The second wave of DTC is here. Here’s what it looks like.

Photo by Deseno
Photo by Deseno

COVID-19 changed everything about our world, and the retail landscape was no exception. With stores shuttered and customers quarantined, the in-person shopping experience became a distant memory, and we relied on our phones and computers to make our every purchase. The rise of direct-to-consumer brands in recent years meant there were plenty of businesses vying for this increased demand, suddenly desperate to out-compete their peers. As the masks went on, the gloves came off.

After all, winning in today’s e-commerce world takes more than it used to. Not too long ago, building a successful direct-to-consumer brand largely came down to mastering predictable advertising algorithms and executing a formulaic marketing strategy around social media and influencer partnerships. But recent shifts in the industry and in the world have foiled the tried-and-true tactics that had prevailed for so long, complicating customer acquisition efforts and steepening the competition. Take a moment and say your goodbyes to these brands as we know them, because DTC 1.0 is dead.

The new chapter of DTC comes with a brand new playbook, and with one defining differentiator: community. As online retailers explore alternative growth strategies, we’re witnessing an evolution in brand building where close communities of consumers or potential consumers are front in center. “DTC” no longer stands for “Direct to Consumer,” but instead “Direct to Community.” Brands with nascent communities are increasingly focused on growing them; brands without are quickly funneling resources into building them.

So, why are community-focused brands at the center of the next wave of DTC? How did we get here, and what comes next?

— — —

DTC 1.0: The Emergence of a New Marketplace

The first direct-to-consumer brands emerged in the post-financial crisis era. As the housing market crumbled triggering a global recession, a flurry of DTC businesses focused on providing value and convenience emerged from the rubble. Coinciding with rapid advances in ecommerce software providers, more and more digital retailers started popping up with simple business models, often selling single items and often via subscription.

At the same time, customer behavior was changing rapidly. The primary ways we consumed content, communicated with friends, and placed purchases were moving online quickly. Instagram in particular shaped how DTC brands communicated their market value. The app championed an “aspirational” lifestyle, rich in curated, high-quality content designed in aesthetically pleasing grid flows. This concept permeated the ethos of how brands marketed themselves and appeared in consumers’ feeds with an expertly blended perception of generational exclusivity and accessibility. Double tap if you agree.

As consumers revealed more of their personal information online, targeting them with strategic advertising became easier and easier. Brands learned to master the advertising algorithms necessary to win customers at low costs on channels like Facebook, with customers’ behavior increasingly predictable and quantifiable.

The DTC 1.0 era was dominated by brands like Warby Parker, Away, Everlane, and Casper. These were brands with inescapable ads on Facebook, an endless roster of Instagram influencer partnerships, and a strong pulse on what makes the Gen-Z and Millennial cohorts swipe right with interest or swipe up to purchase. The playbook was clear — invest heavily in social media and communicate with your customers directly.

Then, the Novelty Wore Off and Everything Changed

But this repeatable recipe for success could only last so long.

Seeing the meteoric rise of brand-centric DTC brands, legacy retailers started to recognize that they had to stay relevant or risk losing their customers. Their deep pockets and economies of scale enabled them to quickly spin out direct-to-consumer initiatives, some even bearing no brand association with the parent company; Target is a great example of this. Technological advancements also enabled them to easily launch new models such as subscription services, even if they were a departure from their traditional business model. In short, the entire DTC landscape became uber-competitive, very quickly.

Meanwhile, the tides were turning in the advertising world as well. While acquiring customers on Facebook ads was initially cheap and predictable, the channel became less effective as more brands saturated our feeds. And as bigger players started bidding for the same eyeballs and wallets, the smaller DTC 1.0 brands were consistently out-spent.

Ultimately, despite a small handful of large exits (like Dollar Shave Club to Unilever) fewer DTC brands than expected reached enterprise-level returns or scale, and DTC brands started to fall out of favor with investors, too.

DTC 2.0: The Beauty of Community

To succeed in a new and competitive landscape, DTC brands needed something more.

One brand that already knew this was Glossier. Glossier emerged in 2014 from a beauty blog, Into the Gloss, and was quick to master the DTC formula for success. Glossier sold a curated set of basic beauty and skincare products, invested heavily in their brand and aesthetic, and shared a slew of aspirational content. As Olivia Wedderburn suggests, Glossier created a “channel that reads more like a mood board than a sales platform.”

