New-gen D2C brands get more personal with consumers

Discussion
Photo: Function of Beauty
Mar 23, 2018
Matthew Stern

Since 2015, Dirty Lemon Beverages has been selling its trendy, “active” beverages direct-to-consumer (D2C) solely via text message. In a session at Shoptalk, the company’s CEO, Zak Normandin, explained the ordering model and discussed the brand’s plans for expanding the use of its platform to target new markets.

“You come to our website — the only differentiator is that we verify your phone number,” said Mr. Normandin. “Once you place your first order, the only thing you have do is send us a text.”

Dirty Lemon’s order processing system is AI-based, but pushes conversations to a real person if the text inquiry is outside of the logic of the AI. No app is required to utilize the service.

With more than 100,000 regularly-purchasing customers and a 60 percent retention rate month-over-month, Dirty Lemon Beverages now intends to expand, inspired on some level by Coca-Cola’s moves beyond soda. Dirty Lemon has acquired the “Juice Served Here” fruit beverage company and will begin making its products available via the text message platform. The brand also plans to move into low-alcohol beverages and sparkling water.

Also speaking in the session were Zahir Dossa, CEO of Function of Beauty, a hyper-personalized D2C shampoo and conditioner company, and Pradeep Elankumaran, co-founder of Farmstead, a D2C grocer.

Mr. Dossa explained that Function of Beauty invites users to fill out an online questionnaire about their hair type, goals, preferred color and characteristics of fragrance. An algorithm then determines the correct ingredients to create a hyper-personalized shampoo and conditioner, which a machine mixes to the spec, and even includes the customer’s name on the label.

The company has also opened a showroom in New York, which allows visitors to see their product being created with the company’s proprietary machinery.

Mr. Dossa believes the D2C model is a critical characteristic of the brand, thinking that making product available on a retailer’s shelves would be a betrayal of the company’s one-on-one relationship with the customer.

“Were we to work with Sephora or whoever it may be then suddenly we’d just look like every other shampoo and conditioner company out there; we’d lose that special sauce,” he said.

DISCUSSION QUESTIONS: What can other brands going D2C or considering it learn from Dirty Lemon Beverages and Function of Beauty? Do you see Function of Beauty’s refusal to consider working with retailers a reasonable position? How might retailers contend with such a mindset?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"[D2C] can be financially viable if it creates loyalty that makes customer LTV much higher than the cost of acquisition and of servicing the customer."
"You no longer need to beg grocery stores, mass retailers or convenience stores to carry your products."
"This is much easier for agile, new companies, but the theory can be adapted, to some extent, by all retailers — regardless of size."

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8 Comments on "New-gen D2C brands get more personal with consumers"


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Lyle Bunn (Ph.D. Hon)
Guest

There is plenty happening behind the curtain in the fast emerging area of direct-to-consumer. But the relevance of that old saying comes to mind … if you want to go fast go alone; if you want to far, go together. D2C is a terrific early-stage brand building strategy and one that can serve brand followers well. But the big dollars are in that vast middle group where discovery and trial build sales volume. Store traffic (online or physical) provides value to brands and to not include this in the marketing strategy beyond D2C and dedicated pop-up or showcase stores is to deprive the brand of its potential. D2C has its time and place, just as it is easily misplaced as a strategy.

Nir Manor
BrainTrust

It makes sense for FMCG brands to go D2C in specific conditions. A good example would be highly personalized products with repeat purchase potential. It can be financially viable if it creates loyalty that makes customer lifetime value much higher than the cost of acquisition and of servicing the customer. Relevant categories could be hair care, cosmetics, face care, shaving and baby products. For impulse products this model is less likely to work.

Ken Lonyai
BrainTrust

D2C startups are the antithesis of CPG, retail and e-commerce in the way that 1990s e-commerce pure-plays were to retail. It’s yet to be seen if they will be able to shake up the industry as devastatingly.

I’m all for these commerce models. Prior to 1999 (the birth of Napster), it was mostly inconceivable that music distribution could happen without physical media and the control of record labels, but look at what dominates music now.

CPG is definitely feeling the water in the pot warm around it and D2C startups are one reason. Retail might just experience a second wave of “attack” if D2C scales in the coming decade. E-commerce pure-plays might “get a taste of their own medicine” too.

However, D2C is tougher than it sounds. Consumers might find it tiresome to have to maintain accounts or track a multitude of sources to get products they seek and likely won’t have tolerance for service failures.

Max Goldberg
Guest

Hyper-personalization, meaningful contact and great customer service create sales. This is much easier for agile, new companies, but the theory can be adapted, to some extent, by all retailers — regardless of size.

Ricardo Belmar
BrainTrust

This speaks to one of the underlying (if not overt) messages at Shoptalk — convenience is king for consumers and buying models like Dirty Lemon uses via text are designed to remove friction from the purchase experience. They also lend themselves well to a subscription model for highly personalized products. D2C is ideally suited for these purposes and helps these younger brands build a strong, loyal customer base. The issue is, how far can they scale their business in this model without traditional distribution and retail locations (whether physical or online)? It may work to help quickly ramp up a customer base and become established but there will come a point where growth will stall and customer acquisition becomes too costly. Perhaps we are seeing this today in the meal kit segment. Time will tell.

Ralph Jacobson
BrainTrust

Of course, this has always been a potentially touchy issue since CPG brands first began selling D2C years ago. Eliminating not only the retailer, but also other intermediaries, like wholesalers, etc. from the selling process, may present a challenge when approaching a retailer to sell through their outlets while the brand also sells D2C.

Several CPGs large and small are making this co-opetition scenario work well, so there may be less of a concern overall than at first blush. When one CPG isn’t willing to work with retailers, that is a choice they make and the market will determine how profitable it is for them. I believe there is enough market for CPG brands to leverage all avenues available to them for the distribution of their goods to consumers.

John Karolefski
BrainTrust

Small brands like Dirty Lemon Beverages succeeding with direct-to-consumer are always interesting. Big brands like P&G and Campbell have their toes in the water. But D2C will only become a factor in the business when big brands go BIG into D2C. That won’t happen soon.

Jeff Miller
BrainTrust

I love how in the current environment, new CPG brands are challenging the status quo. The main lesson to learn is that you need to do something to stand out and both of these retailers are testing new methods. You no longer need to beg grocery stores, mass retailers or convenience stores to carry your products.

wpDiscuz
Braintrust
"[D2C] can be financially viable if it creates loyalty that makes customer LTV much higher than the cost of acquisition and of servicing the customer."
"You no longer need to beg grocery stores, mass retailers or convenience stores to carry your products."
"This is much easier for agile, new companies, but the theory can be adapted, to some extent, by all retailers — regardless of size."

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