With the steady rise of direct brands, a lot has been said about what legacy brands can learn from digitally native brands. We think that a better question to ask is: What can legacy and direct brands learn from each other?
Direct brands may have the immediacy and excitement of something new, but legacy brands have a long history of growth and endurance in the marketplace. Here are five things that each side of the brand ecosystem can learn from the other:
What Direct Brands Can Learn From Legacy Brands
Building Brand Loyalty
Legacy brands are the masters of brand loyalty. For anyone in your parents’ generation, there is this deep sense of loyalty for favored brands. This feeling is based on beliefs that they have for a brand or beliefs that influential individuals, such as family and friends, have for the brand. Word of mouth has always been a legacy brand’s best form of marketing. The key difference now is that it has to be sustained and amplified in a louder and more information dense social space. The customer experience is the first step in developing brand loyalty, and maintaining that over time, in this current environment, is the ongoing challenge.
Selling at Retail
Pop-up stores are the dominant retail format for direct brands currently, but there is a long history of great retailing practices from legacy brands that can be studied and used to expand beyond pop-ups. As disruptor brands make the leap to retail they can build on a rich history of retailing. Away and Glossier have both opened their own retail stores in New York, each informed by the best retail practices, while adding the crucial overlay of experience. More direct brands, like Oars + Alps, are testing the waters with big box retailer Target, who is equally interested in getting some of that disruptive brand buzz for themselves.
Expanding your Business Model
The direct brands that will thrive in the coming years will be the ones who figure out a way to make what they are doing scalable. This means adjusting their business models to encompass a bigger part of their core focus, like Uber incorporating food delivery. Uber Eats is (according to Forbes magazine) already one of the largest food-delivery services, ranking second in the U.S. behind rival Grubhub. Legacy brands get stronger through buying or merging companies and developing new revenue streams. Most direct brands have not yet had those opportunities, but must view them as ways to explore new areas to thrive in.
Advertising on TV
TV is not going anywhere. Direct brands that have maxed out their reach on digital channels should have TV in their consideration set if they want to continue to scale. According to the Video Advertising Bureau, DTC brands like Peloton, Chewy and Smile Direct Club spent over $2 billion in TV in 2018. Legacy brands have a TV strategy and direct brands need one too. I have seen a growing interest in our cross platform video training because it helps those charged with buying and planning media to understand how they can best leverage advanced television capabilities.
Advertising in the Real World
DIY may be the DTC mantra, but I heard a few direct brands at our Annual Leadership Meeting say that they are ready for some help. They would not mind knowing a bit more about traditional advertising. More and more direct brands, such as Casper and Quip, are exploring traditional OOH media, and can be seen on subway ads and billboards. The challenge for them is to figure out how to reach a wider audience the way that legacy brands do, but to do it in a way that feels right for them.
What Legacy Brands Can Learn From Direct Brands
Direct brands have mastered the art of building relationships with consumers through storytelling, and legacy brands must follow suit. Eyeglass company Warby Parker built their story around changing the status quo, while luggage brand Away focuses on sharing interests and experiences. The pivot that is hardest for legacy brands to embrace is not talking about their product. Instead, they should try telling the founder’s story, the story behind the brand, or the story of the consumers who have embraced the brand. Need an incentive? Brands that use storytelling to attract new customers significantly lower their acquisition costs.
Legacy brands have spent most of their time building relationships with retailers because stores have been their customers. Now they need to focus on building relationships with consumers. This means creating direct communication channels combined with personalization to enhance the customer experience. It also means looking at the entire customer engagement as a relationship; from marketing to buying, to packaging to customer service. In the newly released IAB Direct Brand Economy Report, our CEO Randall Rothenberg says, “One of the best ways to boost lifetime customer value… is to focus on community, for community helps lower acquisition costs, foster repeat purchases, and increase basket size.”
Living in the Digital World
Legacy brands need to engage the consumer where they are, which means online and mobile. You want to be able to reach the consumer continuously throughout their life cycle and their interactions with your brand. Across categories, digital retail dollar growth has vastly exceeded brick-and-mortar. 30% of Americans buy groceries online, and nearly 1 in 4 millennial consumers shop for consumer goods on their phone. Understanding the value of maintaining a presence on established digital channels, as well as the value of being able to sell directly on your own digital channel, is how legacy brands will begin to enjoy the best of both worlds.
Being an Omnichannel Brand
Selling is no longer an advertising story, it is an omnichannel shopping story. There are now multiple hybrid retail formats that live between pure brick-and-mortar and pure e-commerce. Legacy brand Nike’s direct-to-consumer growth outpaced wholesale last year. A significant way to boost lifetime value is by helping legacy brands adapt to the new environment of hybridized retailing. This is one case where it is crucial to bring in omnichannel retailing experts who can show companies how to use those channels to encourage repeat visits to both physical and virtual environments.
Using Social Data
Direct brands look at feedback closely and use it to inform their business process decisions. Legacy brands often reply to feedback with canned responses, or worse, no response. One of the things I heard a member say recently was that giving a customer a coupon does not have nearly as much impact on a brand as them giving you a bad review online. This shift in control is something that legacy brands need to understand, and why we are seeing more established brands taking our Digital Fundamentals and Introduction to Direct Brands courses.
Regardless of whether you are an old or new player, there is always an opportunity to learn. IAB facilitates the connections that allow this to happen. As our membership continues to expand with companies of all kinds, our learning resources and information exchanges continue to grow. 360 degree learning is an essential differentiator for IAB, and we are dedicated to helping organizations address their learning needs and learn from one another.