Through all of this, Glossier set itself apart by pioneering a community-centered approach that has not only enabled their growth to date but has also set them up to succeed in this new era. Glossier’s mission was not just to make products women loved, but also to write a new story around beauty. With natural-looking products “Inspired by Real Life,” Glossier redefined beauty standards in the era of “Instagram eyebrows,” heavy concealer, and aerobatic contouring. Their “Feeling Like” video series blasts a loud message: beauty products are tools for self-care and self-expression. By “Giving a Voice to Beauty,” and seeing their products as an incredible conduit for connection, they attracted an inclusive, curious, empowered, and authentic community that believes in their mission.

But Glossier did more than just foster this community; they leveraged it. For product development, they gathered community feedback to improve and design new products that felt high-end, on-trend, and affordable. For marketing and advertising, they relied on heavy use of user-generated content and brand ambassador programs to generate word of mouth at scale. Their strategy is working; Glossier has over $100 million in annual sales as of 2018 and is worth $1.2bn.

At a time when people are more socially conscious than ever before, people want to buy from brands that make them feel good about themselves and that aligns them with other people who share their values. It’s not that a big-box retailer couldn’t develop their own line of simple skincare products and sell them via viral Instagram ads. It’s that this big-box retailer will never have the organic, like-minded, forward-thinking, and inclusive community that makes Glossier more than just a retailer.

Sakara Life is another great example of a mission-driven, community-centric growth approach. Plenty of food suppliers and grocers have dipped their toes in vegan food lines, but none has built the dedicated community and give back program that has enabled Sakara to stand out from the pack. And it’s paying off: Sakara boasts over $150 million in annual revenue.

The Future of Community Building

Communities might be crucial, but not all communities are created equal. A community needs to be built upon a core set of values and beliefs that resonate with consumers. These values are often outlined in the brand’s mission statement, and if well executed, reflected in the brand’s products as well. People gravitate to others who share their views and principles, so organic online communities can naturally become prime customer acquisition or conversion channels. That type of authenticity cannot be manufactured on command.

DTC 2.0 is all about delivering on a brand’s higher purpose, not just selling products. Brands that want to be part of this will put their community as a key node in an organic distribution flywheel. Customers will be in charge of spreading the product, and brand love, to their sphere of influence.

At Hairstory, for example, our mission is to rethink everything about hair, because the old rules no longer apply. Our mission is expressed not only in our products but also in our community of hairdressers who sell our products for a commission, but have traditionally not been able to sell professional hair care products as this requires purchasing inventory and tying up their cash. Unlike other professional-grade hair care brands, Hairstory challenges how brands sell and distribute via bulk sales to salon owners. By developing relationships directly with hairdressers, we’ve created a community of experts who are a natural expansion of our mission. Our hairdressers test our products and offer feedback, promote our products, educate our customers on how to use our products, and create much-needed content. What’s more, during COVID, retailing our products offered a lifeline to hairdressers to earn income who were otherwise unable to do so with their salon doors shut. As a result, sales from our hairdresser channel grew rapidly.

Other brands are realizing the power of communities, too. Parade is seeking to “rewrite the American Underwear Story” by creating underwear that are eco-friendly, size-inclusive, comfortable, and colorful. Parade’s manifesto resonated incredibly strongly with their community and as a result, they’ve been able to become a community-first brand that proudly posts user-generated content and is responsive to feedback.

Cami Tellez, Parade CEO and Co-Founder shared “We launched with no PR and relied on our community of over 400 Parade Friends to tell the world about Parade. Today, we have over 4,000 people across America that helped us co-create the fabric of Parade & they serve as feedback and inspiration for where we’re going next.” The results thus far are nothing short of impressive: in their first year alone, Parade received 10.5k tagged feed posts, and is tagged in up to 40 posts per day, translating into an organic reach of 32 million from UGC.

Their work paving the way for DTC 2.0 was featured in the New York Times; by leveraging their community, Parade is able to act on its mission and create a different narrative on body positivity and women’s emotional connection to their underwear.

Ultimately, convenience, cost, and customization — all hallmark features of DTC 1.0 — are not enough; it’s mission-driven communities that are now setting brands apart. Tellez agrees: “It’s easy to build a brand that’s relevant for 2 or 3 years, but to make Parade a brand that’s culturally important for 10 years, we know begins and ends with listening to our community.”