What Retailers Can Learn From D2C Brands
How brands can respond to the collapsing purchase funnel and find new purposes for their stores
There are two kinds of shopping — the kind of shopping you have to do, and the kind of shopping you want to do. Buying paper towels and groceries because you absolutely need them? That’s an errand to run, a chore to be done. But going to Soho with friends to spend an afternoon browsing through shops? Now that’s a popular leisure activity enjoyed by millions around the world.
The truth is, there are many needs and wants that shopping fulfills. Obviously, most people go shopping because they have to buy something they need, and the easier they can find and buy what they need, the better. This kind of utility-driven shopping is the most common type, but for many, shopping can also function as a form of entertainment, a form of self-care (they don’t call it “retail therapy” for nothing), a way of acquiring social status (or “flexing,” as the young people call it), and even a path towards self-actualization (“I shop to curate my image and lifestyle, to become whom I want to be”).
The internet has imploded the shopping funnel and made shopping increasingly convenient. This is perfect for utility-driven shopping, and the upcoming wave of retail automation will no doubt make shopping even easier and more streamlined. However, this utility-driven approach often neglects the many other needs fulfilled by retail experiences, which is why we are now also seeing a renaissance in brick-and-mortar as a number of retailers try out new technologies and strategic positioning to enhance the experiences they offer. Meanwhile, emerging D2C brands are also trying to address those needs through primarily online channels with their lifestyle branding.
Ecommerce is perfect for utility-driven shopping, but it often neglects the many other needs fulfilled by retail experiences
The Collapsing Shopping Funnel
It’s never been easier to shop. The unbundling of social media and search channels is giving rise to new discovery and shopping channels. Visual search is significantly shortening the path to purchase by making product discovery as easy as taking a picture, and Snapchat’s recent efforts with Amazon is an early version of that vision. Instagram’s recent updates of in-app shopping features is reinforcing the Facebook subsidiary as a leading social commerce platform, but the West is largely behind on embracing social commerce when compared to some APAC markets where high adoption of mobile payments has facilitated the meteoritic rise of “influencer-as-a-sales-channel’ model and ushered in some interesting hybrid platforms like RED and Lazada.
In addition, the rise of the direct-to-consumer (D2C) brands is further dismantling the traditional purchase funnel. Awareness now directly funnels to purchase, often on the same platform, while the data generated by purchases can be fed directly into the insight machine to further inform marketing strategy and product development. D2C brands are leveraging a mix of upper-funnel and lower-funnel tactics to drive purchase intent and grow brand awareness, often simultaneously, much to the detriment of legacy retailers that are still dutifully trying to drive shoppers down the collapsing funnel.
The rise of the direct-to-consumer (D2C) brands is further dismantling the traditional purchase funnel
This instant path from discovery to purchase is important to utility-based shopping, as it grants shoppers the convenience and ease that matter most to that type of goal-oriented shopping. Therefore it is unsurprising that everyone from Target to Walmart is testing new technologies and services like visual search and automated delivery robots to optimize convenience and efficiency. Ecommerce is often designed for convenience, and it raised consumer expectations across channels so now fast delivery service is no longer superlative, but table stakes.
But this utility-driven approach has an unintended consequence: much of the online shopping experience today has been reduced to a fast food version of what shopping used to be. Filled with algorithmic recommendations, search ads, and fast checkouts, online shopping has become an experience that is largely devoid of the joy of organic, serendipitous discoveries, the internal reflection on whether a piece truly fits our self-image and lifestyle, and all the fun we have by sharing those moments of joy and self-actualization with our friends. When we optimize for convenience and efficiency, as ecommerce channels often prioritize, we also filter out a lot of the human nuances in the shopping experiences that made it fun and interesting in the first place.
When we optimize for convenience and efficiency, we also filter out a lot of the human nuances in the shopping experiences that made it fun in the first place.
Therefore, the collapsing shopping channel presents new opportunities for retailers, online or offline, to reconsider how they fulfill the various other needs that offline shopping provide. Compared to shopping in a store, online shopping is, in most cases, a solitary activity, but social commerce reintroduces community-based elements back into online shopping. Most online stores are made for search, not for browsing. How can retailers reclaim their role as product curators online to guide product discovery, or is that something that is hard to replicate online and thus best left to brick-and-mortar? This is something all retailers are trying to figure out.
