Why some brands will survive Amazon – and you might not

In the past years, the Internet’s most feared retailer – Amazon – has been introducing its own private brands at an extremely high pace, restructuring its portfolio and starting to advertise it. While private brands are not new to retail, Amazon’s range must be feared by producers all over the world. The Giant’s brands are already taking almost half of the total e-commerce volume in some markets product segments and is outperforming the market’s total e-commerce growth.

Besides its Amazon Basics brand, Amazon is now exploiting close to 100 brands of its own. These include for instance Pinzon (luxurious bedding and bath) and Amazon Elements (vitamins and supplements). N

So: why will some brands be strong enough to compete Amazon – while you might not? Direct sales is the answer in an Amazon-dominated world.

Amazon and equivalents are probably the best place to make efficient purchases, especially for those with a low perceived value. For many brands, selling on Amazon is a good choice. After all, the marketplace helps them to increase their sales volume almost instantly.

However, in the long run Amazon might be a threat to many. As indicated in the lead of this article, Amazon is creating its own private brands on the fly. While you put your offer on Amazon, they have the insights regarding consumer’s interest for your product and the entire product category. One must not confuse selling on Amazon or marketplaces alike with direct sales. When you make a sale, you don’t own the customer and repeat sales are far from certain.

The Amazon Search Results Page (SERP) might showcase a dozen products, including yours. E-commerce, however, is expected to move towards a voice first environment in which customers order through a smart speaker like Amazon’s Echo. It is not likely that Amazon’s smart speaker will list tens of options when asked for a pack of batteries. Most probably its offer will be limited, always to include its own private brand. Additionally, in an Amazon-dominated world, products are even easily replaced by an alternative at the checkout page.

A direct-to-consumer (DTC) approach allows brands to collect customer data first-hand. Using the data coming from a direct customer relation they are, for instance, able to better predict demand or receive more accurate feedback on its products. (In contrast, Dinosaur Brands listens to a curated version of consumer demands from their largest retail chains only.) While most DNVBs are still small in sales, incumbents often have little to no experience in direct sales. Therefore, they are investing in them as a way of survival. Unilever, for instance, acquired Dollar Shave Club for 1-billion-dollars in the summer of 2016.

A solid brand is essential to a direct-to-consumer strategy. It’s the brand that differentiates them from a regular e-commerce company. While a brand might take longer to build, especially when bootstrapping, it represents an emotional connection with the end-customer and true long-lasting value. Brands will become more important in the years to come, also within the Amazon-scenario. Imagine the Amazon Echo results of batteries versus Duracell batteries.

Must-visit destinations

The DNVB primarily interacts with customers digitally, but they are not per se pure e-commerce players in their direct sales approach. Increasingly, leading DNVBs are opening stores on strategic locations. When they do so, they are rethinking the purposes of physical stores by benefiting from their digitally acquired insights. Their storefront ranges from temporary pop-ups to permanent flagship stores.

One does not have to look overseas to find successful DNVBs; Dutch-based Suitsupply is known for choosing unconventional retail locations where consumers can fit their custom made suit.

There exists a broad rationale for them to start a physical presence:

• most importantly, through a best-in-class omni-channel approach these stores give them the opportunity to offer a customer experience that complements the digital one;
• brick-and-mortar stores often have higher conversion rates and a higher average purchase value because of experienced store staff who offer customers personal guidance and reassurance;
• for some customers the desire to touch, feel and experience a (high-end) product before a purchase remains strong;
• stores can boost consumers’ trust in the brand by an increase of brand mentions or simply because they can return their purchased product in close proximity;
• various research shows improved sales around a store’s physical location, perhaps because Google offers a prime location on the SERP for businesses with a close by physical presence;
• while the e-commerce market might still be growing rapidly, its total sales is only a small part of the entire market.

Armed with large sets of consumer data, these DNVB know exactly where and how many shops to open. And these openings are heavily marketed by influencers, VIP-lists and personal promotions.

Based on the very same consumer data, within these shops they are able to make better decisions on the assortment. Not only based on what customers bought – but also on what they browsed, put on their wish list, and so on.

Home textile is an extremely large industry, but comfort and quality traditionally comes with a price only the happy few can afford. Parachute offers fine linen made out of the highest quality organic materials. The brand has a very high repeat customer rate and is adding additional retail space as well as premium partnerships with hotels.

