Italic’s New Membership Program And PepsiCo’s Two New DTC Brands

This week, we just got a platter full of beautiful dropped treats that we are about to nom on. So let's first start with Italic. Italic launched this new membership program. In short, you pay a hundred dollars a year and you get access to all of their luxury products and they say, “At cost.” So really what this means is Italic has been working directly with the factories that produce luxury goods for brands like Louis Vuitton and Armani and other luxury brands that I have no idea who they are because I am not a luxury brand shopper, but they connect with these factories. And instead of having kind of the brand price markup, they're actually doing a little bit of what the brand listing did, which is they are selling kind of direct from the factory to the customer. And Italic almost serves as a marketplace between the two.

So a lot going on here that we're going to dig into. One thing I want to mention is they did shift from a $10 a month program to $100 a year program. Lots of reasons behind that, I'm sure, but very interesting. Also it's becoming a much bigger trend in the eCommerce space to see these membership programs coming out. We're going to talk about Patrick Caddou from Supply. They have released one this year. Helena from Haus released one this year, and companies like MeUndies have been doing it for awhile, but they're getting really creative with these new membership programs. So very interesting new kind of channel that's happening in DTC. So let's talk a little bit more about this launch. Reading from Jeremy Cai's actual Medium post about this.

He said, “We've been carefully testing the membership model over the past few years and here's what's working. On average member prices are 64% lower than leading brands. 93% of new members break even on their first purchase. Members are saving an average of $746 per year, and 97% of members recommend the membership to their friends.” Now that last one is, as a retention geek, very exciting and cool to see that when you build something that has that membership feel, that exclusive feel, we talk about this a lot in DTC, it leads to much higher retention because people want to talk about it because they want to bring their friends into this cool thing that they are involved in.

Also from Jeremy Cai, he said, “When including our upcoming expansion into new categories, like fitness, outdoors, pets, luggage, knives, comforters, dinnerware, and jewelry over the next year, Italic will soon have the broadest and arguably most compelling proprietary offering of any brand.” It's a pretty big statement. And it's interesting though, because I immediately look at Italic, I'm like, “There's not that much for me. I work from home. I have a nice purse that I got for Christmas last year. It was pretty much all I need.” But thinking about things like outdoors and pets and comforters, I need a new comforter really bad. We buy outdoors gear all the time because we live in Colorado and I spend more money spoiling my pets than spoiling me or my husband. So naturally I want to buy them the luxurious goods, even if I myself am not buying them.

So moving on into kind of what's going on, Cai said, quote, “We're not trying to create a cohesive design language where everything must adhere to one specific aesthetic. We're not a product development shop. We're trying to replicate what a retailer does at scale. But instead of working with brands, we're working with manufacturing partners. The goal is to give customers lots of options.”

This is really interesting because since they are not sticking to a very strong brand of Italic goods, and they're actually kind of doing this brandless, logoless thing with their products, it allows them to have a

very, very wide offering. I think the big question a lot of people are having are isn't brand super powerful though? And that's something we're going to get into. And I have obviously a lot of thoughts to nom on.

And just continuing to go with kind of the mission, really something that they have put into their process that I think a lot of people are going to connect with is that they're really, really particular about the factories they're working on. They built its own inspection process instead of using outside parties. So they're actually sending internal employees to go learn about the factory's treatment of workers, environmental certifications, quality, and all that stuff so that they know that the factories that they're working with are actually really good factories and we're not giving our money factories that treat their workers like crap, because we don't want to do that anymore.

Now I find this really interesting because naturally I have the inclination of a brand is one of the most powerful things for customer retention, for customer acquisition, and having a deeper meaning and brand values. And so at first, when I was reading about this, I had the initial reaction of this is not going to work because it's going to be like Brandless. It's, it's not something that's sustainable to do because people want to connect with the branding and the logos. But I changed my mind as I went. And here's one thing that really did it.

This quote says, “While the idea of shopping directly from the factory is relatively novel concept here in the US, it's an idea that's been popular in China. Several Chinese companies all operate on a similar model of going into top factories, selling brandless versions of products. The model has been successful with the Chinese market, which is remarkable, since Chinese consumers tend to be more logo-conscious than American ones. People love logos there. It's almost like America in the nineties says Cai, whose family is from China. And yet companies like these have really exploded.”

