New consumer brands are a hot topic this year. Once a new brand is called a new consumer brand, it is likely to become the darling of capital and consumers. New consumer brands are different from (old) consumer brands that are already well-known and dominant in the market. They differ significantly in product development and design, brand positioning, and marketing methods, hence the name "new consumer brands." The explosion of new consumer brands seems to have brought a "consumer brand revolution" to China's consumer sector. This revolution basically started after 2015: in 2015, coffee brand Three Squirrels (三顿半) was founded; in 2016, beverage brand Genki Forest (元气森林), food brand Lamian Talk (拉面说), and cosmetics brand Perfect Diary (完美日记) were founded; in 2018, ice cream brand Zhong Xue Gao (钟薛高) was founded. After 2020, a large number of new consumer brands emerged, achieving breakthroughs in a short time after their establishment. The successful ones pushed their valuations to near or above the unicorn level, which is astonishing. China's new consumer brands are like sparks of fire, expanding their influence in the territory of old consumer brands. Because of the above-mentioned characteristics, especially the new channel of removing distributors, new consumer brands are compared with D2C (also known as DTC) brands—that is, brands that directly face consumers. This year, Alibaba began to emphasize D2C, aiming to become a D2C digital service platform. Douyin e-commerce also emphasizes the power of self-broadcasting, and its platform merchants have strong D2C attributes. This brings the concept of D2C back to the center of the stage. The concept of D2C actually started from the United States across the ocean. The American D2C revolution began around 2010, about 5 years earlier than China. In 2010, eyewear brand Warby Parker and hair dye brand Madison Reed were founded; in 2012, men's care brand Dollar Shave Club and underwear brand ThirdLove were founded; in 2014, mattress brand Casper was founded; in 2016, sports brand Allbirds and online consumer goods brand Brandless were founded. These brands all adopted the D2C model and quickly captured a significant share of the market from existing consumer giants, achieving success. American D2C brands took about 10 years to blaze a trail and prove that they can compete with traditional brands. This is instructive for Chinese new consumer brands that are still in the early stages of development. To see the future of Chinese new consumer and D2C brands, it is helpful to look at how successful American D2C brands have done it. In the cracks of giants, win the market with cost-effectiveness It is generally believed that the D2C revolution in American consumer goods began with the eyewear brand Warby Parker, which won the market by selling directly through its website at prices far lower than traditional optical stores. Compared with glasses bought at traditional optical stores, Warby Parker offers better value for money. It carved a path in the cracks of traditional optical store giants. Not coincidentally, subsequent D2C brands basically adopted this strategy. Dollar Shave Club vs. Gillette In the American razor market, Gillette has dominated for decades. Gillette has the best products and the highest prices. Before the innovative brand Dollar Shave Club appeared, no one thought there was anything wrong with that. In 2010, Dollar Shave Club founder Michael Dubin had the idea of selling razors over the Internet to help a friend sell excess blades. In 2011, he launched a website. To get more attention, he shot a viral video explaining why he founded Dollar Shave Club. In the video, Dubin constantly satirized the market leader Gillette: "Do you really like spending $20 a month on a brand-name razor? I'm afraid $19 of that goes to brand ambassador Roger Federer," "Do you think you need a vibrating handle, a flashlight, a back scraper, and 10 blades?" He offered a better choice: "For just $1 a month, good blades delivered directly to your door." Compared with Gillette's products, Dollar Shave Club's products are more cost-effective and save the hassle of buying blades every week. Consumers found that besides paying high prices for the best products, there is an option to pay lower prices for more cost-effective products. Dubin's video quickly went viral on YouTube and brought a lot of sales, then quickly embarked on a path that threatened Gillette. Hubble vs. Johnson & Johnson The contact lens market is somewhat similar to razors and blades: they both need to be replaced regularly. Although daily disposable lenses are clearly more in line with people's practical habits, many consumers still buy monthly disposable lenses because they are relatively cheaper. Hubble caught this point and hoped to let consumers use daily disposable lenses at the price of monthly ones. Founder Kogan said: "Many people wear monthly lenses because they are cheaper than daily ones. If you pay $300 a year for monthly lenses, you probably don't want to spend $600 or more on daily lenses. Big brands basically price them that way." "But you might be willing to spend $350-400 on Hubble's daily lenses. If we can get more people to use daily lenses, our market share can grow very significantly." In later advertisements, Kogan also emphasized this point. He said in the ad: "We founded Hubble because contact lenses are too expensive." Hubble provided daily disposable contact lenses to consumers at $33 per month and achieved great success. Madison Reed vs. offline hair coloring salons Most people who