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IREU Top500 Brand Engagement Dimension Report 2018

IREU Top500 Brand Engagement Dimension Report 2018

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GUEST COMMENT Creating value in ecommerce: the case for direct-to-consumers digital brands

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Ecommerce today has switched from a product-centric marketing strategy to a segmented
Ecommerce today has switched from a product-centric marketing strategy to a segmented

An investor’s point of view


From 2005 to 2012, the number of VC investments in e-commerce companies has increased by 10x in Europe and the US. Nevertheless, very few true large e-commerce players have successfully emerged, except for Zalando, Asos and a few others.

 

In fact, the number of VC-backed e-commerce companies in Europe and the US has remained at its 2012 level and has even decreased in the past two years. Amazon’s presence in more and more verticals, as well as Alibaba and JD.com’s control over Asian markets, have made it all the more challenging to stand out from the competition as an internet retailer and several companies have faced challenges to find a path to profitability while maintaining attractive growth rates.

 

However, a new wave of interesting e-commerce start-ups is emerging, which are quite different from the typical 2000’s e-commerce companies. Three main trends explain a large part of their successes: a very strong brand, a lean supply chain, and the development of innovative ways to interact with and inspire customers; these three trends are best exemplified by direct-to-consumer digital native brands.

 

• Brand building

 

One of the key factors of recent e-commerce successes, such as Boohoo, Casper, Made.com or NA-KD, has been their ability to build a strong brand in just a couple of years as opposed to decades for traditional commerce retailers and brands. Digital native brands benefit from powerful tools and advantages:

 

- Product control and consistency of the quality and value proposition delivered to consumers


- Virality of online content led by influencers, bloggers, and early adopters that turns early customers into strong and influential online brand ambassadors


- Targeting capacity of online advertising that offers emerging brands measurable and controlled acquisition costs


- Global reach through online marketing, which is less capital intensive and much more scalable than building physical brick-and-mortar stores

 

Digital native brands are thus able to scale with lower acquisition costs, high repeat rates and high customer engagement. What is more, successful e-commerce brands are often built on specific verticals (furniture, mattresses, fashion) with simple customer value propositions, which helps in building strong brands.

 

• Responsive supply chain

 

One of the key pain points of retailers is the working capital needed to finance growth; this is especially true for fast-growing internet retailers. A responsive supply chain enables digital native brands to significantly reduce working capital by:

 

- Cutting out the middlemen and designing their own products, which provides the brands with a direct understanding of the demand and therefore enables them to adjust supply and production accordingly


- Relying on advanced analytics to forecast trends and produce precise demand forecast


- Vertically integrating production, which allows them to adapt smoothly and promptly to the demand forecasts

 

This responsive supply chain helps online brands have greater visibility than their brick-and-mortar or e-commerce competitors. They can offer a “fast fashion” proposal that follows the latest trends straight off the catwalk, widen their product ranges while minimizing the required working capital, and minimize both out-of-stock products and unsold inventory. Ultimately, this supply chain efficiency allows the company to deliver attractive products at a competitive price.

 

• Inspirational and social e-commerce

 

Going above and beyond a traditional online shopping experience is one of the keys to developing a strong and sustainable brand image and foster brand loyalty. Of course, everything from selecting an item to payment processing, delivery and customer feedback needs to be a seamless journey; but in order for customers to feel important and come back, improving interaction and frequent engagement with the brand is increasingly important:

 

- Offering an inclusive and unified brand experience across multiple platforms (on social media, chats, owned internet website and app, and even showrooms). Consistency is key.

 

- Being inspirational, as customers want to rely on trusted brands that they know they like to find interesting and unique products they could purchase. For instance, fast fashion direct-to-consumer brand NA-KD has developed one of the most scalable fashion collaboration platforms with star influencers worldwide.

 

- Building a strong brand community: consumers and especially millennials buy into a lifestyle when they think of brands they are strongly associated with. One way of establishing such a strong community is by leveraging social media influencer relations to build authentic and durable ties with online customers and “fans”. For instance, NA-KD has used its relationship with influencers to become very visible on Instagram, overtaking more established players such as Zalando, Boohoo and Asos in Sweden and Germany after only two years of existence.


- Making customers feel that the brand values their contributions and opinion. This can be done by collecting feedback and fostering interactions in traditional ways (by allowing customers to share product reviews, recommendations and tips) or with more specific initiatives, such as Made.com’s Talent Lab, which allows the brand’s fans to vote on crowdsourced furniture designs, the most popular of which then get integrated to MADE.com’s collection.

 

Ecommerce today has switched from a product-centric marketing strategy to a segmented and personalized approach with the consumer at the heart of brand building. In other words, many brands and merchants use creative and innovative ways to move away from the one-size-fits-all mindset and are no longer trying to fit a square peg into a round hole.

 

These are the types of companies that will be able to thrive against e-commerce giants and build sustainable and successful businesses. As we see more and more of them, there are good days ahead for e-commerce.

 

Authors: Bruno Crémel and Omri Benayoun are general partners at Partech Ventures

 

Picture: Fotolia

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