A fascinating case of Darwinian economic competition is occurring before our eyes. Legacy consumer-packaged goods brands and retail giants, like Gillette and Sunglass Hut, are being challenged head-on by fast-growing brand-retailer hybrids appealing to digital natives that expect to be engaged in a digital dialogue before and after purchase.
Whether it is Dollar Shave Club, Warby Parker or Birch Box, these companies have traded large brick-and-mortar retail spaces for direct-to-consumer distribution. In the process, they have shown that the most valuable consumer interactions are now occurring in the digital space.
In the past, the absence of visual and tactile in-store experiences would have complicated the process of building a digital-only brand. But the omnipresence of digital engagement through video, photography and ratings and reviews has allowed these companies to build full-fledged brands driven by responsive, real-time engagement with loyal customers.
These digital native retailers have changed the conversation and marketing strategy for some of the world’s most established brands like Procter&Gamble or Luxottica eyewear. These established brands realize that they are now locked in competition with digital-first upstarts that intimately understand their customers because of deep, meaningful and consistent digital interactions. They know they must engage with consumers to compete in a marketplace increasingly driven by digital natives.
The backdrop to this retail revolution is a completely new way that consumers discover, engage with, and become loyal to brands. Traditional competitive advantages are disappearing. Distribution infrastructure, brick-and-mortar retail locations and traditional media budgets are no longer a dominant advantage. Highly targeted consumer engagement is arising as the new key to retail dominance.
These new native digital retailers are succeeding in industries that were traditionally controlled by industry giants with unmatched advantages in scale, distribution and infrastructure. They are tailoring their message to a new Millennial consumer that is the first generation of what will be successive waves of native digital consumers.
As the competitive landscape is being democratized, this new marketplace is rewarding the companies equipped with new tools — consumer engagement across digital channels, data collection and activation, user-generated content, seamless digital customer experiences and peer-to-peer marketing. These are now the competitive advantages that distribution, manufacturing and brick-and-mortar store networks represented in the past.
Retailers like Warby Parker are taking these deep insights into customers’ wants and needs — gleaned from engaging customers through social, mobile or digital methods — and using it to drive sales strategy, product design and even the look and feel of its few brick-and-mortar storefronts. As a Fast Company article on Warby Parker put it, the stores “are not profit centers as much as marketing collateral, giant advertisements for Warby Parker’s website.”
The eyewear company has built a brand off of a willingness to engage with customers in unconventional ways. Warby Parker employees have sent out thousands of “customer-response” videos, often distributed via Twitter, where they update customers on the status of their order. This two-way digital conversation lengthens the relationship with consumers and initiates a dialogue that can lead to valuable insights about customer experience or product preference.
These tools are not just used to angle for a single sale, they are being used to build long-term relationships with consumers that drive lifetime value. Dollar Shave Club’s subscription model for a consumer-packaged good that is used almost every day by its clientele opens up huge lifetime value potential and years worth of sales for each new customer acquired.
Gillette recently launched a subscription service, trying to adapt to customers’ demand for new pricing, new distribution and new payment models. This shows that the retail transformation is not only giving rise to fast-growing companies like Dollar Shave Club, it is re-wiring the way that companies like Gillette do business.
Eyewear giant Luxottica have responded to competition from digital-first competitors like Warby Parker by acquiring Glasses.com, an online eyewear outlet with an app that allows 3D modeling of how the glasses fit and look on a customer’s face, generating photos that can be shared on social media and voted on by friends.
This trend will only accelerate. It will challenge the world’s largest brands like Procter&Gamble to continually meet the changing demands of customers in a digital world through deep customer engagement and an intimate understanding of the digital consumer.
Retailers and consumer-packaged goods companies face both increasing pressure and increasing opportunity from a Millennial and post-Millennial generations of native digital consumers where consumer loyalty, trust and purchase decisions are dictated by digital engagement with brands, not store-shelf product placement, broadcast advertising or distribution advantages.
This is only the first wave of new digital consumers. Successive waves will make consumer engagement the norm through frictionless digital retailing. That will be the key to understanding and capturing the native digital retail clients of the future.
Wendell Lansford is the CEO and Co-founder of Offerpop, a consumer engagement platform that works with the world’s largest brands.
Image courtesy of Shutterstock.