with data mining of Unilever’s

customer- care lines and digital marketing channels.

DTCS OWN THE DIRECT RELATIONSHIP

30 locations

27languages

250people

Unilever has also launched Cleanopedia, a content rich site with tips and videocontent for household chores - this site prompts email newsletter sign-ups toallow Unilever to capture email addresses. An email address is a powerfulconnector of identity to other second-party data sources enabling richactivation segments for addressable media to be built.

DTC brands have entered the mainstream, according to a report released by IAB UK.

97% of the UK online population are aware of at least one of the

50 leading DTC brands in the UK,

39% have purchased a product from one or more and

10% have purchased from five or more.

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DTC BRANDS ARE MORE FLEXIBLE

Because of their direct line to the consumer and increased control of marketing, DTC brands are able to experiment and pivot much faster than traditional rivals.

Jake Newbould, head of digital marketing at homewares DTCbrand Piglet, says: “It sounds like a cliché́, but we can be agilewith everything from media planning to new product launches.We’re a fairly lean team at Piglet, so it eliminates many levels ofhierarchy to get important things signed off. I’m not sure moreestablished brands can move as quickly if they needed to.”

Andrew Jacobs, Otty Sleep digital marketing manager, says that changingconsumer behaviour means all brands must be fleeter of foot, but that thosewho were born and grew up on digital are more able to respond. Performanceis often key, which is easier for digital native brands than those titans that havebuilt their models on brand and/or saliency.

DTC BRANDS CUT OUT THE MIDDLEMAN

DTC brands do not have to use traditionalstorefronts, leading to lower costs andheightened control. Those directrelationships also provide them with hugelyvaluable data and ongoing insight intocustomer behaviour.

Take mattresses, for example, a product thathas been at the vanguard of the DTCrevolution. Jacobs says that the UK’s largestseller of mattresses in the UK is Argos – andthat it generates most of its sales online.

However, as many look for growth, they mayalso consider switching to a nuanced hybriddigital and retail model, which gives them abigger footprint. For instance, Piglet has a fewkey marketplace and wholesale partners thatit works with and earlier this year launchedwith luxury British department store HarveyNichols.

Newbould of Piglet says: “We’re really lookingforward to working together to gain furtherdistribution for our brand to their impressivecustomer base.”

“I think that the whole premise of going into a shop, sitting down on something for five

minutes and thinking ‘that’ll do’ is outdated,” says Jacobs. “We’ve moved on and now offer significantly longer-

length trials to test mattresses out, which has given people

the confidence of overcoming that whole ‘how do we know

what it’s like?’ factor.”

Unilever now sees

411mreviews

every day

7Kinsight

services

Has processed

500mSocial posts

Delivered more than

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IT’S ALL ABOUT THE EXPERIENCE

DTC brands have a strong focus oncustomer experience, This isimportant since, according to PWC,buyers will actually pay up to 16%more for a better customerexperience.

According to Newbould: “In termsof retention, we actually do a prettygood job already, albeit everybrand is fighting with customerchurn rate. We combat that bypriding ourselves on excellentcustomer service and productquality, our Trustpilot reviewsreflect that.

“Consumers can be pretty fickle intheir buying habits and with such acrowded marketplace no singlebrand really solely owns any onecustomer, ‘If you want loyalty, buy adog’ is a much-cited quote fromByron Sharp.”

75% 28%

83% 56%

86% 43%

vs

vs

Personalised Products

Convenience

Goods Companies deem ethical

In terms of what they look for in a brand, DTC consumers are

willing to pay extra for

In January 2020, P&G bought women’s razor brand Billie, marking its

own acquisitive move to understand consumers

better through data.

Eve Sleep, one of the pioneers of direct to consumer mattresses, for example, has publicly said in the

marketing press that it no longer considers itself a DTC.

vs

James Davidson, co-Founder and CEO of tails.com says: “We knowthat face-to-face conversations work really well for us. We alreadyhave a team who understands the product inside out and havebeen running pop up shops for us in shopping centres across thenation talking to people about tails.com and the benefits of trulypersonalised nutrition.”