Finding New Purposes for Physical Stores
As online channels continue to excel in convenience, physical stores are undergoing a transformation to better serve non-utility needs that are often neglected by online retail channels. Some choose to amp up the fun while others opt to design their stores as Instagram-friendly hot spots to drive foot traffic. Some even choose to host events or classes regularly to encourage store visits and foster a sense of community among loyal customers. Whatever new purpose they center the in-store experience around, it should go without saying that stores have long ceased to be a mere sales channel — now they often function as a marketing channel to acquire new customers, a brand experience center to retain existing customers, and even as fulfillment centers to facilitate fast deliveries of online orders.
Physical stores have long ceased to be a mere sales channel
Juggling so many new roles, brick-and-mortar retailers are increasingly turning to new technologies to help them reinvent the in-store experiences they offer. Augmented reality, for example, is a popular technology that some use to spice up the in-store experience. Smart mirrors deployed by the likes of Rebecca Minkoff and Sephora showcase fun ways to try on many clothes and cosmetics virtually with a few simple taps. Last year, fast fashion retailer Zara introduced an AR experience at seven of its US stores, aiming to engage its consumers with holographic models that show up on blank window displays and empty podiums in stores via Zara’s mobile app.
Storytelling is another powerful tool that many legacy retailers use to make stores more entertaining for shoppers by providing a highly curated experience accompanied by superior services. STORY, an NYC-based concept boutique that routinely refreshes its merchandise and design every four to eight weeks to fit a particular theme, was acquired by Macy’s last May. Earlier this month, the department store chain opened STORY-branded boutiques in 36 of its full-line stores, hoping the rotating themes will be a unique draw for shoppers looking to be entertained. Similarly, Macy’s also launched a Style Crew pilot program that recruits staff members to create social content, turning their employees into brand ambassadors to add a more authentic touch to the brand narrative. Maybe one day we will go shopping in a virtual Macy’s from the comfort of our living rooms, but until that becomes a scalable solution, retailers will need to find another way to address the lost social elements in shopping.
Storytelling is another powerful tool that many legacy retailers use to make stores more entertaining for shoppers
Some stores are looking to foster a more socially engaging in-store experience for its shoppers by introducing group activities and additional services. Athleisure brands like Bandier and Lululemon are turning their stores into fitness and wellness centers that brings fans together to practice yoga and pilates with a group of like-minded people. Apple has been promoting its “Today at Apple” event series as a reason for customers to visit Apple Stores around the world and get the full Apple experience. In-person consultation is also an integral part of many shopping experiences that has yet to be widely replicated online. IKEA’s newly opened small concept store on Manhattan features several design studios where customers can make appointments with staff to work out the best way to design their decor and get the products they need.
Retailers can now also use stores to gather shopper data and generate insights thanks to new technologies such as motion tracking and object recognition. Amazon’s cashierless Go stores and JD.com’s ID X-Mart are two recent examples, but all retailers can now track where shoppers go in store, what items they pick off shelves, and what they end up buying — after getting the consent from shoppers. Some startups now offer in-store analytics tools that allow brick-and-mortar retailers to compete with the data-driven ecommerce rivals on equal footing in terms of collecting granular data to better understand their customers and improve the in-store experience.
Adding New Chapters to the D2C Playbook
The rise of D2C brands is predicated on the shifting shopper behavior that mirrors the collapsing purchase funnel, but part of their success can also be traced to the many clever tactics that D2C brands employ to address the non-utility-driven needs typically fulfilled by offline shopping via online channels. Typically, D2C brands like to merge purpose-driven brand narratives with subscription service to maintain customer relationships beyond the point of sale, thus establishing themselves as lifestyle brands.
D2C brands are often masters of using content-driven lifestyle branding as a form of entertainment and also a tool for customer acquisition. Flipping the purchase funnel upside down, they tend to start out with lower funnel on social and search to build up their fan base there before adding upper funnel media later to drive additional scale and achieve efficiency across the purchase funnel. Glossier took this approach when they made the leap from being a trendy beauty blog to producing their own line of cosmetics. They used their knowledge of their audience and data on what they responded to on their platform and social media to inform their product development and marketing strategy. Through design-led branding and value alignment, they often craft an aspirational lifestyle that customers opt into to fulfill many of the under-served needs in online shopping. For example, Away outlasted the competition by aligning their media with the aspirational travel of hipster millennial. Similarly, D2C darlings like Allbirds or Everlane are all in on eco-friendliness as part of their branding to appeal to the younger generations that are increasingly environmentally aware.
