Digital Only Brands and Consumer Products – A Developing Issue
2019 appears to be the year of the avalanche of what a recent article in Forbes referred to as the new, Digital-Native brands. Although many have been around a while new brands born originally in digital and in some cases originally and primarily mobile are coming at us faster and faster with each glance at our phones. Brands such as Away, Artemest, Perigold, Wolf & Badger, Calamityware, Food52 and many others…. Control the competitive, visual, and emotional spaces around their brands and value propositions in ways difficult for other retail environments. Media services are becoming Consumer goods brands. Consumer goods brands are becoming are becoming their own retailers and Retailers are becoming well, we’ll see.
In a conversation with one of these major digital-borne brands many seem to feel that from here on the wind will be at their backs from here on despite how crowded the playing field is becoming for new brand launches in the digital space.
In the ironically ‘ancient’ history of digital brands perhaps the story of Someecards my have something to teach us. The New York Times article chronicling the trajectory of Someecards quotes co-founder Duncan Mitchell as saying, “Cards that might once have reached 200,000 people were suddenly reaching only a few hundred”. Nicole Ames, who runs a digital marketing firm called Twist IMC was quoted at the time as saying, “You spend years building up this organic following, and now your content no longer shows up unless you pay,” And the cost of converting a customer online has gone up enormously since then. Even more so today’s digital brands care completely at the mercy of the amplifier infrastructure especially Facebook and Instagram where, as was the case with Someecards, even tiny changes in their algorithms can be potentially devastating.
New digital brands are currently experiencing a faster rate of growth than pre-digital brands. A phenomenon that leaves media and marketing organizations forming these brands without a lot of appetite for any reflection about whether there were any aspects of traditional retail consumer goods product development or merchandising that they might need to know. However, price point pressures, margin pressure from the skyrocketing cost of customer conversion, pressures from investors to scale up, and the declining number of importer/wholesalers willing to inventory exclusives may call for digital brands may change that. As Tracy Wallace of BigCommerce.com described well in a recent article in BigCommerce.com the channel’s greatest challenge may end up being the physical product itself that they’re selling and the skill sets needed to make that product happen.
The challenges ahead are emerging specifically in two areas; scale-ability and in the dirty work of product development.
Scale-ability – As media and marketing organizations scale up the physical product part of the business, keep that product in absolute sync with their brands’ voices, and keep it coming day after day. Ironically digital brands have looked to traditional retail to solve the product development problems and for both scale-ability, to diversify in the face of increased competition from the other new digital-native brands not to mention the skyrocketing cost per conversion. Early on there was the partnership between Someecards and Target (and Someecards venture into Wine) but more recently 2018 saw other e-brands come out of cyber hiding to burst upon the brick and mortar stage. Prime examples are the enormous introduction of Buzzfeed Media’s ‘Tasty’ brand in Walmart and then the Buzzfeed ‘Goodful’ brand roll out at Macy’s.
With the nationwide retail square footage per capita shrinking and the accelerating trend of retailers to decrease outside brands to promote their own private label brands it’s likely not all these new digital brands will find sheltered, channel managed, or exclusive brick-and-mortar homes assuming they want to. Those brands’ next moves tend to be to seek to license their brands out to manufacturers/wholesalers who are increasingly less able to or interested in warehousing exclusive lines and who may have entirely different ideas about what that product needs to be. Once that control of the product shifts to a retailer or a Manufacturer/importer many of these brands are finding that they’ve entered arrangements without having a concrete and executable roadmap for the expression of these brands into product a situation which threatens budgeted launch dates, risks missed opportunities in new categories resulting in losses of market share to the deluge of other new competing brands.
(Left) Photo showing product color variation during production of a dinnerware pattern for a large US retailer. (Right) Setting color variation standards at a ceramics factory. Consistency will be one of the physical consumer product concerns as digital-native brands scale up.
Price point pressures, margin pressure from the skyrocketing cost of customer conversion, pressures from investors to scale up, and the declining number of importer/wholesalers willing to inventory exclusives is calling for digital brands to come up to speed on product development and the supply chain including social compliance.
The dirty job of product development and manufacturing – The decreasing opportunities for placement in brick and mortar and partnerships with manufacturer/importers leaves these brands faced with learning or acquiring expertise of product development and sourcing on their own. Suddenly media and marketing organizations find themselves concerned with issues of manufacture-ability in design, manufacturing capacity, minimum production quantities, lab testing, transit packaging, quality assurance/control, and supply chain logistics. As many of the digital brands appeal to customer behavior sets for which ethical sourcing, sustainability and social compliance is critical that additional product development and sourcing expertise will also be a steep learning curve.
