Searching for differentiation
Slipping into the sea of sameness, insurgent brands need to dig deep to differentiate
👋 Diwali From Home was interesting, like everything else in 2020. Festivals are a fantastic opportunity to shop new stuff, so we tried quite a few insurgent brands. The products are fantastic, but buying them directly from the brand is anything but convenient. The experience got me thinking - why are brands ok with a poor experience on their own store? It appears that own storefronts are not a priority right now. Online marketplace is where there growth is right? Understandable but ignoring own storefront might impact the long term growth prospects.
In biographical drama, The Founder, Ray Kroc's (played by Micheal Keaton) McDonald's experience begins from the moment he lays his eyes on the store. Everything from that point on completely blows him away - be it the queue, the order, the burger itself, and finally discarding the paper bag. McDonald's was completely different from what Kroc experienced at other diners he frequented on his sales trail. Surprisingly, the movie speaks little about the burger and shines a light on the entire customer experience, the system. Its interesting, small takeaway is that the product is still part (albeit important) of the entire brand experience. What brings a customers is a differentiated experience.
Brands (including some incumbents) have openly stated DTC ambitions, but there is no real evidence of any serious pursuit in that direction. It's still early days, and offline still dominates the market. I get it, but I feel there is more to this slowness than than meets the eye. Current cash flows clouding the future roadmap? Let’s see.
Product-only Differentiation and Leverage
A lot of brands start online these days, mostly on marketplaces such as Amazon, Flipkart. It's a great, low-cost starting point. Soon enough, the marketplace becomes a primary sales channel for a brand - combination of a great product and fast fulfilment brings in the customers in truckloads. The sub-text though is, the online channel is accessible for everyone. What we have now is a whole host of similar-looking brands competing, trying to replicate the success of the early entrants. The result is clutter for the customers and so begins the fight for consumer attention - more ads? So what is the best way to differentiate and retain customers? The best answer right now is introduce new products - just look at the number of SKUs and brand extensions launched each month. Out-innovate the competition with new products. What does this do? It places the burden differentiation solely on the product (including pricing).
This singular focus on product might not be enough to capture all the value the brand can generate. There are more dimensions to differentiate, more so if a brand intends to build a direct connect with the customer. If DTC is a long term strategy, then the entire acquisition funnel is an opportunity to differentiate the brand.
Let’s look at the leverage bit. The CPG distribution in India has not changed really, we just have some new players. The large incumbents have strong physical, distribution, large marketing budgets and economies of scale - ensure availability and push. The insurgent brands have online marketplaces, the Distribution-as-a-Service partners, and a strong social media game. The intermediaries continue to be the most powerful players - they own the customers. Also, part of the brand experience is managed by the channel, e.g. is it available on the shelf, how fast to they delivery. Strong intermediaries means decreasing margin in the long term (private label, competition, whole host of ads and fees). Lean heavily on the marketplace for long term growth, risk losing long-term profits - a brand's success allows a marketplace to harvest both margin (ads, commissions, shipping services) and data (customer data). We have seen this play out in the food delivery apps vs restaurants confrontation? To conserve margins, DTC is not optional anymore. Well, DTC does not mean online only, offline DTC is an option if that suits the category, e.g. beauty, cosmetics.
Side Note: Physical distribution is not escapable in India, brands have to cede margin in this channel. That said, the quality of data is bad for everyone in physical distribution, and there are limited opportunities for building customer profile offline - Jio+Kirana can change this if executed well, I wrote the possibilities in The Evolving GTM of Insurgent Brands - Part 2.
Irrespective of a brand’s DTC ambitions, the reality is that the marketplaces and distributors are not going away. In fact, the likes of Amazon will grow, and new ones like JioMart will emerge. That said, there sure will be a few orthogonal strategies worth exploring - strategy to wean away customers from marketplaces and bring them to brand storefronts. This will require some thinking, and a move away from product-only differentiation.
New Components of Differentiation
The core dimensions on which insurgents build a brand are focus and quality. Focus is the niche a brand chooses to operate in, so the differentiation is built-in sort of. Next up is quality. Although quality is a binary measure, it is a mistake to associate it with the product alone. Classic product-only differentiation. Yes, a great product is necessary, but it is not a sufficient condition to build a good brand experience. The quality vector can have multiple components, and each component can be a potential differentiator.
So what are the possible components of quality? Product (of course, covers R&D too), Storefront (online engagement and CRM) and Fulfilment (both delivery and returns).
We will not talk much about product-centric differentiation in this article. Let's talk about the other two, start with fulfilment.
Fulfilment-as-a-Differentiation
Yes, fulfilment is not a controllable vector for an upstart brand, not everyone has the capital or inclination to build their own fulfilment. I get it. But why should we still care? Because supply chain and fulfilment are customer-facing functions now - channels own this right now. Amazon is the benchmark in a fulfilment experience, also one of the primary reasons why people shop there. We want to know where our order is at in the delivery chain, thanks to food delivery apps for the habit?
So how do we compete and differentiate on fulfilment? Honestly, the insurgents need help. In the US, we have quite an anti-amazon alliance taking shape in the likes of Shopify Fulfilment Network, Dark Store Fulfilment, Instacart, etc. We need some sort of an anti-Amazon (anti-Jio?) alliance in India. We need brands, investors and entrepreneurs to push for a fulfilment layer for the future. A great fulfilment layer has some of the following features: predictive stocking, micro-fulfilment and fast last-mile delivery or delivery integrations. The same applies to returns too (returns is a nightmarish experience on anything non-marketplace). In fact, Bezos has given us a roadmap for a fulfilment-as-a-Service way back in 2005 shareholder letter. We need the same non-Amazon infrastructure (could be a big API infrastructure play after payments?)
