In the last few years, every industry has seen a few businesses models being disrupted by business that have centered their business around a value exchange with the consumer through online channels. For this article I would like to refer to them as digital native brands. We have seen some of these brands grow and challenge legacy brands and sometimes even force them to change their business models and adapt to newer ways of doing business. While legacy brands have all started establishing an online presence, we see some digital native brands taking on to traditional retail channels to drive growth. This sets the stage for an interesting battle to come.
Digital native brands however, have been able to find a consumer need and challenge existing belief systems in a category or industry by addressing it through solutions rooted on a digital asset or platform making it convenient and easy for consumers to engage with the brand directly. And as the dependency and stickiness grows these brands tend to grow and flourish. The covid19 crisis has only accelerated this growth in some of the industries leaving some of the CXOs of legacy brands concerned about these changes and the pace at which they may need to adapt to these changes.
Through this article I hope to share my views on how digital native brands approach marketing differently and cite reasons why I believe they have found great success in recent times. I also wish to extend my views on and what are some of the points that legacy brands could learn from these digital native brands and changes that they ought to make to win this battle.
It is my belief that there are 3 core fundamental differences in the way digital native brands approach marketing in comparison to legacy brands.
The way they see the marketing funnel
One of the most fundamental differences between legacy brands and digital native brands is the model of consumer acquisition. Legacy brands see consumers through a marketing funnel that provides for consumers across different stages of the consumer journey and awareness of the brand. They work towards creating more awareness for the brand with the belief that a strong priming bias drives acquisition. This model of marketing has been an age-old practice and still holds true when the distribution happens across traditional retail stores for it has been proved that a strong priming bias helps in driving acquisitions. However, digital native brands see this funnel and model in a different way, given that they have gone through a different form of evolution and their business model and value exchange is primarily online. These native apps and businesses see the same funnel bottom-up compared to legacy brands that see it top-down.
Most of these brands focus on a valuation game and customer acquisition becomes very critical to drive a higher valuation. So digital native brands prefer to focus on identifying the consumers who are in-market to buy products or services in the same or similar category and over index their visibility in the active stages of the consumer journey leading to conversions. Over time these brands are able to identify and segment audiences better with smarter communication and scale conversions in a far more effective way. It is however true that even digital native brands will have no choice but to reach out to a larger set of audiences through mass media to increase their customer base, but when this happens, they are in a far better position compared to legacy brands and there are three reasons for that.
- Consumer intelligence and data: Given that the business model is centered around a digital platform, digital native brands have a preview to a lot of consumer data and intelligence compared to legacy brands. These businesses dedicate an arm and a leg to collecting consumer data and analyzing it. The experimental mindset also lends itself to considerable learnings, quite often captured in a more organized way. For digital brands consumer 1st party data becomes the holy grail and for legacy brands it’s usually an after thought
- Extract higher lifetime value of the customer: Given the focus on consumer data, the ability to retain and engage and market to their existing audience becomes a lot easier and rewarding. These brands are able to extract a far higher value from an existing consumer compared to traditional legacy brands.
- Better attribution or ROI modeling: All digital native brands usually see digital channels like facebook, google, Amazon etc.. as business acquisition channels compared to legacy brands that see it as a channel to advertise. Given this orientation Digtal native brands are able to attribute success and create custom models to advertising inventory in far better ways than legacy brands do.
It would be safe to say the traditional norms or marketing still apply to businesses that don’t have a digital orientation or where the scale of distribution through digital is relatively low. But when the scales of distribution and business tilt to digital and online platforms one may need to be change the models of communication and advertising and take the best of both worlds.
Agility and Speed To Market
A study by Avendus research shows that D2C brands like mamaearth, Licious or Boat have been able to become a INR 100 crore (US$1.36 billion) business in just three to four years, while the time taken by legacy brands to grow to a similar number would be well above 10 years. A lot of this growth can be attributed to the agility and speed at which these brands have been able to find demand spaces and address them with suitable products in relatively quicker ways. The case of how some of the digital native brands were able to catch on to the trends of onion oils and go to market with a product far sooner compared to Legacy brands is perhaps one of the many cases that have come to light in recent times. The agility and speed at which Digital native brands can identify a need, segment a market and land a product to address that need is a lot faster compared to the time taken by Legacy brands. One could also argue that this has not always worked as many of these brands have found themselves launching products with very limited life span. However, the key point to note that Digital native brands are far more Agile and nimble with a Go-to-market plan, and the reasons could be attributed to the decision-making process that digital native brands enjoy in comparison to legacy brands. Given the complexity of organizational structures that legacy brands have, and time and effort taken to manage stakeholders across these complex structures can lead to longer lead times compared to what Digital native brands enjoy. Another factor that can be argued in this light is in the cultures that these organizations share. Digital native brands are usually open to experimentation, asked to challenge status quo, provided with technology interventions to solve problems, etc,, all factors leading to a culture that can drive agility in business.
Building a brand through user experience and conversations rather than just visibility:
It is no secret that digital native brands are obsessed with consumer experience. Most of these organizations have a dedicated team to look at every single consumer touchpoint and identify ways in which consumer experiences across these touchpoints can be enhanced. Resources and effort are also allotted to track every single brand mention across tweets, consumer reviews, blogs and identify ways in which negative mentions can be turned to positive ones. Legacy brands also do this. The difference in the two however, is that most legacy brands use this as a means to address customer grievances, but digital native brand see this as an opportunity to build a brand. These two models work very differently. While building a brand through conversations it is critical to understand the sentiments expressed about the brand analyze ways in which consumer feedback can be used as an input to change or enhance the product experience. White hat Jr for example uses every class interaction to see what rating the child has given and assigns regular follow-ups to address every concern expressed. Some of these brands have tried to center the key brand proposition around something that is conversation worthy. Fenty Beauty for instance is popular for its inclusivity across skin tones and gender. The belief system here is that a brand is not just built by high decibel visibility but also through exceptional experience which goes hand in hand and a key yardstick to measure that would be through consumer conversations and reviews. Therefore, engaging in an always on exercise of monitoring conversations, reviewing and addressing grievances, drawing insights and using insights to better the product experience is the due process followed by digital native brands.
To conclude, as digital native brands scale they have the ability to challenge and destabilize legacy brands. These brands have centered themselves around a business model that’s driven through an online platform which means the organizational structure, culture, and marketing models are designed to drive success in an online world. Meanwhile legacy businesses have organizational structures, processes and a culture to succeed in a traditional retail environment. While legacy brands have all started to go online, we have seen some of the digital native brands extend their business from online to on-ground retail. The future holds an interesting battel between these two. Legacy brands will need to find ways to be more agile and build data structures centered around the consumer. Meanwhile, Digital native brands will have to find ways to build a strong brand equity that legacy brands enjoy today.
Vishal Jacob is the chief digital officer at Wavemaker India.