Product, Brand, and Experience Evolution in DTC

The Times ran a story last Fall about Casper’s quest to become the “Nike of Sleep”, which Sheila Marikar wrote up as a quixotic one. Despite being an interesting read, I felt the piece missed an opportunity to discuss some trends that have effected the DTC space more broadly.

In this short post, I’ll discuss how DTC brands’ identity was initially rooted in value, explore how category expansion necessitated a rethinking of that brand narrative, and finally discuss the potential for new customer engagement models in e-commerce.

‘Value’ and Category-based Identity

Early on, most DTC companies were literally value based. First-gen standard bearers like Casper and Warby Parker told customers, “We cut out the middle man to deliver a high quality ______ at a better price.” Their focus on value in the retail space was neither new nor distinctive. But DTCs’ tight category constraints on the value they were providing to customers was. Casper was the DTC mattress brand, Warby Parker the DTC eyewear brand, and so on.

This single product focus considerably improved the customers’ shopping experiences by simplifying choice. Thanks to a tiny catalogue, DTCs turned complex and difficult-to-navigate product categories into simple storefronts that had more room to tell a product’s story. In doing so, they were able to collapse the discovery and research phase of a traditional shopping journey. (An entire case study could be dedicated to the funnel and customer acquisition dynamics that such experiences unlocked.)

To sum up the early DTC marketing premise more completely, most players were saying: “We provide one _______ , and in addition to being a great value, it is the best product in its category.” Therefore, while value was an identity marker of DTCs as a group; product category was company-specific, and really core to an individual DTC’s identity.

Product & Category Expansion

As DTCs became 2+ year old businesses, they ran up against two challenges that necessitated product and category expansion. One was the need to offset rising customer acquisition costs with higher revenue per customer (the classic CAC:LTV balancing act). The solution to this problem is a well-worn path, involving developing and selling complimentary products into your existing customer base. For example — we see liked our mattress, how about a bed frame?

The second challenge was rising acquisition costs in their core product funnel, the cause of core customer markets drying up on Facebook. To offset these rising costs, DTCs needed to introduce alternative ‘first purchase’ products, which could act as new marketing hooks to bring a wider pool of customers into their ecosystem. These first purchase products could target lower or more premium prices tiers inside the same category, or seek new audiences in adjacent categories. For example — not interested in our mattress? What about a high tech pillow?

As a result of pursuing these two strategies, Casper was no longer just the DTC mattress brand, but also the DTC dog bed brand, the DTC sheets brand, the DTC pillow brand, and so forth. You can track a similar evolution in the product portfolios of many DTC brands.

Brand Story Expansion

Unfortunately this category expansion was, for some customers, depreciative to a DTC’s initial brand story. Because many DTCs now sold a range of ‘high value’, ‘best in class’ products, they started to look less distinctive, and more like a big-box retailer competing on price and assortment.

Responding to this challenge, DTCs sought to create larger brand stories under which they could house their growing product assortments. Casper’s solution was to be the ‘Sleep’ company, but other examples abound. In all cases, we can think of these identity expansions as marketing (or storytelling) strategies that sought to implant a broader narrative about the solution-space that the DTC brand occupied in their customer’s minds. If I buy a mattress from Casper, but understand that its true DNA is a Sleep company, then Casper may win a larger share of my wallet across broader range of categories.

Rethinking Customer Engagement Models

As evidenced by Casper’s product expansion (into connected devices, napping experiences, and in-store sleep coaches), the expansion of brand story was one of two interesting evolutions in the space. The second, and arguably more interesting, involves DTCs seeking engagement models that are not based on transactional shopping experiences. Casper’s approach here is to layer services on top of a core product category that has an abysmally long replenishment cycle. If they can increase the type and frequency of engagements they have with customers, where a ‘successful journey’ does not explicitly require a purchase, then, the thinking goes, they can cultivate deeper and more valuable customer relationships.

When you start to frame these strategies around engagement, in some cases, the goals of a DTC brand can start to sound like a tech company. Metrics like D/MAUs can start to creep into Product conversations, or even become explicit goals. A cynical view of this trend says that this shifting metric focus is a product of DTCs that were valued like tech companies try to look like tech companies. This is the NYT’s take — Casper is lurching after windmills. But I actually believe what they are doing, in addition to being interesting and intentional, is part of a larger change for e-commerce, and more broadly, retail.

No New Ideas in E-commerce?

As a broad trend, changes to ‘how we shop’ can have the quality of the snake eating its tail. The transition of DTCs from e-commerce back to brick and mortar is the most salient and recent example: digitally native brands re-adopting classic retail strategies. As a case in point, the Times highlights Caspers focus on staffing stores with knowledgeable sales people proving good customer service as evidence that there is “nothing new in sleep. Indeed, this sounds a lot like strategies we’ve seen from Nordstroms and other department store players in recent years — stabs at the online-meets-in-store omnichannel experience that has eluded retailers since it was first conceived in 2009–2011 with the proliferation of smartphones.

But not all changes in e-commerce map onto this seemingly circular trend. In the space broadly, I see two experiential models that I see circling one another in search of a shared product experience. Social media platforms, which boast the highest engagement metrics of any digital product, have been trying to solve in-platform e-commerce for years. Meanwhile, DTC’s have built modern shopping experiences and funnels on top of these same platforms, but are starting to re-conceptualize engagement. What does a Product that achieves both look like? Will we all be shopping inside of Instagram, or will brands create create shopping experiences that feel as engaging as scrolling through your Stories feed? I don’t have the answer yet, but I’m excited to be in this space and to have the opportunity to test out some ideas.

Thanks for reading! If you’re interested in discussing trends in DTC, E-commerce, or engagement models more broadly, shoot me an email :)