What is the Secret of the Most Successful D2C Brands?

1. The origin of strong D2C brands
2. Gold rush mood in the e-commerce market
3. The 2nd generation of D2C brands emerges
4. Why organic reach is usually not for long
5. D2C is not as easy as it once was
6. There is a secret potency that stands above your profit
7. Why channel diversification is the holy grail today
8. Our top 3 tool recommendations for strong D2C brands
9. Conclusion

D2C stands for "Direct-To-Consumer". This term describes the fine art of selling products from one's own production directly to end customers. At the latest since the lockdown, large brands like Nike have understood how attractive the business model without intermediaries is. The advantages are clear: customer data in their own hands, community, brand building, margins, speed and growth - in all corners and ends of a company, the systematic collection of data from marketing, controlling and operations is such a competitive advantage that direct sales via their own online shop is no longer unthinkable when it comes to selling products.

Through a Direct-2-Consumer approach, you can dominate smaller markets more quickly and agilely and methodically work your way into the markets of the big ones - with a system and almost completely free of hope and faith.

In this article, we would like to reveal the secrets of D2C pure players. How have the top D2C brands managed to go from 0 to several million Euros annual turnover in recent years? What is really important today? Which strategies work today and which ones don't anymore?

To better understand why the business model has experienced such an upswing in recent years, it is first necessary to explain how the subject has developed. Many of the strategies that were still relevant two years ago are no longer relevant today. If you are not aware of these topics, it will be extremely difficult to be successful today. A small warning at this point: It is probably all a bit different than you thought at first. Let's dive in:

The origin of strong D2C brands

Almost everyone knows the classic online shop by now. As early as the 90s, the first e-commerce companies began to grow alongside large marketplaces like Amazon. Brick-and-mortar businesses placed their products on the internet and were able to place their products in the market for a fraction of today's costs - in times when no one knew yet what a gold rush there was soon to be. Search engines like Google and the first social media platforms had begun to command our attention, but hardly anyone knew back then what potential lay in online marketing strategies.

It was then that we, as e-commerce service providers, were able to win new customers off the assembly line with a little manual work for an apple and an egg. Marketing on digital platforms was completely underpriced - similar to today on TikTok, there are still comparatively cheap advertising prices, there was for a long time the opportunity at Google to be a pioneer and grab the number 1 spot in the search results.

Gold rush mood in the e-commerce market

Performance marketing as we know it today had its birth. You could see how you invest one euro and with it measurably generate eight euros in sales - over and over again. It was completely sufficient to look at pure marketing figures and with a few simple measures and a good offer, unbelievable results could be achieved quickly. This made it possible for companies to secure important organic placements that are still relevant sales drivers in some cases. A few entrepreneurs understood that this is where the future of retail sales lies.

A few of the biggest providers, with a still very broad portfolio of offers, grabbed important places in the market, which made them market leaders in their areas today. And all that without Instagram.

More and more companies became aware of the possibilities of the Internet and started selling their products directly to end customers via a D2C approach and their own online shop. A few brands have already understood the power of dominating entire markets and the advantage of being able to digitally map the entire value chain of a company in numbers, owning customer data themselves and thus binding new customers to themselves again and again in the long term and emotionally. Some brands have even managed to make the complete step to pure online distribution.

Own representation of the value chain

The 2nd generation of D2C brands emerges

In 2013, the big community building and influencer era began. All of a sudden, pure D2C brands were emerging all over the place. I always call them the 2nd generation.

Brands like MVMT or Daniel Wellington are building, with pure influencer marketing strategies, D2C pure player brands that generate multi-million dollar sales out of nowhere. For a long time, it was enough to have an aesthetic Instagram feed, offer an attractive and inexpensive product, and - until recently - write "Save The Planet" on the website.

Followers were an exciting currency for strong e-commerce brands. Platforms like Instagram have allowed businesses a wide organic reach. Brands that caught this wave were quick, agile, and strong at the right time.

Big brands then noticed how specialized niche brands started to enter their markets and grabbed important spots in the auction systems of Facebook and Google. Advertising costs increased because more budgets were flowing into the channels. The market was slowly but surely getting more and more saturated - the gold-rush mood was waning a bit: The next development stage of D2C brands was born.

You could simply call them the 3rd generation of D2C brands. In our cosmos, we like to talk about "love brands", these are niche players who are sharply positioned and are making life difficult for the D2C pure players of the 2nd generation. And again: A new generation of brands is born and shows us the secret of the brands that are still extremely successful today: the right positioning and a strong product-market fit.

But before we dive deeper into these brands, I want to explain to you the status quo in the market. What's important to understand here is that the strategies of the D2C pure players of the 2nd generation don't work today like they did three years ago. However, you will mostly find tips, tricks, and content about exactly these strategies on the internet. As an example: Influencer marketing as an isolated marketing strategy no longer works as well. In general, the topic of "followers" is by far not as important as it was a few years ago.

The explanation for this is also relatively simple: Platforms like Meta always optimize to get as many users on the platform as possible - less so on advertising revenue.