A caveat: sometimes DTCs struggle because they often don’t ‘own’ the wholesupply chain. Otty and its online rivals suffer because mattresses are bulkyitems that only a certain number of couriers can manage. “It’s the bane of ourexistence,” says Jacobs. “Unfortunately the reason why we’re not five stars onTrustpilot is because that is our weak spot.”

Social commerce, on platforms including Snap, Facebook and Instagram - the very places that

many DTCs have built their brands, is also becoming more mainstream as a direct channel

for consumers to purchase from.

Ref:

IAB

UK

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FOCUS, SCALE, ADAPT & THEN DIVERSIFY

DTCs often compete with FMCGs by laser focusing on doing one product brilliantly (the ‘scalpel’ approach) rather than countless lines and products. By eliminating choice and presenting the product as ‘best in market’, this becomes more appealing to the consumer. Those that do expand their range tend to in a more holistic way than in times past.

Our plan is to really strive in becoming a go-to destination for a community looking to unwind in comfort’, according to Newbould.

“The experience is a key thing, so our customer service is critical.It is so important because often people are messaging us withquite sensitive questions, and often they’re looking for our input,”says Steph Douglas, founder of gift service Don’t Buy Me Flowers.

For Piglet, which specialises in fine bedroom linens, that means evolving to sell other complimentary products for the home, but the foundations are built on getting one product right and scaling it fast first and then diversifying.

“Now we’ve launched into the US this is a huge opportunity forPiglet to take a share of the large homewares market. We have allthe relevant infrastructure and tech-stack in place now that willreally help fuel continued growth in both the UK and US.”

For Otty’s Jacob, it’s not about selling a product, but a lifestyle. “We’re givingpeople opportunities to get better sleep – it’s about selling you a good night’ssleep, it transcends coffee makers and other things we want and desire, be-

cause pretty much everyone that you knowowns a bed.”

Douglas was a successful marketerbefore launching her alternative giftbusiness. It was borne of the idea that

after having her first child, shereceived bunches of flowers fromfriends and family – but what shereally wanted, when feelingoverwhelmed, were “bundles of TLC”.

“This idea of TLC and being lookedafter was just something that people

really responded to”.

P&G is open in its desire to grow its e-commerce business,

stating in its 2019 Annual Report that global e-commerce

organic sales grew 25% for the year, accounting for about 8% of its total sales. In a January analysts call, it reiterated its

commitment to innovation in a bid to appeal to new

consumers.

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“We try never to assume we know what the customer most needsor values. Instead we always test, develop new hypotheses andtest and then test again to provide the right service and productsto meet their needs,” says Douglas.

BUILDING A DIGITAL ECOSYSTEM

Think also of how in November, Coty announced a deal to buy a 51% stake in Kylie Jenner’s beauty business

for $600m, completed in January. Coty’s chief financial officer Pierre-André Terisse said in a conference call: “She brings her incredible strong brand equity both as a person and as a brand with unparalleled social media reach

among Gen Z consumers. This access to Gen Z is currently lacking in

Coty’s portfolio.”

Expect to see more FMCG and beauty brands embrace both performance and influencer marketing more whole-heartedly in the next 12 to 18 months. Often, the capability and understanding has not existed in-house but there is a rising awareness that this needs to change. There is also a rising appreciation amongst these brands that data can help both understand their audiences better, whilst also reducing the wastage of the legacy channels they have relied on. We heard repeatedly from our interviewees that the challenge is that there is rarely an existing culture of data, analytics and performance so this needs to be built from the ground up.

In January 2020, Coty Inc and influencer Kylie Jenner completed

a transaction to create a long-term strategic partnership to build Kylie Cosmetics and Kylie Skin into

a global powerhouse brand.

Jenner has more than 270 million social

media followers, three-quarters of whom are

between 18 and 34, according to Coty. And Kylie Cosmetics is the second most followed

beauty brand on Instagram.

