Why Direct Brands Are Beating the Fortune 500 — the Brand and Direct Blend Trend
Direct brands are taking over. When I ran international TV for Fox, we only knew about two types of potential advertisers: blue-chip brands like Budweiser and American Express, and direct response products populating those hard-to-sell slots. You know. Magical Abs! The Blend-O-Rizer!
Then I started to notice a third kind. Dollar Shave Club. Casper. Blue Apron. Bonobos. All of these sounded not like new brands, but rather like brand-new business models. Razors by subscription. Mattresses in a box. Home meal kits. Exceptional clothing overnighted. These experiences were hard to explain in an ad viewed for a few seconds on one’s phone — or even a 30-second spot on TV, for that matter.
Then, in February, the Interactive Advertising Bureau (IAB) gave these advertisers a name and a dedicated research team. I couldn’t have been more thrilled. The new category, “Direct Brands,” and the team were championed by the IAB president, Randall Rothenberg, who commissioned a year-long study about this phenomenon. (Opens as a PDF)
Companies like Warby Parker, Glossier and Away are not interesting curiosities, but instead represent an enduring shift in the way the consumer economy operates, Rothenberg said.
Growth in most consumer categories is shifting to brands centered on direct consumer relationships and agile supply chains, flexible enough to serve consumer needs as they evolve.
Fortune 500 companies said that in all but three of the top 20 categories, they had seen revenue growth below GDP between 2014 and 2016. Market share was therefore shifting from indirect to direct brands. Small and medium CPG manufacturers accounted for 64% of retail sales in 2016, which is a huge shift from 39% in 2015.
These changes are underpinned by consumer expectations. According to research by J.D. Power (cited by the IAB), two-thirds of all U.S. consumers expect direct connectivity to the companies from which they buy goods and services. Two-thirds! Because direct brand marketers continue to expand their budgets, it can only mean the ads are working.
I recently moderated a panel at a San Francisco event organized by the IAB to share best practices among direct brands. My co-panelists had worked on some of the largest direct brand campaigns, including Dollar Shave Club, Le Tote and Third Love. The number of questions and testimonials made it exceptionally clear that these direct brands had a receptive audience. As a matter of fact, it spurred so much interest that even in the panel that followed ours, attendees kept asking questions about direct brands. Direct brands put storytelling at the center. From a recent IAB report: Because differentiation by function or price is difficult, direct brands start early in their lifecycle differentiating by lifestyle and by story. That really says a lot.
Everyone loves hearing a story. And there’s no better way to hear that story than from the voice of a friend. Direct brands are reaping this benefit. Yet, the incumbents are not standing still: Unilever bought Dollar Shave Club; Nordstrom bought The Trunk Club; WalMart bought Bonobos, and Nike says its own direct-to-consumer sales will grow by almost 2.5 times over the next five years.
It is no coincidence that established brands are jumping onto the direct brands bandwagon by trying to reach customers through ads that feel more personal. TV networks and movie studios are joining in stride. Nearly every major network and movie studio uses the direct brand model — and influencers — to recommend their product like a friend would recommend a TV show.
It doesn’t matter what sector; certain emerging (or re-emerging) categories are trending right now because they have characteristics or capabilities that speak to what customers already told us, either directly or indirectly, that they prefer: Winning new approaches don’t ask consumers to make a behavioral change.
The newest and best verticals capitalize on recognizing behaviors that are already occurring.
Many recent success stories in tech, media, advertising and finance have accounted for said behavioral shifts. With that, direct brands are growing — and established brands are starting to learn from their direct brands counterpart.
Related story: The Challenger Brand Approach to Media