Why organic reach is usually not for long

Similar to how TikTok still allows a lot of organic reach for businesses today, this was the case on Instagram back then. The prices we paid for 1,000 impressions were sometimes only a tenth of what we pay today. This applies to paid advertising as well as influencer marketing. The metric we observe here over the years is the classic CPM (cost-per-mille). In influencer marketing, we are moving here in controversial verticals like fashion and beauty at up to 40 € CPM and in performance marketing through paid measures at about 10 to 15 € CPM. In technical jargon, this is also called the CPM, or Cost-Per-Mille.

The reason why the prices have increased so much is easy to explain: Meta has turned off the tap of organic reach and thus simply increased its own revenue and advertising pressure. If you want to reach potential customers as a company today, you have to take the budget in hand. The same is expected of you in the coming years on TikTok. It is the great battle for attention that allows the platforms to play out more advertising and thus generate more turnover.

D2C is not as easy as it once was

To put it bluntly: You can no longer simply put products online and assume that you will be really successful organically or with individual channels. The secret of the most successful "love brands" starts today with positioning and a strong multi-channel strategy. Which brings us to the first and most important point of strong brands: positioning.

D2C Core Values

Differentiation creates relevance through positioning. Relevance generates communities, new customers, and customer loyalty.

An example: A yoga brand that just sells yoga mats is hardly competitive today. A yoga brand that focuses on spirituality, however, is. Up to the first eight-figure sales, our motto is: "If you try to help everybody, you'll help no one."  

D2C brands must position themselves sharply and only broaden their base later. The markets are consolidating. Just as the D2C pure players of the first generation with their online shops made life difficult for the big brick-and-mortar businesses a few years ago, small D2C love brands are now coming up from below, managing to dominate small niche markets. They 'peck' at the markets of the generic e-commerce pure players from below. The process starts anew, with one small but decisive difference: Now you can still grab significant market shares. My personal thesis: In three to four years, this will be almost impossible if you do not bring extremely innovative products to the market.

There is a secret potency that stands above your profit

Differentiation is like a secret potency that multiplies all revenues and marketing activities in their efficiency. The big problem: This way of thinking requires extreme openness and meets many founders at boundaries. The desire to help everyone and to immediately penetrate larger markets as a young company makes life unnecessarily hard in current times. As of now (July 2022) we are in the midst of an era of inflation, war, supply chain problems and much more. Anyone who doesn't have a focus today will be overtaken by those who do. In e-commerce companies that are successful today, there is a constant process of consolidation. The most successful of our 150+ brands constantly ask themselves: What are the 20% of the steps we can take that will generate 80% of our profit?

80-20 graphic

A personal opinion at this point: Family businesses that have become successful through more traditional sales channels over a few decades are the ones who are struggling the most. The rethinking required here in marketing to be successful through e-commerce is so immense that many will not be able to manage the generational change and channel diversification - without getting really professional help.

Often, two completely different ways of thinking collide from the following generation to the founding generation, which makes the matter incredibly difficult despite often owning the production, extreme advantages in the supply chain, and great brand structures. But let's not paint the devil on the wall. The question is, how can we still make life easier over our own online shop and take advantage of the secret multipliers the market currently offers.

Once the positioning is clear, there are still a few false beliefs that the D2C pioneers of the 2nd generation have come up with over the past few years. To pick up the subject of followers again: Today, followers are no longer as important as a strong offer and a focus on channels that generate direct sales, completely independent of the number of followers.

Based on large data analyses, you can also see that the number does play a role in building trust, but is by far not as important as the topics of positioning, product-market fit, offer design, and much more. A few personal tips at this point too: We have customers with over 1.1 million followers on TikTok and 200,000 followers on Instagram who sometimes generate less turnover like brands with only 800 followers who have a great product-market fit and focus on a strong acquisition channel and great existing customer quotes. Followers come when you make sales - rarely the other way around.

There are countless myths that experts into the market have been spreading in recent years or that in some cases have been passed on for several years. Therefore, one thing is very of particular importance today: The important processes build strong D2C brands up to systematization first in-house before delegating to agencies.

Even large brands like Fielmann today rely on agile systems like Shopify that don't require much programming effort so that the most important topics can be mapped in-house. The creation of ads works best today with smartphones because the contents integrate so naturally into the platforms and represent highly profitable growth drivers. Times have simply changed enormously and e-commerce requires being constantly open to new things and keeping the focus on the things that are ubiquitous: Understanding customers, designing offers, and strong advertising texts - and with that 80% of the cases you can open up all channels.

Why channel diversification is the holy grail today

Channel diversification is also an extremely hot topic today. We've been able to make some exciting observations over the last few years here, especially in the transition of e-commerce economics - across virtually every industry and over 80 million € in e-commerce sales in total. As we found out earlier: Brands used to grow all by themselves with influencer marketing - today there's a different wind blowing. And it's called: Multi-Channel!