D2C brands are often masters of using content-driven lifestyle branding as a form of entertainment and a customer acquisition tool
Unlike their traditional retail competitors, D2C brands have the freedom to experiment with distribution models, from shipping directly to consumers, to partnerships with physical retailers (like Harry’s selling in Target), to opening pop-up shops. They don’t need to rely on traditional retail stores for exposure, but they are still very much aware of the power of physical stores. If they are selling a product that is a high-consideration item, as is the case with mattresses, then the idea of Casper opening 200 U.S. stores does not seem that outlandish, especially considering the stores can also double as distribution centers.
Brands are also reviving the social aspects of shopping in the digital age. Outdoor Voices, for example, invited its customers to participate in a weekly workout session in Austin, where the brand is based. Similarly, Moda Operandi, an online luxury retailer aiming to elevate online shopping to a luxury experience, leverages its strong publisher relationships to acquire its clientele and hosts exclusive clubs for people to pre-order hot items of the season off the runway. Other brands such as Floyd, a Detroit-based furniture company, and Lululemon are opting for a co-conspiratorial approach, inviting customers to be a part of its creative process and developing product lines based on social media feedback.
D2C brands also perfected the subscription model, with brands such as Quip and Dollar Shave Club eliminating the hassle of buying and replenishing personal hygiene products. Saving time is their number one value, but that is not the case for all D2C subscriptions. For example, Rent the Runway’s subscription service is all about giving people access to designer fashion that would normally be out of their budget if not on a rental model, thus offering subscribers a valuable chance to dress aspirationally and gain the social status they crave. Fashion brand Vince has recently launched a subscription program that allows loyal customers to refresh their wardrobe regularly. Fashion is something that is deeply tied to personal expression and identity, and this subscription program allows Vince to continuously occupy an important part of its customer’s psyche and position its brand as an integral part of their self-image.
The subscription model is also spilling over to traditional retailers. IKEA, for example, recently announced it is rolling out a furniture rental program in 30 countries, allowing shoppers to swap out furniture items as they move or renovate. This is an interesting subversion of the utility-driven function of subscription services in ecommerce, which often promise subscribers more of the same, delivered on a regular basis. Instead, subscription services enable IKEA to extend its brand’s presence in consumer’s life beyond the point of purchase. A subscription is a long-term commitment, and IKEA is positioning itself to capture the top-of-mind considerations as their heavily Millennial customers go through various apartments and decor plans as they figure out who they are. In addition, this subscription program is positioned as a sustainability initiative, which also works to align convenience with a social cause that resonates with its target customers. Thus, IKEA becomes a brand partner for some in their quest for self-actualization.
In the future, subscription models will likely become more flexible as they become tied to the various smart home devices that track usage and automatically reorder. Amazon’s first branded microwave comes equipped with Alexa and a subscription to microwavable popcorn, powered by Amazon’s Dash Replenishment Service, allowing users to simply ask Alexa to reorder more bags of popcorn off Amazon once they run out. This is a new kind of lifestyle that outsources a big part of the shopping experience out to automation, but it also frees up customers to pursue other sorts of shopping experiences that address their need for entertainment, social status, and so on.
In the future, subscription models will likely become more flexible as they become tied to the various smart home devices
What This Means For Brands
In short, consumers are looking for new kinds of shopping experiences that address the many overlapping demands they have. For brands, this means that:
- Rethink the role of physical retail in your sales channel. With the purchase funnel collapsing, are you positioning it as a sales channel or as more of a brand experience center? Think of the many new ways that a brand can connect holistically across platforms with their target audience via storytelling, experiences, and services that all add to the brand experience.
- Consider the role of the D2C model in your business. Granted, it might not make sense for your brand to go entirely D2C, but perhaps there are certain brands or product lines in a portfolio that could be candidates for exploration. Most incumbents have advantages in physical retail footprint and established brand trust that many D2C brands still lack today, and those are the key advantages incumbent brands needs to lean into before D2C brands successfully emulate them via digital channels.
- Take a page out of the D2C playbook. Learn from the successful DTC strategies of being co-conspiratorial, subscriptions, community elements and explore how those activations could apply to your brand in ways that are authentic to your brand and additive to the customer experience.
Retail is undergoing a tremendous transformation, which affects every consumer-facing brand. Does your brand have a retail strategy that responds to shifting consumer behaviors and demands? To learn more, and discuss how your brand can leverage these opportunities, reach out to Josh Mallalieu at josh@ipglab.com.