L’Oreal is rapidly reinventing its beauty

experience and is committed to

investing in beauty tech. Seven years ago, 2% of its total

sales were through e-commerce. Today, it’s growing at more

than 50%.

DTCs recognise and quickly embrace the evolvingdigital space underpinned by influencers, SEO,programmatic, content and user reviews, which allowsfor virality which then builds awareness.

It is an area where many legacy brands have beenslower to move and have struggled to catch up,although this is changing; one such company that hasseen success is L’Oreal. Earlier this year, LubomiraRochet, L’Oreal executive vice president and chiefdigital officer, says: “We are increasingly data-drivenand personal, embracing influencer marketing andnew creative formats to achieve our goal – to ‘bringbeauty to all.” L’Oreal has also in-housedprogrammatic trading ahead of many other bigbrands, recognising the ability to better understandand activate against key audience segments.

All our interviewees cited the importance of review sites such as Trustpilot or Feefo – when users search on Google, they almost always check out what others are saying about a company they may buy from. Harnessing word of mouth and advocacy at scale (digitalreviews and social media) has been a key advantage for these brands.

“It’s about people’s attitudes towards user generated content,” says Jacobs. “Consumers are much more likely now to go to your website and read up the information and to then read

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BUILT WITH SUSTAINABILITY AND PURPOSE

Brewer Heineken has launched Beerwulf, an online beer store in

11 European markets, and Drinkies, a home delivery beer

service in five markets globally. Beerwulf sells some 600 beers,

beer taps and kegs and last year launched a pop-up in

London’s Old Street.

the reviews. They would much rather believe in 2000 people who give you five stars than anything we can say.

“It's way better than we could ever do in terms of any form of advertising.

Word of mouth always will be the number one thing that gets you sales you wouldn’t have got before.”A problem is often in getting people to leave that positive feedback that benefits people who are in the consideration phase.

MAKING SURE YOUR REVIEWS MATTER

Before launching gift service Don’t Buy Me Flowers, Steph Douglas had started a blog on motherhood and

relationships and realised that her blog posts were going viral – her message resonated and she realised

this was something that could be scaled as a business. Critically, it was less about the products and more about the purpose - the “why” rather than the “what” - something that, because they are founder led, DTCs are often much clearer on and able to be more authentic to, than large

corporates.

The biggest lesson for established brands to learn from DTC is the power of true, and continuous, real time

customer understanding.

Nut butter brand Pip & Nut has just achieved B-Corp status and is working onbeing more sustainable and environmentally friendly. It was founded bymarathon runner Pippa Murray who could not find a product that delivered forher on quality, taste and purpose. She admits that there is more to do - hersupplier at the moment is not kitted out for recyclable glass packaging butsays being “truthful with supporters and customers about where we are onthat journey, is critical.”

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Otty is built around the concept of having a good night’s sleep, not as amattress company and Don’t Buy Her Flowers is borne of the insight thatpeople want personalised gifts and moments of time to themselves.

And ‘purpose’ can change to adapt to customer needs. What matters toconsumers? Davidson of tails.com: “If you had asked me earlier this year[about what mattered], I would have said that top of the list were growth in theUK and expansion across Europe. Whilst that is still the case right now, we havealso adjusted to make sure that we can navigate the uncharted territory wenow find ourselves in with Coronavirus.”

Kantar, global data, insights and consulting company,

said in December 2019 that in the year ending June 30, 2019

global FMCG online sales grew seven times faster than total FMCG sales on average.

It is predicted that by 2025, some 10% of FMCG sales will

be made online.

Challenger brands generally can’tcompete on being functional alonebecause there are already productsout there that deliver on function, sothose that succeed do so bydistinguishing themselves, offeringconsumers slightly better choices orbeing greener or more charitable.

Many FMCGs haven’t kept up with sustainability or purpose, with conscious consumption

on the rise.

