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How Legacy Brands Can Compete in a D2C Online Economy

A blue and yellow abstract background with a letter u showcasing how legacy brands can compete in a D2C online economy.

Legacy brands – established retailers that emerged as brick-and-mortar stores decades ago – are rethinking opportunities to reduce their costs and create new experiences with customers online. They are competing with growing direct-to-consumer (D2C) brands with advanced marketing and digital advertising experience, like Fashion Nova, Allbirds and Gymshark. These successful D2C brands have many lessons to share with their legacy competitors. 

We interviewed Chelsy Debalsi, Nosto’s Marketing Manager, to learn lessons on how legacy brands can compete in a D2C online economy. Nosto is the world’s leading personalization platform, using machine learning and shopper behavioral data to create digital commerce experiences that create customers for life. Read on to discover the characteristics that make up a strong D2C brand, how Nosto helps D2C brands grow and navigate challenges to increase conversions and revenue, and how legacy brands can achieve brand disruption.

What are the characteristics of a strong D2C brand?

To address this topic, it’s important to first define the characteristics that make up a strong direct-to-consumer (D2C) brand. This deconstruction will then help formulate strategies to help legacy brands either emulate or compete against these newcomers more effectively:

  • Values: Often, D2C brands go-to-market with a strong “values” play. They tap into present day narratives and often intentionally take a public stand, sometimes even on political topics. For example, Girlfriend Collective uses sustainability messaging. This ensures their customers are aware that being eco-friendly is one of their top priorities. 
  • Nano-segmentation: Many D2C brands target niche segments; these could either be entirely new, underserved, or previously deemed “too small” for legacy CPG brands to serve. For example, Fashion Nova has a large following in Hispanic communities. This is reflected in the racial diversity of their models.
  • SKU focus: D2C brands tend to put a much larger emphasis on individual products as opposed to going-to-market with an extensive assortment.
  • Tech Stack: D2C brands often use best-of-breed technology stacks that cover their tech needs holistically, as well as in highly specific and customised ways. For example, brands like Chubbies Shorts use a tech stack collective called the Integrated Commerce Growth Stack’ by Nosto, Klaviyo and Yotpo.
  • Owned channels: D2C brands tend to put a very large focus on their owned channels, such as their website and email, and are much more adept at using third-party social media channels. For example, Pura Vida Bracelets has an impressive Instagram following ahead of older, more established jewelry brands. Many D2C websites also use personalization or experience platforms to elevate the user experience.
  • Newness: Many D2C brands tap into the consumer’s desire for reinvention, even in verticals that may be considered mature and not worthy of large investment. An example could be Away Luggage, a brand perceived as both innovative and disruptive within a legacy category. 
  • Celebrity networks: Up-and-coming D2C brands are often backed by, or even started by, powerful celebrities that bring their own followers as prospective customers. Examples are Haus Laboratories by Lady Gaga, or Good American by Khloé Kardashian.
  • Aesthetics: While there is backlash on the often “copycat” nature of their visuals, there is no denying that the visual presentation of D2C brands is critically important. And, in the midst of the COVID-19 pandemic, digital lifestyles are becoming increasingly important, even though we thought we had reached the peak of technology previously.  
  • Flywheel effects: Many D2C brands utilize constant user feedback to improve their marketing and product. Tesla is a great example of this mentality of continuous improvements.
  • Communities: D2C brands often borrow from B2B marketing in creating long-term relationships that drive repeat purchases. For example, Peloton has created a unique fitness world where users can take classes and connect with other athletes around the world from the comfort of their own homes.
  • Mobile-First / Digital-First: D2C brands tend to follow a mobile-first and digital-first approach when it comes to their ecommerce strategies. Everything from the technology they use, to how they design and test their ecommerce strategies, are focused on the end consumer in regards to both mobile and digital experiences.
  • Influencer marketing: Many D2C brands use influencer marketing to gain exposure to new audiences and drive brand awareness, as opposed to other, more traditional marketing channels.
  • Content creation: D2C brands see themselves as media companies; they use social media content and on-site content as a way to speak to their audiences and create personalized shopping experiences. This content can come from influencers, users (UGC), and in-house creative assets that can be reused across the entire digital experience.

While this is not an exhaustive list, these points have been the driving factor and playbook for many D2C brands. However, as with all disruption, these rules are in constant flux and tomorrow’s brands are sure to define the future on their own terms. 

How has Nosto helped D2C brands grow by helping shoppers navigate a website, increase revenue and boost conversions?

Nosto helps D2C brands make the most of their valuable screen real estate by introducing their brand and values step-by-step, and in a way that’s targeted to each consumer. 

For example, when using Nosto Product Recommendations paired with Segmentation and Insights, a merchant can show new visitors a video of how the products are made and what values the founders stand for. They can then show more transactional/traditional product recommendations upon the first conversion – and, for VIP customers, the experience could again change completely.

While this is not an exhaustive list, these points have been the driving factor and playbook for many D2C brands. However, as with all disruption, these rules are in constant flux and tomorrow’s brands are sure to define the future on their own terms. 

This personalized approach that appeals to the preferences of varying segments of consumers often results in increased conversions and revenue.