Although referred to as stores or shops, there is no necessary sales target for these retail spaces. They are designed to be must-visit destinations that are primarily Instagram or share-worthy. These brands encourage their clientele to take pictures beyond the regular changing-room selfie. After all, they perfectly understand that today, consumers make purchase decisions on what they see in their social media feed. So, direct brands are using their stores for various reasons: as a showroom, a location to test new products or a physical presence to easily pick up or return ordered products. They are much less focused on availability of the product, because they are offering a premium product that consumers don’t mind waiting for.

Of course, not every new DNVB has the (financial) power to open a brand store at an A-location. Successful DNVBs however always tightly control their own distribution. If they don’t open stores, they engage themselves in exclusive partnerships for their offline presence. This way they are still able to control their brand story and the other essential elements that differentiate them from the rest.

Despite Casper’s 100-day return policy, many consumers are hesitant to buy a mattress without laying on it first. The mattresses-in-a-box brand therefore entered into a partnership with West Elm, a high-end furniture company.

Beyond the usual: three lessons from the best

When talking about DNVBs we all know the usual, mostly American, success stories like Bonobos (men’s clothing and accessories), Warby Parker (eyeglasses) or Dollar Shaving Club (razors). While these indeed serve as great examples on how to beat Amazon, there is much more to see. These are the ones we like to share with you…

DNVBs have something to tell. Much of their business depends on a solid story, brought to you directly from its founder. Their story is authentic, as if the product has been handmade only for you. Although only a few of them really originate from the makers movement, their tone is as if they just finished their kickstarter crowdfunding campaign. The essence of their story also functions as the core ingredient to design for simplicity. Beyond the product, their story resonates through all digital channels, customer care, retail and the product’s packaging.

Coming from New Zealand, Allbird’s Tim Brown was always intrigued by the quality of merino wool. Out of curiosity, he began asking himself why such a sustainable resource was virtually absent in the footwear industry. After years of research he teamed up with Joey Zwillinger, a renewables expert. Together, they crafted an entirely new category of shoes inspired by natural materials. Besides telling their story in nice Youtube-videos, they have reinvented their shoebox, telling you their story while unboxing your purchase.

Brands like Alo Yoga understand that user-generated content builds trust through authenticity, increases conversion and amplifies the brand. Alo Yoga’s clothing is a big hit among social media stars and the brand is very active on social media like Instagram. With product giveaways, it generates content from a large following of micro-influencers and its 8,000 square foot flagship store is located in… Beverly Hills. Its in-house yoga and fitness studio with a lounge area and kombucha on tap is a natural source of social media coverage for the yoga retailer. Besides the physical location, DNVBs products and packaging are also designed to be shared on social media.

But, these DNVBs understand that, to be successful on social media, it requires more than just a daily pretty picture. Besides seeking for engagement, they stay highly engaged themselves. They are keen on building direct relations that go beyond the commerce transaction. Maintaining and growing an enduring two-way relationship with your customers requires a lot of time that they are happy to invest. Their customers, millennials, frequently use social media for customer service and expect a brand to respond within an hour.

Often, DNVBs are built on bringing you a unique product. Traditional Consumer Packaged Goods (CPG) companies are built upon world mass markets. DNVBs understand that every individual (or pet!) is unique, so the best for you might not be the best for me. They leverage the reach of the Internet to build an audience size sufficient enough to stay in business. They are not shy to shout out loud they are the best and often have enough evidence to prove so. Because their company, products and way of working are probably new to you, they continue their messaging with a simple How It Works and full transparency on sourcing.

Not every DNVB is unique, of course. Those who are not, often play with exclusivity by launching limited editions and even give their sales catchy names like Last chance.

While many DNVBs have used the Internet to great effect, time will eventually tell if they will be able to build a sustainable business and survive Amazon. Today they are love brands, but are they able to maintain their Net Promoter Scores and scale in a profitable manner?

While the growth figures of many of those DNVBs are impressive – their total turnover often is still relatively small. However, in some cases these DNVBs are already outgrowing their factory. Backed by sufficient venture capital, for instance, Harry’s acquired its supplier Feintechnik. Also, they are in good company: in their early days, many of the brands that shaped today’s offline retail (like Bodyshop, Starbucks or IKEA) have had similar growth tracks.