dye their hair at salons are tired of the high prices and the hassle of traveling back and forth. The Mourad couple thought, "Can we formulate hair dye for people we have never met, mail it to them, and let them dye their hair at home?" They found that women are usually dissatisfied with existing options. Hair salons charge an average of $60 to $100 for basic color, and dyeing at home does not work well either. Based on this, in September 2010, they launched Madison Reed, providing consumers with hair coloring products suitable for them. Initially, the company only charged $10 for the first order of every customer, and soon Madison Reed occupied the market. The essence of Madison Reed's success is that you can buy similar products at a fraction of the price of salon hair coloring, with delivery to your door. ThirdLove vs. Victoria's Secret In 2012, Zak and Spector founded ThirdLove. The original intention came from Zak's shopping experience. She said: "No woman wants to go to an underwear store. Among the 20 to-do items, this is the last one." "I would rather clean the dishwasher than go to an underwear store. If you move the experience of shopping for underwear online, it would be easier and more convenient. Women can buy bras online late at night or on weekends, without time restrictions, and they don't have to go to the store." In addition, ThirdLove's killer feature is the introduction of half-cup bras. After research, they found that nearly 30% of consumers cannot find a suitable size; the size that fits them is often between two sizes. ThirdLove eventually offered nearly 80 sizes, twice the number of sizes provided by Victoria's Secret. Most other brands ignored this market because of high costs. ThirdLove subsequently launched a variety of market strategies and finally tore a gap in Victoria's Secret's market. It can be seen that the consumer goods market in the United States is different from that in China. If China is experiencing consumption upgrading, the United States is likely experiencing consumption downgrading. The consumption downgrading here refers to the relative shift from the previous consumption concept of spending the most money to buy the best products. They gradually become more cost-conscious, that is, spending appropriate money to buy products that are sufficient. The contempt of giants: from looking down to being unable to catch up D2C brands face huge difficulties because they enter fields where giants already exist. If the giants had noticed the threat and taken effective tactics, such as quickly lowering prices or developing new products, these new brands might not have survived to this day. But when facing these new brands, they were like Kodak facing digital cameras, not paying due attention to the opponent, and ultimately made a big mistake. When Dollar Shave Club's video went viral on YouTube, Gillette executives kept thinking, "But our blades are better!" In October 2015, Procter & Gamble's CFO Jon Moeller told Wall Street investors: "Compared with other razor competitors, Gillette's products are clearly more favored by consumers, winning in tests of fit, smoothness, comfort, and 18 other features, including the particularly important better overall shaving experience." There is no doubt that Gillette's blades are better, and almost no one opposes this, but consumers do not necessarily need better and more expensive products. Gillette thus held the idea of "my product is better" and watched Dollar Shave Club gradually erode its market. When Hubble gradually became popular, the founding team worried about what to do if big brands lowered prices. After all, in this highly profitable industry, even after significant price cuts, big brands still have high profits, but Johnson & Johnson, Bausch & Lomb, and other big brands did not do so. As a HSBC Wall Street analyst concluded in a report to investors: "Given the rich profits of contact lenses, we believe that it is not in the interest of the three major players in the industry—Bausch & Lomb, Johnson & Johnson, and CooperVision—to cut prices now." When Madison Reed launched hair dye, the founders also worried that brands like L'Oréal and Clairol would follow suit. But after some research, they believed that all large companies not only sell packaged products through retailers, but also provide more premium professional product lines to hair salons. If L'Oréal offered a customized at-home hair coloring brand, it would likely affect the business of salon owners and stylists, and that part of the business is important to L'Oréal's sales. In the end, these big brands indeed did as Madison Reed expected, until Madison Reed had already captured a significant market share. As one of the most typical representatives of D2C, Casper attracted the attention of Simmons when it launched cheaper online mattresses. Simmons executives once asked: Who is Casper? At that time, the annual sales of all startups were far below 1% of market share. A subordinate responded: "Don't worry about them. They are a bunch of lunatics. Their mattresses are terrible. People will realize this in a few years and stop buying their stuff." Simmons has about 50 scientists and technicians who constantly test and develop mattress materials. In a lab outside Atlanta, they have a machine that uses a bowling ball cut in half to simulate a person sitting on a mattress, simulating 100,000 times of sleeping in bed, equivalent to more than ten years of wear and tear. Another machine, similar to a huge six-sided rolling pin, called a "roller," can move back and