The world of consumer brands—those things we buy and use every day—is going through a period of dramatic change, as I chronicle in my book “Billon Dollar Brand Club: How Dollar Shave Club, Warby Parker and Other Disruptors Are Remaking What We Buy.” Direct-to-consumer brands are changing the landscape of consumer products but, as with so much of retail, one company looms over their success. Can these companies create a new type of e-commerce that Amazon doesn’t dominate?
A lot of the most successful new brands and their products—Dollar Shave Club razors, Warby Parker eyeglasses, ThirdLove bras, Quip electric toothbrushes—avoid selling on Amazon because they know they have a better chance at creating a strong brand identity via the direct to-consumer model than by going through the highly-commoditized Amazon platform.
A hugely important part of being a successful direct-to-consumer business is that you control your relationship with your customers by, among other things, providing a level of customer service shoppers can’t find at a large platform like Amazon.
Success starts with having a good product. But one of the keys to maintaining success for any direct-to-consumer brand is the quality of its relationship with its customers. Amazon poses a threat to that brand-consumer bond because when shoppers buy a product on Amazon, the primary relationship is with Amazon, not the brand itself.
Money versus loyalty
As long as a new brand is making sales, does it matter where the sales come from? In a word, yes. A brand gathers valuable user data from its website, which provides an incredible amount of information about who a customer is, as well as who potential customers could be. How often the customer visits before making a purchase; how long she or he spends on the website; which products each customer looks at, and so on—all these are important metrics for strategy for any seller.
At the core of the most successful direct-to-consumer brands is a product that fulfills a known need for consumers, targeted to customers most interested in the product. These specs are informed by the data gleaned from a potential buyer’s behavior, which helps a retailer learn precisely how to tweak the look and feel of a website as well as a product, how to most effectively target social media marketing campaigns, and how to fine tune a sales pitch.
If a customer buys your product on Amazon, however, it is Amazon—not the brand creator—that harvests all that data.
Ads auction
Social media marketing has been perhaps the most powerful tool that has enabled startup brands to choose not to sell on Amazon. Especially in the early years of the direct-to-consumer movement, social platforms were the easiest and cheapest way to reach people. It allowed brands to initially spend mere thousands or tens of thousands of dollars rather than the many millions of dollars that would have been needed in the past for a television ad budget.
Today, social media advertising—while still the most effective tool for many startup brands—is becoming more expensive. That means they have to spend more to bring in new customers than in the past.
This is basically a matter of supply and demand. As I explain in my book, social media marketing was so good, so effective, that everyone started doing it—which drove up the price. Simon Enever, founder of Quip, which started selling prescription electric toothbrushes in 2015, said that in Quip’s early days he could spend as little as $5 in social media advertising on Facebook for each customer. This low cost of “customer acquisition,” as it’s called, encouraged every other new direct-to-consumer brand—and soon there were dozens, even hundreds—to advertise on Facebook as well.
The price of advertising on Facebook, like Google, is set by an electronic auction. Like any auction, the more bidders there are, the higher the prices. Facebook is still effective as a marketing channel for direct-to-consumer brands, because it is constantly looking for ways to improve the targeting of ads, or to improve the performance (adding video, for example, prompted more people to click on Facebook ads, translating into higher sales).
The price increases were offset somewhat by better performance; while social media advertising is more expensive than in the past, it is still more or less the most cost-effective option, and many direct-to-consumer brands still advertise heavily on Facebook and Instagram (which Facebook owns, of course).
When brands cross over
After reaching a certain size, a brand may realize that the cost of adding each additional customer starts accumulating, since it has to spend more on Facebook to attract each new customer. There’s also the case that, not all consumers use social media, so at some point a startup brand may max out the number of customers it can reach on social media.
Brands need alternative channels to keep growing. That’s why some direct-to-consumer brands have opened physical retail shops—Warby Parker eyeglasses, Allbirds sneakers, Glossier cosmetics, Away luggage, Tuft & Needle and Casper mattresses, among the more popular ones.
Because Amazon attracts so many shoppers, some do test the Amazon waters. (Full disclosure: I’ve tested the Amazon waters, too, buying a few shares of stock in the company since leaving the newspaper business.) Those wanting to sell on Amazon inevitably face a conundrum: If you want to reach Amazon’s many millions of shoppers, you have to play by Amazon’s rules. And Amazon rules are set to help Amazon make money.
