DNVB Challenges in an Evolving Ecommerce Market

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DNVB Challenges in an Evolving Ecommerce Market

By now, some of your favorite brands are probably what is known in the industry as a digital native vertical brand (DNVB).

Brands like mattress manufacturer Hyphen Sleep, Jeni’s Ice Cream, Hickies and so many more were able to disrupt traditional retail — in part due to lower technology costs that reduced the barrier to entry in these markets.

Driven by a niche focus and an acute understanding of paid digital channels, some of these agile companies have found their way to multi-million dollar acquisitions, IPOs and private investing.

These days, founders launch their brands with the likes of Hickies, Jeni’s and Hyphen in mind.

Increasingly, the same is true for CPG brands launching new products and channels. Just look at Procter & Gamble’s Crest direct-to-consumer site.

Their easy-to-shop and -navigate site looks more like fellow DNVBs in the category — a big shift from merely walking past a set of products in the grocery or big-box store.

We are officially in the teenage years, where the wild west of DNVB growth slows, and these smaller brands must find more scalable, less volatile growth models for the next phase.

Core Components of DNVB Growth

With very few exceptions, a digitally native vertical brand (DNVB) that succeeds over the long term will have leveraged three core components.

To CMO-level operators, these core components develop a virtuous sales cycle.

The top brands:

  1. Foster organic (word of mouth) community.
  2. Convert social following into revenue.
  3. Optimize performance marketing spend.

But there are hazards to consider, especially when a balance isn’t a priority for a brand.

When a DNVB depends too heavily on one of the three components, growth can stall. In an upcoming report commissioned by 2PM and Common Thread Collective, the firm’s Managing Partner Taylor Holiday and I discuss the limits of a DNVB’s proverbial adolescent years.

The Teenage Years: The End of a Brand’s Natural Growth

It’s how brands position themselves for the next phase of growth that separates them from their competitors.

For brands, the teenage years can look different.

Here are three examples:

1. Dependency: grassroots community.

An online kitchenware brand has a coveted, quarterly brochure. The production of the brochure is 60% of all marketing spend.

Historically, it has converted well.

Sales have begun to stall as fresh entrants have begun to eat away at their awareness by spending heavily on performance marketing.

Rather than competing to amplify their sales through social channels and performance marketing, they spend more on the next quarter’s brochure.

This exacerbates the problem and opens them to more competition.

2. Dependency: performance marketing.

An online dress shirt brand builds a strategy around Facebook Advertising.

They hyper-target potential customers and reach them again and again.

But customer acquisition costs are rising, and as Common Thread Co.speculates, Facebook's advertising power may be waning.

It’s not sustainable and as such, the brand begins to lose to products with word-of-mouth influence and great social capital.

Overcoming Singular Channel Success & Increased Incumbent Crack Down

For DNVBs, it’s often easier to stick with what works at the expense of missing out on efficient, long-term growth.

In a recent article on ecommerce innovation and DNVBs, Internet Retailer’s James Risley got something completely wrong.

DNVBs’ ability to create unique products and connect with niche audiences insulate them from some competition with Amazon.com Inc. and other big retailers.

And the direct-to-consumer model keeps prices down as well, making their unique wears more affordable to the niche or mass-market audience they want to draw.

Brands are not at all insulated.

In fact, you’re beginning to see well-funded startups and brand conglomerates go after early-stage retailers even earlier these days.

Brands don’t win by insulating themselves.

Quite the opposite: they succeed by moving beyond silos and reaching the customers that are adjacent to their most passionate advocates.

Eventually, every DNVB faces the incumbent but first, they have to get out of their own way.

3 Examples of DNVBs Maturing Past Adolescence

To leave adolescence behind, diversification is often a necessity.

There are several brands who’ve successfully navigated brand adolescence:

1. Warby Parker.

Originally (and passionately) online-only, Warby Parker began opening up retail locations to influence customers who were hesitant to purchase without touching the product.

2. Fenty Beauty.

Rihanna’s Fenty Beauty is driven by the superstar’s social following.

However, to reach new potential customers, she began paying for traditional advertising in major cities.

This allowed her to back off promoting the product so often through her primary channel – Instagram.

3. Burrow.

Couch disruptor Burrow gained a solid following for their modular furniture seating, but now they’ve expanded their offering into other home goods including wall shelving, occasional tables and decor.

Executive Summary: What CMOs Should Do Next

For C-Suite level marketers, there is a three-part operational exercise that can go a long way in identifying best practices for a DNVB’s demand generation program.

  1. Identify the most important variables that drive your brand’s success.
  2. Collect and interpret data from a diversity of marketing research materials to better evaluate marketing mix strategies.
  3. Develop marketing recommendations that are fact-based and free of inference.

Diversification, within reason, is often the outcome of this exercise.To move beyond the early days of a brand’s growth, it is necessary to meet potential customers half way.This often means reinvesting in new marketing verticals is a worthwhile strategy. Advantage goes to the brands that see this and act on it before the market makes the decision for them.

DNVB Challenges FAQs

1. What is a DNVB?

DNVB stands for “digitally native vertical brand.” It refers to brands that are both digitally native and vertically integrated — although they may not stay digital only and may in fact expand into more traditional retail later.

2. What does ‘digitally native’ mean?

Digitally native refers to brands that were “born” online. If a brand’s first go-to-market motion is online, they are digitally native — though they may not stay that way forever!

3. What is a vertically integrated business model?

A vertically integrated business model refers to the vertical integration of multiple steps in the traditional distribution process. Instead of working with distributors and retailers, a manufacturer sells the product directly to their end consumers.

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4. What are the 3 core components of DNVB growth?

The three core components of DNVB growth are community, social media engagement, and effective performance marketing spend.

5. What are the challenges today’s DNVBs face?

For DNVBs, it’s often easier to stick with what works at the expense of missing out on efficient, long-term growth. To succeed today, DNVBs have to be willing to step out of their comfort zone and compete harder against a growing marketplace.

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