– The rise of DTC (Direct-to-Consumer) brands in 2012 disrupted legacy brands with their ability to cut out the middleman and leverage cheap Facebook ads.
– Large corporations tried to catch up by creating their own DTC companies, but many of them failed financially.
– DTC companies realized they needed retail and physical stores to boost their presence, but this increased their costs and made it harder to compete. Additionally, macro changes such as the shift to streaming TV and the dominance of Amazon impacted the DTC market.Understand the macro changes in the market and the strategies of large corporations to control markets by making it too expensive for challenger brands to operate profitably.What no one tells you about DTC. You need to understand the current state of the market and how and why we got to this place.
2012 – This was the modern age of DTC with cheap Facebook ads and the ability to “cut out the middleman.” This was the age where Dollar Shave Club and other brands had massive growth and were able to start cutting into the profits of legacy brands that enjoyed massive distribution through retail relationships. Corporations didn’t care, until they did. They started to make their own companies like those offerings, but they were too late to the party. When you’re too late to the party, you pull out your checkbook and you purchase these companies. And large corporations did, quite a few of them.
Fast forward 10 years later, none of them panned out financially the way they would have liked. Something else happened around the same time: very cheap money from VCs chasing the exits they were seeing. The problem is that all these DTC companies got confused and thought they could be real businesses and compete with the masses. This only works if you can leverage cheap acquisition.
But here’s where things get super interesting: most DTC companies that raised money found out they needed retail and to own their own shops in order to bolster their presence. Turns out retail wasn’t dead. But now they are trying to compete with the same costs they were trying to avoid. They IPO’d, then their shares tanked 90%.
So what happened? A few things… People began streaming TV instead of watching, so ad dollars started to migrate to other platforms. Corporations realized it’s cheaper to outspend your competitors on advertising to drive up their acquisition costs and bolster their own brands than it is to acquire a brand and have to keep running it. Amazon has become the default in terms of getting anything you need at a good price delivered to your door.
The pandemic happens, sales boom, globalization takes hold, everyone wants to run a brand, competition increases, shipping continues to go up. Death by a thousand cuts. I won’t even get into Facebook Ads issues and other things because they don’t matter as much as people think they do. Often times it’s macro changes that impact business more than micro changes, and you have to zoom way out to understand these things.
We have had massive consolidation across most industries in the last 20 years and more are on the way, the ability to compete with large corporations only existed before they were able to change the playbook to force brands to spend more to acquire customers. This one genius action allows them an invisible hand to control markets. They don’t need to make a competitive product, they just need to make sure that it’s too expensive for a challenger brand to be able to operate profitably. They are taking the write-off on the marketing side of things too, marketing used this way becomes both offensive for awareness and defensive to protect market share.https://www.linkedin.com/in/jivanco