Many FMCGs haven’t kept up with sustainability or purpose, with conscious consumption on the

rise. Many DTC brands are often more environmentally friendly and sustainable

than their established competitors, being able to leverage more future -facing production techniques.

Many FMCG brands are also saddled with legacy supply chains that make it, for example, slow or difficult to cut the plastic.

They are also sometimes hindered by brand perception and authenticity in this area if they

are seen to be ‘jumping on the bandwagon’.

“If you then look like you're doingokay and then go for severalrounds of venture capital money,there comes a point wherepeople just go ‘When am I goingto make my returns?’”

When global mattress companyCasper went public on the NewYork Stock Exchange earlier thisyear, analysts warned againstgrowth at all costs.

FROM START-UP TO SCALE-UP

Jacobs warns fellow DTCs about tryingto grow too quickly, however temptingit may be. “It's about learning how togrow and doing it at a pace thatdoesn't get out of hand which,unfortunately, a lot of our competitionfell foul of. This whole theory ofmaximising the market space andmarket share first, and a cost ofprofitability may work for those appsand brands that require constantrepurchasing but not for somethingthat’s purchased every eight to 10years.

“Everybody looks at the whole Amazonmodel, but it was several years into itsdevelopment and R&D before it startedmaking huge amounts of money. And,that seems to be 'the go to' in terms ofhow would you start a business withextremely deep pockets, which isridiculous.

It's about learning how to grow and doing it at a pace that doesn't get out of hand...

It slashed the price it would sell shares to its first stock market investors, from an initial range of

$17 –

$19$12

Casper generated $312.3 million

in revenue in the first nine months of 2019, up

20 percent from 2018.

But Casper lost $67 million

in the same period of time, which was 5 percent

worse than in 2018.

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“Our priorities at tails.com are first to protect our people,supporting them to continue to deliver essential dog food suppliesto our customers, and then to work as a responsible business,contributing as best we can to ease the impact of the widerpandemic.”

“ “

Almost every global brand today islooking at the DTCs and what theycan learn from how they built theirbrands. At a time when ‘loyalty’ isnot a given – consumers can seekout better products and prices atthe touch of a button - they aretaking the performance marketingmodel more seriously.

Many of the companies that we have talked to want to build more

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Says Davidson: “Direct response has been vital to grow ourbusiness but, as we continue to expand, our brand values areincreasingly important to share. We have always had a strongvision about how we will change the world of pet food for goodand it is important we use our brand to represent that faithfully.

Conversely, as DTC brands matureand evolve, they are turning tobrand marketing to grow beyondtheir core fans into the mainstream.It’s not the same form of brandmarketing though - it is audience-focused marketing, leveraging datato identify the next layer of theonion, rather than throwing moneyat loosely-targeted media.

Many DTC’s are approachinggrowth more cautiously and arewary of taking on VC money tooquickly as that changes theexpectation in terms of the speed ofgrowth and internationalisationexpectations. The wrong investorexpectations can compromise thevery “purpose” of the businesstalked about above. Organic growthis also important for Douglas

although she believes the sky is thelimit in terms of how big Don’t BuyHer Flowers can be.

She sees strong growth ahead by appealing to new audiences, such as men and the corporate gifting market, and by being able to negotiate better prices and payment terms with her suppliers.

of a performance marketing mindset, a data and analytics approach to howthey can sell online, programmatically, through mobile and through socialchannels.

Having built their businesses online,with paid social and paid search,most DTCs have become excellentat capturing and optimising dataand knowing their valuableaudiences. By layering moreaudience-focused, mid-funnelchannels on top of these bankerresponse channels, they haveessentially inverted the traditionalmarketing pyramid.

BOTTOM UP – an evolving marketing model for a new breed of company

CONCLUSION

What is clear is that the brand ofthe future - whether started byentrepreneurs, or under theauspices of the global conglo-merates - will be digital first fuelledby first-party data, agile marketingand built on trust. One-to-onecustomer relationships willcontinue to be important, andbrands tomorrow will need tostand for more than functionalityalone.