forth, pressing on the mattress 120,000 times to simulate years of sleep wear on the mattress. Finally, there is a high-tech mannequin that can be adjusted to simulate different weights and body types. When a person lies on the mattress, a pad embedded with 2,000 sensors generates a map of all pressure points. Chunglo also has a patented "foam compression recovery" test device that measures the speed at which the mattress returns to its proper shape based on the weight or pressure applied. Simmons is very extreme in pursuing the ultimate in mattress product development. However, precisely because they held the belief that their products were better, they were robbed of a large market share by Casper. Continuously optimize products based on customer data D2C often directly connects with consumers during the product development stage, usually testing consumer preferences through websites or digital platforms to derive the most suitable products for consumers. Because such tests collect data from many consumers, the launched products often have a good chance of success. For example, Warby Parker has been optimizing these issues in its connection with customers: What is the return percentage for each frame style that needs adjustment because it doesn't fit? Which prescriptions are not suitable for certain frames because the degree of correction needed is too high, making the lenses look too thick? What proportion of customers need to buy new glasses with a new prescription? At which point in the online checkout process do potential customers feel frustrated and abandon the purchase? These data points provide opportunities to improve the customer experience. Other D2C brands do the same: ThirdLove's algorithm helps consumers choose the bra that may best fit you; The Farmer's Dog, which sells fresh personalized pet food online, uses a questionnaire to determine the right dog food mix and proportions for your dog; Online wine retailer Winc uses questionnaire answers to determine which brand of wine to send to consumers, and like Fashion Box, it has also begun to produce its own, mainly based on algorithms processing data from various customers choosing different wine varieties; Care/of tailors vitamins to consumers based on their survey responses; Prose uses questionnaires to customize shampoo for its online customers. Among these, the most typical representative may be Madison Reed. Their formulas have gradually increased and improved over time. Madison Reed formulates specific products based on historical data provided by customers, then customers provide feedback, and so on, thus changing the way hair dye is formulated for these customers. As of 2018, Madison Reed had distributed 165,000 different formulas. This is only a tiny fraction of the results it has calculated; Madison Reed calculated a total of 22 times 10 to the 267th power, i.e., 22 followed by 266 zeros, in color variations. Such numbers are unimaginable for offline hair salons. Direct connection, strengthen links The core characteristic of D2C brands is direct connection with consumers, but this connection includes product development, sales, and even after-sales service. We have already discussed how D2C brands launch more suitable products through long-term research and analysis of consumer data. Regarding the sales model, this is the main feature of D2C brands. These brands were the first in the United States to sell goods directly through official websites rather than offline stores or distributors. Since Warby Parker used a viral video to ignite the Internet and attract a large number of consumers to its official website, more and more D2C brands have adopted this approach. This is different from the Chinese environment. Most Chinese new consumer brands connect with consumers through platforms such as Alibaba, JD.com, and Douyin, which is essentially no different. I think the creator of D2C in China is Xiaomi. It is the first brand in the Internet era to sell products through official channels, but today a large part of its sales also comes from platforms like Taobao and JD.com. D2C brands do not miss any opportunity to quickly establish contact with consumers. Warby Parker does the same even in after-sales service. The following example illustrates the speed of this model and its advantages in customer experience. Mark Elie noticed a small scratch on the lens of a pair of Warby Parker glasses he had recently purchased. He sent a text message to Warby Parker's customer service team that evening. He said: "I thought I wouldn't receive a reply until next week, and I might have to send an email again, after all, it was the holidays." Things quickly surprised him. He recalled: "Half an hour later, I received two emails." "The first said your new glasses are on their way to your address. Then, the second said here is your return label, please send the glasses you received back to us so we can see what's wrong with them.' This surprised me, especially at 9 p.m. on the night before Thanksgiving. But the most surprising thing was that I directly received two emails telling me the problem had been solved." The speed of D2C customer problem handling far exceeds what ordinary people imagine. To this day, Warby Parker still maintains a considerable customer service team at its headquarters. Value customer LTV (Lifetime Value) D2C brands attach great importance to customer LTV (Lifetime Value). They regard it as the lifeline of the enterprise. At the same time, increasing LTV is also an important means of connecting with consumers. Many D2C brands adopt a