From micro to macro: how should niche direct brands approach scaling?
We’ve seen a gradual yet intensifying shift from legacy brands to more nimble, smaller, mainly digitally native direct-to-consumer challengers. To the legacy brands these new upshots seemingly come out of nowhere: unburdened by large retail footprints, expensive personnel, and, by today’s standards, slow supply chain the challengers are free to pour money into customer experience. It’s paying off: who wants to trek down to the mall when with a few taps on your phone an Instagram-worthy garment or three can be on its way to your mailbox?
Yet there’s a reason why many of these new brands feel somewhat experimental and beg the question of if their longer-term sustainability. Scott Belsky wrote a great primer on how they operate and monetize. Earlier this year the IAB in partnership with Dun & Bradstreet compiled a list of 250 direct to consumer brands to watch — based on a proprietary mix of revenue information, market presence, buzz, and similar criteria. The one remaining question is can these brands scale and not run into the same challenges of unit economics their traditional competitors contend with? Yes — but perhaps we need to rethink what scaling means for a microbrand.
The traditional brand scaling and growth model calls for increasing investment in locations, breadth of offering, marketing, and other areas that, if all executed well collectively, would lead to nine-figure+ annual revenues. What if instead of a single brand masthead that’s bringing in north of $100MM per year the new direct-to-consumer model instead calls for building a constellation of 10+ smaller brands, each somewhere in the $10–50MM revenue range sweet spot? A few advantages readily come to mind:
- The individual sub-brands could still approach the market in much the same way direct-to-consumer brands do today and continue to keep customer acquisition costs low.
- This setup is tailored especially well for new product experimentation and quick market feedback — you essentially spin up a new hyper-targeted brand identity each time. If it’s successful: great; if it’s not it can be sunset gracefully.
- Over time and based on who each brand’s customers are, the brand parent can start to look at purchaser data to influence product development but also consumer behavior: eg. a customer of a bathing suit brand would probably also be looking for sandals, sunscreen, and assorted other beach fare.
- By owning the relationship with their customers directly, microbrands have more options for customer experience and loyalty, too. Limited runs, exclusive partnerships, pre-orders, and pop-up events can all be done at much smaller scale than what would make commercial sense for a traditional brand yet the value to consumers would be far greater.
You get the idea — perhaps the next iteration of a mall or a department store is entirely virtual, digital, and based on careful recommendations based on past purchases, preferences, and assorted data points that brands directly communicating with customers can be privy to. In an era of abundant choice even the illusion of personalization and relevance goes a long way. The next pop-up shop you walk into in a swanky part of town might give off the appearance of artful curation but really be a showcase for a constellation of microbrands. After all, this is directionally the strategy that Amazon is pursuing with their rapidly expanding private label business.
The bigger question is perhaps (how) can legacy brands think and act like their challengers. There’s no short answer here: it’s a shift that needs to start in the C-suite with the understanding that new approaches (and most likely expert advisers) will be needed across all relevant business areas.