Creating Brand Value in the Direct-to-Consumer Era
Increasing capabilities in digital spaces like social media and e-commerce has been a no-brainer for some time now, but COVID-19 really brought to life a do-or-die sense of urgency to the late majority and laggards.
Here in Japan, businesses have had more cushion due to consumers as a whole being slow to shift away from traditional retail and cities having a lot of foot traffic.
Major e-commerce platforms like Amazon and Rakuten have grown to about 50 million users each (~40% of Japan’s population) and the government’s pseudo-lockdown has given many a first taste of online retail.
The approaches most brands are using, however, are due for tweaking.
The typical funnel is outdated.
Here’s a typical funnel and online ad strategy that consumer-facing brands use.
The approach is not necessarily wrong, but the fact that it’s one-dimensional around product purchases puts the brand at a disadvantage when combating changes in consumer behavior and the market.
The truth is that it’s too vulnerable.
Brands like this tend to prioritize their “in-store purchases” goal due to their brick-and-mortar’s operational costs, but as we’ve all experienced, this conversion point can be completely eliminated due to something like a stay-at-home order.
Rethinking in-store experiences, communicating well on social media, and having a DTC/D2C option are the bare minimums now, but there's still the challenge of standing out and building for the longterm.
It’s becoming increasingly difficult for brands to differentiate and create value in the Direct-To-Consumer era
Why?
Most products are commoditized and not actually needed
Social networks like Instagram are mainstream channels and every competitor now has the same communication tools
E-commerce platforms like Shopify lower barriers to entry for retail which results in more competition and usage of the same tech stack
A leveled playing field means that more needs to be done in order to stand out.
Depending on a good product and having that be the only value given to customers is risky.
It can be challenged by competitors with bigger resources or data pools (see how brands can use an offline competitor’s data against them here), revenue can be completely stopped if one variable changes, and the linear, point-A to point-B customer experience doesn’t connect beyond purchase.
This leads to short-term, increasingly unsustainable behaviors like only trying to acquire new customers to convert. So what should brands do?
Explore other growth areas and connect them
Brands should consider what other related areas they can get into that provides their customers value. From there, they can rethink the strategies and funnels in each area instead of having them be used as acquisition channels centered around one conversion point.
Here’s an example of a multi-dimensional brand:
In this example, the brand is operating in 4 areas - media, products, events and subscriptions.
Let’s say it’s a cookware brand.
They may be regularly creating documentaries and how-to videos, manufacturing their cookware, hosting events featuring influential chefs that were in their videos, and selling monthly recipe packages from these chefs via subscription.
Within these areas, there may be various approaches.
Media may have some content behind a paywall, products can be sold via website or SMS, events can range from factory tours to wine-and-dine, subscriptions can be geared to families or college singles, and so on.
The areas are connected through a Gamification strategy
Customer actions are incentivized through positive reinforcement. Yu-kai Chou’s Octalysis shows us that this “leveling up” of customers can be done by implementing human-focused design, based on the drivers of human behavior such as ownership, empowerment and accomplishment.
The strategy is designed by an Objective Laddering and Value Shift framework.
By analyzing target customer behaviors, their true, often subconsciously held objectives that drive their decisions can be found. From there, the best brand actions can be planned by relating them to those objectives, increasing the chances of the customer choosing to move through the various areas of the brand.
Simply put, we can use the example of a simple store point card system and combine it with Pokémon Go’s ability to incentivize different actions by empowering customers with a sense of control over their desired outcome.
Because the brand now has multiple funnels, that outcome isn’t one-dimensionally related to product purchase, making the brand relevant to the customer in multiple ways.
Key benefits of this approach are:
Production of multiple revenue streams
Differentiation against competitors and value creation
Extended customer lifecycle
In an era that’s seeing online and offline merge more and more, one that is more consumer-centric than ever, creative strategies need to be explored in order to stand out and be of value to the consumer.
While there’s much to be done on the business side as discussed, we’re also in a time where social media influencers and personalities are leveraging the value they’ve created for their large audiences and launching competing retail brands themselves.
This means that retail-first brands now have to compete more than ever on the media side as the communication and commerce worlds merge.
I’ll talk about what I think brands should be doing on the media side next.