A brand can benefit by selling wares on Amazon and reaching customers there that it might not reach by advertising on Facebook, Instagram, and Google. But the calculation that brands must make is thus: Do I bring in enough new customers on Amazon to offset the costs of doing business on Amazon and the things I give up by not selling directly to them on my own website or stores? For some brands the answer is yes; for others, the answer is no. And, for some brands like Tuft & Needle, the answer is finding a middle ground that enables you to sustain your brand identity while also reaching Amazon shoppers with slightly differentiated products.
The challenge for an established direct-to-consumer brand is doing this without losing a direct relationship with its core customers, and without losing access to the data that comes with that.
One solution that more startups are trying is offering Amazon-only products. Tuft & Needle came out with a line of mattresses called Nod that is exclusively sold on Amazon. Its other signature mattresses—the Original, the Mint, and the Hybrid—are still only sold on its own site and stores.
With this strategy, Tuft & Needle attempts to have it both ways. It continues to obtain the majority of customer data by selling its main brands direct to consumers through its own website. And it gets a sales boost by offering a specific model on Amazon. For Amazon, this is a win because it can exclusively offer a mattress made by one of the hottest new mattress brands.
But every brand has a different calculation: Warby Parker, Allbirds, Glossier, ThirdLove and Quip, among others, are not selling on Amazon—at least not yet.
Fears of the knock-offs
Amazon’s aggressive move into private label brands continuously stokes the fear that Amazon will use its market power to commoditize everything. This fear extends to direct-to-consumer brands, with the threat that Amazon will water down brand identity and sully a brand image by creating competitive products on its own platform.
This fear is warranted. Amazon offers hundreds of brands that you probably don’t even know are Amazon. Take the shoe brand 206 Collective. Though it doesn’t bear Amazon’s name, it’s a private-label brand created by Amazon and sold on Amazon.com. Last year, Amazon began selling a 206 Collective wool blend sneaker for $45—a direct knockoff of the wildly popular Wool Runners sold for $95 by Allbirds, which does not sell its products on Amazon. Allbirds has tried to counter-act the impact of this copycat by publicly stating that Amazon’s shoe isn’t made in the same environmentally friendly and sustainable way (a staple of the Allbirds brand identity) that Allbirds shoes are made. For some customers, that’s a reason not to switch to the Amazon brand. But for others, a $50 price difference is understandably alluring.
Unless you have patent protection, which few products do—and which often is easy to get around anyway—there is little a new brand can actually do to prevent a knock-off, by Amazon or anyone else. Protect & Gamble, for example, recently introduced a new electric toothbrush called Gleem that is a more or less a direct knock-off of Quip. Other copycat electric-toothbrush startups have started cropping up as well.
The best assurance and protection for a consumer brand is a combination of strong consumer loyalty and brand identity, which is grounded in a good product and unique and superior customer experience.
These often require things like easy and free returns, a well-designed, easy-to-use website, and the opportunity to join a community of like-minded users who act as ambassadors for the brand, like the legions of Glossier customers who post selfies and videos with their reviews of Glossier products.
Inside Amazon’s strategy
The people at Amazon are smart. They are skilled at mimicking new direct-to-consumer brands not only by offering private-label knockoffs, but by hiring brand marketing executives who have worked at places like consumer brand giants such as Procter & Gamble and Unilever; and by improving the look and feel of what brands can do on their Amazon pages. This might help Amazon entice more hot new brands to sell on its site.
But in the end, no matter what you do, when you sell products on the Amazon marketplace, the risk is that it can diminish the distinguishing features of your brand in consumers’ eyes, and that you are viewed more as a commodity.
In the world of e-commerce, Amazon influences how everyone and everything operates. Full stop. Amazon sets the bar, especially when it comes to convenience and ease of shopping, selection, shipping, and returns.
The good news for brands is that entrepreneurs are well aware of this and are building alternatives to Amazon designed to give everyone else ways to better compete. For example, Shopify offers a low-cost digital storefront—backend software that lets anyone who wants to sell something get up and running easily and at a relatively low cost. Many logistics companies are catering to direct-to-consumer brands by offering shipping just as efficiently and quickly as Amazon. A slew of warehouse robotics companies have sprung up to compete with Amazon Robotics (once known as Kiva, the pioneer warehouse robotics company that Amazon purchased). Keeping up with Amazon may not be easy, but a parallel universe is starting to make it possible.