So I think I find that really interesting because when I think about the nineties, you immediately have some certain brands coming up, Calvin Klein and Tommy Hilfiger in the works and how much we really were obsessed with those brands back in the nineties. And I think there's something in this that it really is possible for them to grow a lot and to be very successful with this. But there's some kind of things they have to think about.

One, I think that branding does not depend on a logo and brand is much larger and much more powerful and meaningful than that. And so, even though this is a little bit like Brandless, I think where Brandless fell short, was not creating the brand of Brandless. So people were buying products, but they were connecting with a mission. And this is where I think that Italic has a good chance to do because they have a good mission, which is, “We don't want to mark up to our customers, but also we want to find ethically sourced goods from craftsman who have been designing products for the top brands for years.” And so I think that there's a lot of branding to be done there, branding that craftsmanship of the products, branding the mission that they're doing. So something to really remember as you are building your own eCommerce store is branding does not equal a logo or colors or a tag on your shirt.

Branding is the feeling and the experience that you get when you interact with a brand, and it's almost something you can't put in words. And so that is honing in on Italic's brand is something that they're going to have to think about. And obviously with the kind of influx of wait list members they have now on this program, I think they have done this really well.

Now I want to take it to the community for this one because there was a really exciting conversation. Patrick Caddou from Supply, he kind of started it by saying, “This is really interesting to me. They have launched a very similar membership model this year.” And so he wanted to hear the community's thoughts. He had some thoughts as well. So I am just going to read off some of the responses that we had and we'll see how it goes for this nom.

First Brian Whalley co-founder of High Wonderment. He said, “I am very interested in seeing the success of membership programs like the one you launched. A lot of traction starting to happen there. I don't think underpricing luxury goods is the way to go with that though. It's for rewarding people who love and commit to the brand.” Now Patrick came back and said, “Agreed, it's the second part you mentioned that we're going for with our program, which is rewarding people who love and commit to the brand.” And then he said, “Super, super difficult to find the right balance.” And so this is very interesting. Oh, sorry. He continued, “Very similar to Costco, but that's for common goods. How much of luxury is actually in the label?”

And so at first I really thought luxury is the label. And I think that is true for a lot of luxury, but not all luxury. And we're going to get into something that Jeremy Cai actually hopped into this Twitter thread and he said something that really changed my mind on this. But before we get there, I think it's important to note this rewarding people who love and commit to the brand.

Again, we are almost losing sight, a little bit, of what really designates a brand, because this could be people who love and commit to Italic and then they get access to product. So it's a little bit of both here and it'll be interesting to see how Italic really tackles it. I'm Damien Soong, who's the CEO and founder of Form Nutrition, amazing guy, amazing company, check them out for email inspiration, for sure. And he said, “Yeah, I don't know. They explicitly say zero markup. I didn't look at it in detail. I can see the model working for consumables where you know roughly what each customer could purchase. But if this is all customers purchase a lot, it's unscalable due to operational cost.”

And that's an interesting point because if they get a ton of orders coming in and they cannot keep up with it with a cost and they would have to put a margin on their product sold, which would go against kind of the mission on it. But if you look at the membership, you can only buy up to two products a month. So I think that they have mathed and factor that in. And again, we will have to just watch and see how they evolve those numbers as they grow. Damien also said, “Sure, there must be something we're not seeing. Who would want a business where you only make $100 per customer per year before operating cost?” Because remember this is immediate cashflow and then they go and they create the products.

So an interesting question. And then this is where Jeremy Cai came in, founder and CEO of Italic and he said, “Might be our models, but what's wrong with making $100 a member for year if there aren't any cost of goods, sold cost of acquisition, and support is spread across the member base?” A really, really, really good point that he's saying there is because they've done this as a member only invite thing, and because we're all talking about it and I'm doing a podcast about it, and there's a lot of buzz about it, they have a massive wait list. And like we said before, 97% of members have told multiple friends about the membership. So they're getting almost a zero CAC at this point, once they've done all of the media and everything that this podcast I guess is … Well, I guess it's not their CAC, is it? They're not paying me to do this.