It’s too early to determine theoverall long-term success of thisnew generation of DTC brands, butthey do have a very distinct set ofbehaviours and a unique approachto marketing which bigger brandscan learn from.

Historically FMCG’s have beenoverly reliant on Google, Facebookand YouTube but we are beginningto see a shift into brand building, abroader digital mix and DSP-bought programmatic acrossdigital, OOH and addressable TVbeing utilised to reach newaudiences. This is still a nascentspace but we see this being asignificant growth area in the next18-24 months as FMCG’s

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This is easier than ever, with new addressable advertising channels such asaddressable TV and programmatic digital out of home. Technology is enablingmore effective and efficient access to ‘traditional’ broadcast media yet traded,measured and iterated in a way they are well used to and at a lower point toentry than linear TV.

It should not ever be an either/or in terms of brand and performancemarketing, but as brands and marketing evolves, we will start to see successfulbrands blurring the lines between both approaches. The companies that take amore analytical and commercial approach to all of their marketing will mostlikely see the most gains. Performance marketing alone will only get a newbusiness so far as it does require awareness and consideration, but theprinciples of performance led marketing - using data to inform targeting,constantly optimising both media and messaging, using technology to bemore effective and agile - are ones that are fast becoming applicable topreviously inflexible traditional brand-building channels.

use 1st and 2nd party data to morefinely target.

Whether you are a fledglingcompany or market-leading brand,the rules of engagement arechanging. Brands should ensurethat they make the most of theirnatural advantages and leveragethe experience and learnings fromother brands operating both in theirsector and beyond.

The growing sector can equallylearn from the playbook of brand-led marketers, blending this withtheir commercial, data drivenmarketing model. DTC brandsripped up the business rule book todisrupt their market and usher inincredible new opportunities for theconsumers they serve. Therevolution they sparked and thelessons that can be learnt is simplytoo important for any brand, of anysize, to ignore.

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And as COVID-19 creates a huge surge in DTC and e-commerce demand fromconsumers, these learnings are more applicable than ever. 33% of Brits arebuying more online than a month ago. The sectors seeing the highest growthare online groceries, food delivery, home improvement and online fashion.These behavioural changes will establish a new normal as a swathe of newconsumers switch to this new-found convenience, combined with establishedcustomers increasing purchase frequency.

Now, more than ever, is the time for larger FMCG companies to double down onDTC initiatives and invest in strategies which help them not only retain existingcustomers, but also attract new customers. With time online and readiness todiscover new brands at a peak, it is the DTC brands who are continuing tospend through this crisis. These fast-growing brands, with their natural agilityand data driven approach could well come out on top, unless establishedFMCG’s accelerate digitisation and adapt to these acute changes in consumerbehaviour.

The challenge for DTC’s in contrast, is how to accelerate capacity, build theirbrands for the long-term and translate new demand in to a sustainable,profitable customer base. Whichever way you look at it, this is one of the mostfascinating battlegrounds for marketers and 2020 will be a pivotal year ofchange and re-set..

Now more than ever is a time for re-set. If you are interested in continuing the conversation and hearing from a

s selection of both DTC and more established FMCG brands about where they are on this journey, tune in

to the regular Time For a Reset podcast at: www.timeforareset.co.uk

CvE has wide experience of working with both DTC brands looking for new growth opportunities and

FMCG brands embarking on digital transformation. The combination of our consulting approach in

tandem with best in class performance marketingcapability covers everything from workshops and audits

through to analytics, attribution and activation.

TIME FOR A RESET

THANK YOU TO ALL THE CONTRIBUTORS

CONTACT

If you want to find out more, please contact Paul Frampton-Calero at Control vs Exposed pframpton@controlvexposed.co.uk.

Or visit www.controlvexposed.co.uk.

CvE has wide experience of working with both DTC and more established FMCGbrands. The combination of our consulting approach in tandem with best inclass performance marketing expertise covers everything from audits to techto analytics through to activation.

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