membership system. For example, Dollar Shave Club initially charged $1 per month, ThirdLove charged tens of dollars per month, etc. Brands that adopt a membership system will place great emphasis on repurchase rates. They will increase consumer LTV by continuously collecting data, improving products, and providing services. For example, Madison Reed used this to increase customer retention from below 50% of initial orders to about 70%. Madison Reed collects information from every customer who walks through its digital door and answers questions. The longer a consumer stays as a customer, the more Madison Reed learns about her, and not just more about her. Madison Reed further aggregates all this data and uses machine learning algorithms and predictive analytics to guide the vast majority of its actions: from adjusting product formulas, to introducing new products (such as colors for highlighting hair), to testing seemingly insignificant word changes on its webpage. Tamim Mourad, one of the co-founders of Madison Reed, said: "Actually, we are a technology company that sells beauty products." This point has now been valued by many traditional brands. For example, Nike launched Nike+ to connect with consumers and increase the LTV of individual customers. Since Amazon Prime, major domestic e-commerce websites have also launched their own membership systems, all trying to use this to increase customer LTV. Digital marketing at the core The success of old consumer brands is inseparable from the power of traditional media. Brands like P&G, Coca-Cola, and Nike use traditional media such as television and print to influence consumers and promote sales. Their growth history is also the rise of Madison Avenue 4A advertising agencies. D2C brands, from the very beginning, did not consider using traditional media marketing. They often use digital social media such as Facebook, YouTube, and Instagram for marketing. Dollar Shave Club initially became famous overnight on YouTube with a viral video. When the company entered a period of continuous operation, they began to market more and more on Facebook. On Facebook, Dollar Shave Club made different ads for different customer groups and conducted continuous testing and optimization, which in today's terms is A/B testing. They found some valuable groups, such as the group nicknamed "whales," which are the highest-value customer groups. They buy razors as well as shaving cream and wipes; another group is called "executives," who registered for Dollar Shave Club's most expensive six-blade razor; There is also a group of "fans," who clicked "like" on the Dollar Shave Club website but have not actually ordered products. They increased or decreased the amount they bid on Facebook ads based on the expected LTV of each target customer group. At that time, employees recalled: for each customer who would spend $150 at Dollar Shave Club over their lifetime, the customer acquisition cost was only $25-40 (Facebook ad fees). Dollar Shave Club experimented with up to 50 different ad variations to test which one got the most response. By mid-2014, Dollar Shave Club had 55,000 new subscribers per month on Facebook alone, and its annual sales rose to $65 million, triple the previous year. In the early days of ThirdLove, they experienced great difficulties. To solve the sales problem, they launched a bold plan—the "Free Trial" program (later called "Try Before You Buy"). In May 2015, ThirdLove launched an advertising campaign for this plan. The ads were mainly published on Facebook. ThirdLove's ad was like this: a picture of a ThirdLove bra appeared in a prominent position, with a direct copy: "30-day risk-free trial. If this isn't the most comfortable bra you've ever worn, return it to us for free." The word "free" was in bold black, lest it be missed. Customers had to pay $1 for shipping for the free trial. Initially, only the shipping fee was deducted from their credit card. If the bra was not returned within a month, they would be charged $64. Sales revenue quickly began to rise linearly, and the retention rate of trials was very high. They began to monitor real-time data on Facebook, which revealed the best time of day and the best day of the week for sales, allowing ThirdLove to achieve the highest sales with the least expenditure. ThirdLove employees were very clear about the proportion of people who clicked through to the brand page after seeing the ad, and of course, they also knew how many of them actually bought the bra. Before the "Try Before You Buy" program, ThirdLove spent about a few hundred dollars on advertising for each bra sold. The try-before-you-buy ads quickly reduced the customer acquisition cost to $40-50. In 2016 and 2017, ThirdLove almost exclusively promoted the "Try Before You Buy" program on social media, which brought about 80% of sales. Annual sales grew from about $1 million in 2015 to $20 million in 2016, then jumped to $75 million in 2017, and exceeded $130 million in 2018. ThirdLove's survival was completely no longer a problem. Offline experience stores: filling the necessary link for D2C D2C brands initially conducted business by selling directly to customers through websites, but as business volume grew rapidly, they needed to influence more consumers who were not reachable online, or those who were still accustomed to offline consumption. Therefore, for D2C brands, adding an offline sales link is a necessary path. But the offline stores of D2C brands are different from those of traditional consumer brands in both purpose and model. They are very similar