But anyways, it really does make sense that they're getting all of that cashflow up front and then they can focus on doing the best possible with it. And without I really liked the back and forth that went on between those two there. Now Leanna Patch who is a amazing writer and one of my greatest friends in this space, she said, “I joined the second I heard about it. Maybe I'm just a sucker for ethical and sustainable brands, or at least those that market themselves this way. But if the at cost messaging is true and the quality is genuinely good, it'll be well worth it for me.” And then she had a few other thoughts to say and then said something that I though just summed this up perfectly. And she said, “TLDR, I think the value is definitely there for some items. If I'm paying the membership fee, I'm probably shopping there first.”

So that is a really powerful thing. Once you have paid that membership fee psychologically, that will be your first stop for products that they have on sale, because you have invested and committed into that being your go-to place and you've put money into it, so you might as well get that reward. And so it does a lot for retention. It does a lot for increasing average order value, and just psychologically building customer brand loyalty. And again, brand does not equal a logo.

Now another kind of back and forth that I really liked was between Dennis Hegstad and Patrick. Dennis said he was kind of talking about his shopping behavior. He joined as well, like Leanna. So we're hearing both sides of the coin. And he said, “Now my behavior is to shop less, but spend more, or find a good deal on what seems like almost comparable quality for a fraction of the price.” Meaning that he used to buy a lot of the Louis Vuitton kind of luxury items. But now he's shifted his shopping habits into saying, “I want the quality, but the brand doesn't make as much sense to me if I can get it for a fraction of the price.”

And then Patrick said, “I think that last part might describe where American shopping behavior is. If so, they've potentially tapped into something powerful.” And I think that's the thing there. I'm not exactly sure why Brandless failed. There was multiple reasons, but also maybe the market is now shifting to being more ready for a Brandless-type product like this. And then also when it's luxury, if you're not buying for the logo, you are buying for the quality. So you still get that.

And now this is, again, where Jeremy Cai came in and completely blew our collective minds. David Gill first said, “I applaud them for trying something new and different, but I don't think it'll work to attract luxury buyers. People don't buy Louis Vuitton because the quality, they buy because of the logo. This is the number one argument against Italic's move right now.”

But Jeremy said, “Agreed, can't swap out the experience or cache of buying a Louis Vuitton bag. But Italic is not for luxury buyers, although we have many. It's really for people who care about quality, but also getting a good deal.” And I think that is it in a nutshell, is Jeremy is saying, “Wait, wait, wait guys, when we're arguing about the luxury buyer or not luxury buyer, and the logo or the not logo,” he's saying, “Those aren't our target customers. Our customers are people who don't care about that. They are not luxury buyers. They're actually just quality buyers.” It's a mindset they're marketing to a mindset, which you've probably already heard me say multiple times and we're only on week three.

So really interesting drop there. I'm going to keep my eyes on it because I absolutely love membership programs. I think this one is really interesting. I love when the community can come in and unteach me something that is in my brain, which was when I first saw this, I really didn't like it. I kind of felt like it was just another kind of like exclusive boys' club type thing, but all genders. And you had to be a certain level of wealth to feel like you could shop there, but as you go through it and you really see how Jeremy has approached this, I think it's actually a really interesting and unique idea and I'm excited to see how they grow. And I am rooting for them because I love the ethically sourced product investment. I love the community building investment they've made, and I love watching brands try new things.

So now to wrap, we're going to snack on snacks. How perfectly does this fit into Ecomm Noms? We only had to make it three weeks in and then we got a snack story. So PepsiCo moves into DTC with two different brands. So let's get into this. I am going to read a little bit from a few articles that I saw that will all be linked in the show notes that Privy is posting. One of the biggest things that came out of this was this learning that was for large CPG companies the reward of getting into DTC far outweighs the risk, and we're going to get into this. And it's very interesting, but really what this is saying is with a brand that large as PepsiCo. Who owns God knows how much of the market, spending the money and the time and the resource to actually enter DTC is a very profitable idea for multiple reasons.

Now, at first, it's a new revenue stream for them, a new way for them to make money. But secondly, and most importantly, and this is really what the articles are talking about is that it gives them data that

they didn't have before. And so really with the current situation, more people are shopping for groceries online, more people are seeking comfort in brands they know right now because there's so much unknown. So really this came a silver lining of the crisis for PepsiCo. They're able to move into DTC and then start accessing the data on the people they are trying to sell to.