Fulfilment by Amazon is a set of web services API’s that turns our 12 million square foot fulfilment center network into a gigantic and sophisticated computer peripheral. Pay us 45 cents per month per cubic foot of fulfilment space, and you can stow your products in our network. You make web services calls to alert us to expect inventory to arrive, to tell us to pick, and pack one or more items, and to tell us where to ship those items. You never have to talk to us.
We can take some inspiration from models like DMart, and build a network of low-cost warehouses. Models like Farmstead, an online grocer in California, show that it is possible to build a low-cost warehouse network in less than $100K per warehouse. What powers Farmstead is the warehouse network + merchant software (APIs).
The first-wave of insurgent brands gave rise to Distribution-as-a-Service (DaaS), we need something similar to power the fulfilment play, fulfilment-as-a-Service? A horizontal fulfilment layer is a piece of infrastructure that helps all the brands, so where is the differentiation? Well, a great fulfilment experience is a strong reason for customers shop directly on brand storefronts.
So, are there things a brand can do to influence the current fulfilment experience? Yes, think customer-first and some ideas might pop-up. Here is an example, brands usually send an email/text when the item is shipped, and that's it. It's now the customer's responsibility to track the package. What does Amazon do? It allows the customer to track the package, sends an email at frequent intervals with an update and allows single click ticket issue. Interestingly, everyone can do this! Logistics providers provide all the information via APIs. Why not make a simple self-service tool for customers? Use the tracking as an opportunity to engage? Be proactive, offer the information upfront in an easy to engage manner. Simple communication can build trust, and it is low cost— also a great opportunity to engage with the customer.
In fact, many B2B e-commerce enablers provide a tracking service to the brands - just turn this to the customer. People love the sense of control or at least the perception of it, give it to them - really that's what food delivery apps do; notice the app sometimes stops counting down around the ETA 5 min mark. It's coming through we know 😎.
There might be many more quick wins in the fulfilment experience that might not need massive investments.
Web Storefront-as-a-Differentiation
Storefront experience is something a brand can completely control. If executed well, it can become a key differentiator to bring a customer back. Also, let me state upfront, the storefront is not just about the UI. Again, think customer-first. Here are some levers available to brands:
Merchandising - exclusive, drops, bundles, value packs
Promotions - personalized offers
Unboxing
Communication - stories, social proof
Pricing and more
Price as a differentiator is the easiest lever, so let's leave it out. Let's talk a bit about others.
If brands want to acquire and retain customers on their store, then the kitchen-sink approach of listing the entire portfolio on Amazon might not work well. List the bestsellers, for exclusives, drops, bundles, combos etc. draw the customer to own storefront - opens many revenue maximizing opportunities. Same applies to offers.
Unboxing is another opportunity for customer delight. Even for product sold via Amazon, we can explore adding hooks in the box to draw the customer back to the storefront. Just slipping in a card asking for feedback and reviews on Amazon is lazy, we can do better.
Last but not the least, the UI. Amazon is limiting in this aspect. It is really a product search bar, and the search results look the same for all - doesn't matter if you are a gourmet brand or a mass-market brand. On the brand storefront, we can really make the experience engaging for the customer, talk to the main points at speak to the customer. The objective of should be to lure and retain the customer on brand storefront even if acquired on Amazon. Use story-telling to align with customer expectations.
Side Note: Ads can do better, we need more landing pages, less product pages. Clicking on search and display ads takes us to a product detailed page - true for all consumer brands who advertise online. It's weird because brands make no effort to engage the customer. A detailed product page make many assumptions about the customer intention and this approach may not yield higher conversions. Operators suggest that use the ad to engage with the customer, introduce the brand value proposition and then present the purchase option (with an offer if that works well.) Landing Page approach presents more opportunities to A/B Test the copy.
Today, the experience on the brand storefront is quite underwhelming. But it is quite fixable. I would love to do some audits but I’m no operator or expert. That said, I would like to share links to audits of some popular DTC brands in the US - Glossier, Rooted, Equal Parts, ThirdLove, Bombas, Olipop, Recess, and by Humankind.
The social media, community, etc. spends (really burn a hole in the bottom line) can bring you traffic, but it's the storefront's responsibility to convert them and maximize the value.
If we relook at quality as a composite vector then we can surface many interesting areas of differentiation.
In Closing
Don’t get me wrong, the product-only differentiated brands have have been widely successful - Brands from Paras Pharmaceutical and Vini Cosmetics are classic example. Differentiated product + mass media has worked well, but competitors catch up (we will explore Vini Cosmetics separately in the future).
The search for differentiation is continuous, harmonic, and it is the thing that keeps business ticking. The dimensions of the differentiation keep changing - we need to work backwards from customer needs, expectations. It’s time to develop new competences, look beyond product, explore the complete customer acquisition to post-purchase journey, the complete UX. The search for newer dimensions of differentiation might prevent insurgents from slipping into the sea sameness. Insurgent brands are predicated on differentiation, and that differentiation should go deep.
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