Which D2C Brands Will Survive and Which Will be Absorbed by Mega-Retail?

D2C (direct-to-consumer) brands, powered by innovations in marketing and technology, have seen great success. By connecting with customers directly and in a meaningful way, some of these brands, such as Dollar Shave Club, have avoided working with retail middlemen entirely.

Retailers, of course, don’t want to be sidelined. They are creeping into the D2C space and are catching up. One way they’re doing this is by on-boarding as many D2C brands as possible in an attempt to show the world that those brands can be successful on their platform. Another way is by launching their own private label brands, as Amazon has done with AmazonBasics.

Danger! This could be a trap. What if the retailers copy the D2Cs and create their own very similar store brands? How can the next generation of D2Cs protect themselves, retain their independence, and build on all of D2C’s successes so far?

Reliance on advertising and affiliate models are potential solutions, but they have their limitations.

Is the Advertising Model the Solution?

According to Google’s Display Benchmarks Tool, in 2018, the average click-through rate of display ads across all formats and placements is a mere 0.05 percent. This means there were just 5 clicks per 10000 impressions. (Smart Insights, a marketing platform, collected this data before Google eventually took it down). This is partially due to widespread use of ad blockers, and partially due to an evolving tendency to simply ignore ads. There even is a name for this phenomenon: ad-blindness, whereby we have become so used to seeing ads everywhere we look that we simply “tune them out” as if they were not even there. The takeaway is that ad spending is likely to become ever less effective.

Without a doubt, this is bad news for consumer brands, many of whom still rely heavily on advertising.

The other problem that faces D2C-advertising is the Law of Diminishing Returns. Advertising brings gains, but only up to a certain point. Beyond that point, the return on every dollar spent drops dramatically. For the first $1K, you might get some attention. Add in another $1k, and you barely make a dent. This raises the question: is advertising even worth it anymore?

Dollar Shave Club (DSC) has recognized some of these limitations to advertising, and adapted. It has managed to break into a market that has huge barriers to entry. It is an understatement to suggest it is not easy to compete with razor brands like Gillette. Let’s look at its success story more closely; how did the folks behind DSC manage to pull this off? They figured out how to acquire a ton of new customers very quickly: they leveraged the power of social media to create viral videos and an ever-expanding referral system, so that consumers ultimately advertised for them via word-of-mouth recommendations instead of the company having to do it all by itself.

While the DSC model might represent a small dent in the problem, it falls far short of solving the issue completely — not all companies can depend on “viral” moments for their success. Simply stated, there continues to be a need for a better solution.

Is Affiliate Marketing the Solution?

Some have suggested affiliate marketing is the best option for growing D2C brands.

But here is the problem: the affiliate approach is based on “weak links” as opposed to “strong links.” They are weak because they are only one way — they don’t provide feedback or sustainable income. For example, under the affiliate approach, curators — the experts who genuinely gain people’s trust and then present products or services to would-be consumers — are forced to send people away from their websites and assets to drive revenue. Thus, curators lose traffic, do not get the recognition they deserve in the value chain, and conversion rates remain low.

Disempowering curators also disempowers brands. Brands need champions and expertly written reviews, as well as high conversion rates. Honest reviews provide brands with feedback and other bits of useful information that allow them to improve product development, marketing, and customer service. Brands cannot readily get this information through affiliates, especially via the Mega-Retailers.

Ultimately, the affiliate model is not so different from the advertising model: click on a link and be sent away — end of story.

What Is the Solution?

Advertising and affiliate models sometimes work. But what if there were a better way? This means we need to think beyond weak links, AI-generated recommendations, and fake reviews.

What if there were a true sales channel that brands could rely on? Imagine a sustainable system of authentic referrals from reviewers and curators.

With such a system in place, people would have the opportunity to check authentic reviews online and to find the specific brands for their unique needs.

How Does 1o Present a Viable Alternative for the Future of E-commerce?

1o protects and nurtures one on one relationships. Our technology allows D2C brands to maintain their independence and exercise more control over what is happening in their sales channels.

1o connects buyers and brands wherever they exist, by embedding the checkout alongside reviews, with no need for a consumer to leave the page they are visiting to complete a transaction. Purchases happen exactly where content lives. By embedding secure checkouts alongside content, 1o creates a direct link between companies and consumers and allows for friction-free buying and selling — every time.

We remove all the clutter by reducing the number of clicks and decisions a buyer must make before a transaction occurs.The result is easier e-commerce with a higher conversion rate and better customer experience.

We also make it possible for the curators to actively demonstrate how they contribute to a sale. Brands manage the relationships with their consumers and curators, and we make it happen.

Ultimately, 1o envisions a world of strong links, powered by next-generation smart contracts, to re-introduce trust into digital commerce.