TLQ 0.3 | Anatomy of a DNVB

Anatomy of a DNVB

The Lead editorial team unpacks learnings from Foremost 50 research to understand if there is a “playbook” for executing a DNVB

BY: The Lead Editorial Team

Whether scrolling your instagram feed, reading a daily retail news wrap-up, or riding the subway, it’s impossible to ignore DNVBs (digitally native vertically integrated brands). Brands like Casper, Hims, Glossier and Away are everywhere.

Digital native brands are not only making an impression on consumers, but they are also beginning to earn market share — capturing nearly 2% of the total $453 billion U.S. e-commerce market. Although that might seem small, DNVBs are also growing nearly three times as fast as the average e-commerce retailer (Internet Retailer). Large brands and retailers are taking notice and often asking what do these DNVBs know that larger businesses do not? In the summer and fall of 2018, The Lead team compiled The Foremost 50 list, researching, interviewing and gaining an understanding of the leading apparel, accessories, footwear, beauty and home brands in this category.

After finishing this list, we wanted to better understand if there is a “playbook” for executing a DNVB. Are there shared best practices, processes and efficiencies that we can learn? In the article to follow, we’ve unpacked the ‘Anatomy of a Digital Native’ so that you can decide for yourself.

And if you are looking to take inspiration from these companies, keep in mind that these businesses are also figuring it out as they go. Today’s DNVBs are usually not profitable. They are shifting from tech valuations to brand valuations, they are testing new customer acquisition strategies and are moving into physical retail, which was rarely part of the original plan. So while the navigational “playbook” might be accurate as of 2018, things are moving fast.

ORIGIN

DNVBs are fundamentally different than just ecommerce — The e-commerce company is a channel, but the digital native is a brand. As the name would imply, DNVBs are born on the internet and vertically integrated, emerging into the market with no past baggage and threatening the very core of the traditional fashion and retail model.  And unlike their predecessors, digital native brands have the unique opportunity to create products with the customer in mind, rather than trying to make the product fit the customer.

Not only are DNVBs immune to the baggage of traditional brands & retailers (although we can think of one that makes incredible baggage, hello AWAY), most own their entire value chain from sourcing to manufacturing to the technology they are built on. Because of their nimble supply chains, they are able to keep the costs of final products lower than their wholesale competitors.

THE DATA OBSESSION

DNVBs are obsessed with data, utilizing behavioral, demographic and psychographic data to power laser-focused digital advertising (as well as targeting competitor’s customer bases).  And they understand what messaging resonates for different segments of their target demographic, ignoring the one size fits all marketing mantra.

DNVBs are also maniacally focused on the customer experience and use data to make it as seamless as possible. Every interaction with the customer is captured, giving DNVBS a unique advantage that allows them to connect in an authentic way with customers. This results in superior communication and experiences and in turn brand loyalty, nearly impossible to replicate in a traditional retail setting.

END-TO-END EXPERIENCES

Customer acquisition cost – with the exception of perhaps inventory – is the highest and most variable cost for a DNVB. Therefore, investing in the end to end experience is critical to a DNVB’s success. Each touch point with a customer is designed to delight, convince and convert.

DNVBs are also focused on enhancing the customer service side of selling online. Extended phone hours, direct messaging on Instagram and Facebook, and quick response chat bots allow DNVBs to maintain positive relationships with their customers.

SUPPLY CHAIN PHILANTHROPY

More than a handful of DNVBs have a philanthropic mission that’s a central part of their brand identity. And their target market of millennial customers are keenly aware that their choices can make a difference. Whether it be giving a pair of socks to the homeless for each pair sold (Bombas) or sourcing cashmere directly from local herders in Mongolia (Nadaam), DNVBs that make supply chain philanthropy a key pillar of their strategy are giving customers something to feel good about with each purchase made.

SOCIAL ENGAGEMENT

DNVBs thrive on social media engagement, which allows them to connect to their core base of young, urban millennials. In previous years, DNVBs required a great deal of outside funding to grow. But now thanks to social channels like Instagram,  Twitter, YouTube and Snapchat, today these brands can grow fast and organically.

And beneficial social content doesn’t have to be generated by the brands alone. User generated content is perceived as authentic, builds trust, and results in higher conversion rates. DNVBs leverage content to inspire and build an audience before trying to monetize that audience, which is ultimately seen as a community to be nurtured rather than customers to be sold to.

FROM DIGITAL TO PHYSICAL

DNVBs originate online, but these brands are expanding offline and opening physical locations, forming partnerships to control the distribution versus being controlled by it. According to commercial real estate firm JLL, there are plans for 850 DNVB store openings in the pipeline over the next five years (retaildive). Most of the digital brands opening stores sell apparel, including Adore Me (women’s intimates) which accounts for 300 of the openings cited. This suggests that the category continues to benefit from in-person shopping and DNVBs seem eager to have a physical presence to engage shoppers and acquire new customers.

WHAT DOES IT ALL MEAN?

That is for you to decide. Above, you have the common threads and examples of where DNVBs are investing and how they are executing. At The Lead we look to identify category leaders less for their product and more for their innovation and speed. It is interesting to note that on average, most 20th century brands took almost a decade to open a few stores and reach $100M in revenues. Those brands relied on cash flow and profitability to keep their businesses going and their livelihoods afloat — and were profitable almost immediately. Digital native brands, however, take an average four years to achieve $100m and many have yet to be profitable even after being in business for an average of six to seven years.

The path to $100m will take a number of routes. Join us July 9-10 at The Lead Innovation Summit to go deep into a number of areas, including highly debated topics like ‘The Digital Native Brand of 2022’.