Digitally Native Vertical Brands Rely on Three Core Concepts
Over the last decade, digitally native vertical brand (DNVB) companies that build, market, sell and ship their products without using a third party, such as Glossier, Sleeper, Allbirds, Dollar Shave Club and Warby Parker, have not only changed how customers buy products, but have also carved a successful niche away from traditional retailing and the Amazon marketplace. As a result, recent years have been very tough for physical retail. However, the bricks and mortar store concept is still alive and well, and DNVB companies are embracing physical retail space. Nonetheless, with more brands emerging every day, this new business model of DNVB has inflicted death from a thousand cuts on traditional retailers.
There is a common thread between these DNVB companies, and they have all relied on three core concepts:
1. Leveraging Data and Tech
A DNVB company is a brand born online with a strong focus on the customer experience and total control of its own distribution. These brands have come to life as a result of Google, Instagram, TikTok, YouTube and Snapchat, and would not otherwise exist. One example is Scentbird, a DNVB selling sample designer fragrances on subscription. Scentbird could not have existed a mere ten years ago, but today the company leverages tech platforms to communicate, sell and manage its inventory. Sergey Gusev, the co-founder of Scentbird, wanted to find influencers with large online followings, and began searching for ‘perfume reviews’ on YouTube, where he reached out to influencers to review his brand in exchange for free products. Gusev’s strategy paid off, and he sold over one hundred products in less than three days as a result of the reviews.
2. In-Person Interactions
DNVBs may start online, but they often extend to physical stores, not necessarily to increase sales, but to build a deeper relationship and brand loyalty with their customers. Therefore, DNVB companies are focusing on making their bricks and mortar stores a destination where customers can meet friends, enjoy a coffee, or even meditate in a relaxing meditation room. The goal of the new destination concept is to spend time interacting with customers as opposed to just getting them in and out of a store.
If we think about it, all of us can make purchases online, in our own homes, and have products delivered quickly and for free. There has to be a compelling reason for a consumer to visit a brand’s physical store. Fundamentally, customers want to connect, communicate, and experience a brand; how it feels to sense, smell, hear and taste the products, three-dimensionally. These are all the reasons why customers will leave their homes and travel to physical stores.
3. User-Generated Content to Cut Customer Acquisition Cost (CAC)
DNVBs embrace consumer-centric dialogue. Their social media feed seems just like a group of friends sharing tips and engaging in conversation, and content is generated by the users. For example, both Glossier and Sleeper’s brand-building strategies lie in their reliance on user-generated content (UGC) of videos, social media shares, and other content voluntarily generated by their devoted online community. This benefits DNVB companies in two ways.
Firstly, when customers have a great brand experience, they naturally rave about the brand and share their experience with friends. We all know that referrals are one of the most cost-efficient ways of increasing a customer base, and when a customer recommends a brand in their own words and pictures, the message comes across as authentic and ‘un-salesy’. This is what makes Sleeper and Glossier customer winners.
Secondly, these brands have worked out a way to extend customer lifetime value (CLTV) and avoid a high churn rate, because they retain more of their existing customers by co-creating products through constant communication. As a result, brands can build a defensive strategy against the rising cost of social media advertising.
4. Giving Customers a Voice Through Content
DNVBs do not depend on third-party sellers, and can launch new products whenever they like because they do not have to follow the traditional retail model of seasonal collections.
Most of us are familiar with Sézane, the retailer founded by Morgane Sezalory, who initially launched her company by selling vintage clothes from her eBay account. Sézane is a digitally native brand, born online, unlike many high street brands. Sézane is hugely popular, and people queue outside to get into shops in France, the UK and the US. Sézane can launch a product in one month without depending on seasonality, much in the same way as content is delivered by Vogue magazine.
I believe that celebrity endorsement is no longer the best way to reach a customer. To understand the future of DNVB, we also need to look at broader cultural shifts from how Millennials and Gen Z make purchasing decisions, to how brands can build loyalty. The idea that a celebrity knows more than the customer when it comes to skincare products is not appealing for Millennial and Gen Z generations. They prefer to process information through peer to peer channels; through friends, influencers and social media. Everyone has access to information nowadays, and customers are far more sophisticated and informed. As a result, they are less interested in learning from celebrities who are paid to endorse a product.
Looking to the future, DNVB companies will integrate more tech, and find new, even cheaper customer acquisition strategies to grow their revenue and userbase. Overall the DNVB industry is going to be an exciting space to watch, in 2021 and beyond!