to what is called "new retail" today. In an area of less than 2.5 square kilometers centered on Manhattan's SoHo district, at least 15 DTC brands have opened physical retail stores, even though these brands had previously touted physical retail as a 20th-century relic. For these D2C brands, selling through offline stores is not necessary; connecting with consumers and influencing them is the more important goal. For example, D2C beauty brand Glossier has turned its offline stores into Instagram-worthy destinations. A large number of fans visit the stores and upload photos to Instagram, making Glossier one of the most talked-about beauty brands on Instagram. When asked how Glossier's stores became must-visit destinations, Henry Davis, who served as president for four years in the early days of Glossier, explained with a smile: "It's more like we're making a movie set or stage design than a traditional store." For D2C mattress brands, Tuft & Needle found that stores can reduce costs and achieve sales goals like other marketing methods. Evan Marido, former COO of Tuft & Needle, explained: "A store's rent might be $9,000 a month, but a billboard costs $4,000 a month." "Does a brand having a store make people more confident in buying the brand's products online? Yes. Online sales will be higher because people see we have a store. It's like some people worry: I don't know if you're an online shell company. If I want to return something one day, have you disappeared? But if there's a store, I can walk in immediately. It makes consumers believe your company is reliable." For Tuft & Needle, stores not only serve the purpose of display and sales, but also advertising and trust. Opening stores with this strategy kills multiple birds with one stone. Tuft & Needle found that after opening stores, online orders in the area where the store is located and surrounding areas also increased. To further verify this hypothesis, Tuft & Needle showed the location of its stores to some visitors to its website, while hiding the store link from others. The results showed that people who saw the website with stores had a higher online conversion rate. Warby Parker opened its first permanent store in SoHo, Manhattan, in April 2013, and by the end of 2018, it had nearly 100 stores; retail store sales and online sales each accounted for about half of its total revenue. Luggage brand Away opened its first store in New York City in 2017 and opened six more stores in other cities over the next few years. In cities where stores were opened earlier, online sales increased by 40%, which is "not a little bit" higher than sales in cities without physical retail stores. The future of D2C brands: category expansion, challenging giants D2C brands initially seize the market by entering a specific segment of a product. They may be a single category of a product, such as Hubble's daily disposable lenses, or a pure online sales method, such as Warby Parker selling glasses online. But when these brands develop to a certain stage, they will encounter growth bottlenecks. At this time, they often use their experience in making D2C brands to expand categories. When Dollar Shave Club's user base approached nearly 3 million, Dubin began to gradually expand the brand to other cleaning and beauty products, developing "grooming kits" including hair gel, toothpaste, toothbrushes, shampoo, facial cleanser, cologne, lip balm, and even small clippers and nail clippers. After adding so many new products, they added a self-deprecating line to their ads: "Maybe the company should change its name." After Casper occupied the market with mattresses, it began to expand its product line, offering pillows, sheets, and bed frames. Casper tried to position itself as a sleep health company, becoming the "Nike of sleep." To this end, it began selling a $129 sleep-inducing lamp, and also partnered with another company to sell CBD-infused gummies. Casper said this product, priced at $35 for a small tin of 14 gummies, has a calming effect and can help you relax when sleeping. Generally, D2C brands expand vertically in their own field of expertise, such as Dollar Shave Club becoming a men's care brand, Casper becoming a sleep health brand, and Away becoming a travel brand, etc. This approach is consistent with the expansion model of domestic new consumer brands. For example, Genki Forest, which entered with sugar-free sparkling water, is developing more sugar-free categories, such as burnt tea and milk tea, and may launch more categories in the future. Each time a new category is launched, there is an opportunity to double sales, gradually building the brand into a comprehensive category brand selling more and more sugar-free products. This is to become the Coca-Cola of the sugar-free world. Conclusion Looking back at the history of American D2C brands, it can be found that the development path of these brands is extremely similar to that of Chinese new consumer brands, just 5-10 years earlier. D2C brands are undoubtedly an exciting presence in today's consumer market. They have revitalized a consumer market that has remained largely unchanged for decades. Learning from history to create the future, new consumer brands will encounter the problems of D2C brands on their future path, and there will certainly be many brands that achieve the same success as D2C brands, depending on what they are doing now. References: Lawrence Ingrassia's "DTC: How Direct-to-Consumer Brands Are Changing the Game" Source: Xunkong's Marketing Revelations (ID: xunkong2005) Author: Xunkong 2009 -END-