The problem: managing a single channel alone is already very challenging today. Meta, Google, TikTok, YouTube, influencer marketing, Pinterest, Snapchat, PR work and co. all function differently and take up a different place in your customers' journey. The trick nowadays is to play as many channels as possible, but with focus. Here again: What are the 20% of the tasks that again yield the 80% of the results? The goal: Strong brand building without a large awareness.

What helps tremendously here again: Classic PR work and damn good storytelling. The strongest D2C brands are extremely personable, have great founder stories because one thing is clear: People buy from people. Even online. Simply listing products in a shop is no longer enough.

Branding, especially personal branding, is taking on an ever more important role and enables young D2C brands to find strong talents for their own team. The magic really is to understand the individual channels and their interplay as a holistic system and get them to work. It is extremely worth talking to entrepreneurs who have already built up exactly these D2C systematic tactics. Important here: Don't orientate yourself too much on other business models. D2C e-commerce companies are unique in their systematics. Exciting examples with strong female-founders are for example the brands Ooia or The Female Company.

Which channels to play in which order often depends on the product. If you have a product that is often searched for, channels like Google and - besides your own online shop - even marketplaces like Amazon are relevant to generate the first larger turnovers.

Here we are talking about pull marketing. However, for most it applies: Master push marketing. The high art here is to generate profitable sales completely independent of a search query. Here the markets you want to penetrate are much larger and scalable - which is indispensable for most to be competitive today. The deeper you get into search queries, the more competition there is, of course.

The strongest D2C love brands manage to create a problem awareness and directly achieve the sale, especially through great communication, a clear positioning, strong advertisements and hyper-relevant offers. Strong direct marketing forms the basis up to the first multiplicated seven-figure sales.

Our top 3 tool recommendations for strong D2C brands

1. Klaviyo
   ⁠One thing is clear today: In the long term you won't make big profit from new customers, but from existing customers. Klaviyo offers everything around the topic of email automation, customer experience, and much more. As a little gold nugget: Your goal should be to achieve a 30% increase in your Customer Lifetime Value (the accumulated value of your customers over the course of their lifetime) within 60 days.
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   ⁠That's not possible today with a few boring email newsletters. The strongest D2C love brands take their new customers on a unique journey, give valuable tips and ensure that the customer experience is unforgettable. Most of that can be mapped with Klaviyo.
2. Tracify
   ⁠was the rescue after Apple put a data block on us with iOS14. In short: The second generation of D2C brands had the great privilege of seeing exactly in e.g. Facebook ad accounts which ad with which ad expenditure has led to which turnover. Profitability could simply be seen in black and white. This has allowed to make quick decisions and scale ad accounts to over 100,000 € in ad spend - without blind flight.
   ⁠
   ⁠Since iOS14, then data were no longer played back into the ad accounts, so that since early 2020, this blind flight began. Ad accounts had to be managed indirectly. Tracify provides exactly the solution here: it plays back the data into the ad accounts via a novel technology and enables all channels to be managed extremely efficiently. Also here again: What are the 20% of the marketing spendings, which generate the 80% of the results? This question will be answered by Tracify. Attention: Here you should already be a little more advanced.
3. Shopify
   ⁠Last but not least the classic one: The shop system. You can still see many brands that are set up (let set up) a too complex shop system in a young stage. Usually, the decision is then made for another shop system other than Shopify, due to the ERP system. However, our experience with over 150+ online shops shows: it takes agility and implementation strength.
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   ⁠An important keyword at this point: Opportunity costs. The time you have to spend on development work, complex connections, manual work and co. in young years up to the first 10 million € annual turnover, is what extremely slows down smaller e-commerce brands and consumes too much liquidity.
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   ⁠Shopify provides a solution and allows focus on the basics. Also, connections like Klaviyo and Tracify go with the shop system in no time and do not require programmers. Our top tip: Get the shop system shown to you by e-commerce companies that have been successful in building up a strong D2C brand from the ground up (and bootstrapped). These are the brands that had the most focus, the greatest speed, and the most amazing founder personalities.

Conclusion

Over the next 5 years, the opportunity to build extremely strong D2C love brands and scale quickly to secure a place in the market that will quickly become unassailable. The question you should ask yourself is: Are you really ready for it? Can you make quick decisions? How much would you stand in your own way and as a founder are you ready to master the entire value chain yourself once to build a great and agile team?

If yes, then the D2C e-commerce model might be just the right thing for you. If you have a product that has a strong product-market fit, solves a real problem in the target group and on top of that you feel like building a real community around your own brand, there is probably nothing more exciting than your own online shop. My personal tips: Focus through in-house competence. Differentiate yourselves through your positioning. Start building a strong tracking model to provide clean and data-based decision-making bases. Invest more in customer understanding and go beyond defining a persona. Master creating irresistible offers. Focus 80% on new customer acquisition via paid channels like Meta, Google and TikTok until the first million. Keep an eye on your contribution margin from day one and don't forget:

Those with the largest repeat customer rates will win. You start in a world where customers can and want to be emotionally won over. At the end of the day, it's a people's game. Have fun on the journey!