Now, I am a pretty strong proponent of DTC is too much about the data and too much about the consumer and not enough about the people and the humans that you're selling to. And so you're going to hear me kind of hit on that message again and again. And there are two sides to that coin. So I understand that I don't have all the answers to it, but this is kind of something that when I was reading these articles, it felt a little bit iffy about, but there's also some positivity at the end.

So Gibu Thomas PepsiCo's head of eCommerce had a quote that said, “What is different about this is we're getting data on what people are doing versus what they will say they will do. People are voting with their wallet, so we know exactly what resonates. So before, when they were paying for large surveys, really the data that they got were from focus groups and people saying, “Yes, this is how I would shop.” But now they're getting access to this is how people actively are shopping with us.

And then Thomas also said, “This will allow them to run thousands of experiments, such as messaging, what works and what doesn't, and then they can move those learnings offline because that is still their number one channel.” Now, another quote that I really want to read says, “Selling direct to consumers enables you to own the interface with the customer. This is vital because if you own the interface, you own the customer. If you own the customer, you own the data. And if you own the data, you own the future.”

Okay so this is where it starts to trip me up. This is true that data gives us insights to then make the things that we do for the people we care about and the people we're selling to. But also, I don't think it's fair to say we own the customer, we own the data, therefore we own the future, because customers at the end of the day are not data. They are humans and they make irrational choices and they make emotional choices and they do things that our data cannot see and track.

And so, while I do think this is true, especially for a company at this size who can really invest in the data, when you're growing your eCommerce store, if you are not the size of PepsiCo take this own the data on the future with a grain of salt, because sometimes you have to do things that the data is not going to be able to prove. You're going to have to do something that's against your data because the humans want something different. So remember that the consumers are also humans and there is a little bit of gray area in here.

Okay, onto the positive side, I went and looked at both of these sites and was shockingly very happy with the experience. I thought they'd kind of be meh, boring kind of experiences, but they did a really good job with branding. And I wanted to figure out what an actual consumer without a marketing brain thought about it. So I went to my trusted source of my husband, who is an aerospace engineer and does not understand marketing as he shouldn't.

And so I was talking to him and showing him the sites, and here are some things that he said to me first, he said, “It really feels like a revelation to be able to buy things that you know, would be on every shelf in any store and now I could just do it online.” And he was saying, “It's more than just like the alcohol industry or other things that I can buy online. But it's things that in my head are so prominent in drugstores, in grocery stores and gas stations. And now if I can buy that online, then what are the stores even there for?”

So I thought that was a really interesting take. And then he also said, “It really amplifies the natural human craving for instant gratification. It's getting what you want for less work, which is really all we want.” And he was saying, “Those comfort brands, at the end of the day, really what we want. And

they're kind of the,” he said, quote, “Safe choice a lot of the times, and now we can access it easily and with a click in that craving is then gratified.” And then my favorite quote, he said, when I was scrolling through the thing, he was saying, “Wow, you can't get these flavors in any grocery store. You never know what's going to be there.” And he said, “Now that is accessible. F**k, Kristin, let's buy 1 million Cheetos.”

A Privy team, I don't know if I'm allowed to cuss. So if you have to bleep that out, please go ahead. Anyways, I also had those same feelings. Something that I think it really did for me was as a kid, I grew up in a very healthy eating household and I was scrolling the site and I immediately felt like I was translated back to a kid when I was on Snacks.com, because it was like going through my friend's pantry. You know how your friends always had like the Honeybuns and the Twinkies, when your parents only had the sugar snap peas and carrots. Love you mom. And so it was that excited feeling, but then followed up with this, “I'm an adult and I can buy any of these snacks and have them come to me now. I don't have to wait until I go to a friend's house. I don't have to kind of hide it from my mom.”

It's this totally new experience where it's mashing together kind of childhood and present life. And I think that is going to be really, really powerful for their online sales. So lots we covered today. I will make sure there are a bunch of links, so you can read more and have a whole feast instead of just a nom if you want. But for now, thank you so much for nomming with me. I hope you had a delightful snack and I hope you have a wonderful tasty day.