Example, Love Wellness:

In addition, any great user experience marries the goals of merchandising with those of personalization. Therefore, great experience platforms, such as Nosto, allow merchants to define goals and balance competing objectives when it comes to showing products or content experiences.

For example, any Nosto product detail page recommendation, is multi-goaled in that it balances individual user engagement rates and revenue/margin optimization.

By helping merchants focus on a variety of different KPIs and objectives, we ensure that metrics like average order value are not optimized at the expense of the onsite experience.

And finally, in addition to demographic data, Nosto utilizes behavioral affinities so that brands can target users based on their in-the-moment preferences.

Imagine this: a parent is buying gifts for their children. Should we recommend highly relevant toys or should we use their stale demographic data to target them with irrelevant products that fit their age group?

What lessons can D2C brands teach legacy brands who are new to selling directly to customers online?

Legacy brands that have recently begun selling directly to consumers online have so much to learn from D2C brands. Here are a few examples:

  • Blank Page Mentality: Starting from scratch in order to learn from your customers and entering into a constant product/marketing/operations feedback loop is what D2C is all about. Especially for large CPG brands, swallowing your pride and starting smaller can be a difficult task.

  • Countering boredom: D2C brands focus on breaking through established narratives. Chubbies Shorts is a great example of a brand having fun and taking their customers along for a very “on-brand” ride.
  • Segmentation: According to the marketing classic by Al Ries and Jack Trout, it’s all about ‘positioning.’ These lessons are part of the basics that often have to be relearned. 
  • Building 1:1 relationships: D2C brands understand the importance of building a strong relationship with their customers when it comes to increasing lifetime value. A one-size-fits-all approach is no longer relevant.
  • Branding: D2C brands aren’t afraid to have quirky, fun personalities, and they know that the key to a strong brand is having a consistent brand voice across all channels. 
  • An iterative approach: A/B testing allows D2C brands to see what messaging and strategies resonate most with customers. Online gives us so much more actionable data compared to traditional retail – use this to your advantage.

What contributes to the success of legacy brands shifting to D2C sales?

According to Forrester, online spending with D2C brands will increase at a robust compound annual rate of 18% from 2018 to 2022. What’s contributing to their success? At Nosto, we of course believe that personalization is key to any brand’s online success. Creating a better, more relevant commerce experience that forges a personal relationship between brand and consumer through emotional connection inherently leads to greater lifetime value.

What challenges will legacy brands face as they switch to a D2C model?

  • Convergence: Strong D2C brands have to learn operational lessons that larger CPG brands have already mastered in order to reach the next level (while CPG has to learn from D2C when it comes to modern day branding). This includes creating larger SKU inventory assortment to scale revenue, managing more complex supply chains across the world, as well as going international.
  • D2C fatigue and novelty: Successful D2C brands have to continuously work to prove that they are more than formulaic “copy cats.” It is also a different ballgame when it comes to creating a long-term customer lifetime value (CLV) driven business model as opposed to over relying on VC and PE funds.

Do legacy brands need to rethink their omnichannel marketing strategy as they move to a D2C online model?

Often, yes. To illustrate why, a greatly discussed example is Nike. Recently, Nike shut down nine of their wholesale accounts. As explained in a very telling comment from the brand itself,

The athletics giant didn’t need to partner with anyone ‘just for the sake of distribution’. Over the past few years, we have shifted from a legacy, wholesale distribution model to investment in a model that gives our consumers a more premium shopping experience.”

So it is clear that legacy brands can reach an audience just as easily on their own, while controlling the user experience much better. It is also an open secret that many wholesalers will not share customer data with the brands, which has been a large point of contention and a huge reason to invest into proprietary delivery channels.

How can legacy brands compete with D2C brands, and where can they deliver the most value online?

  • Investing in the D2C playbook technology: A major way for legacy brands to compete with D2C is to learn from their success. For example, focus on owning the customer relationship and also consider common technology stacks used by D2C brands. Often, Shopify Plus is run as the ecommerce platform with Nosto powering personalization and user experience, while Klaviyo/Dotdigital and Yotpo enhance email and loyalty, respectively.
  • Acquisitions: An expensive way is to acquire D2C brands once they have matured. Recent examples include Shiseido buying Drunk Elephant or Puravida Bracelets being acquired by Vera Bradley.
  • Self-disruption: Smart CPG companies are launching their own D2C brands that compete directly with their legacy offerings or act in a fundraising / venture capital capacity for younger brands.

Can legacy brands achieve brand disruption when they go D2C, and do they need to?

Disruption wins because it’s new, and new is exciting. But consumers need “tried and true” products, too.

In a world full of copycat D2C brands, a brand with a long heritage might all of a sudden seem like the scarce resource. Many legacy brands have shown that they have staying power and can now focus on introducing new generations to their existing products, rather than new products to older generations. Think Champion, whose sweaters have a loyal following in all age and income brackets.

Still, many legacy brands have not invested in their D2C offering and it shows. Antiquated technology and messaging that does not resonate with their customer base are only the beginning of the problem.

This is why it’s important for legacy brands to show up to the fight! Take the opportunity to go direct, and build an outstanding ecommerce experience to engage customers. Plus this will empower your brand to compete with very large marketplaces.

More from Diff:

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Special thanks to our friends at Diff Agency for their insights on this topic.
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