The Downturn of DTC: Why Building a Community is Important for Brand Longevity

Over the last decade, we have seen a rise in the “Direct to Consumer” space. Brands like Allbirds, Warby Parker, Casper, Bonobos, and Gymshark have contributed to the rise of this business model. According to PipeCandy “In the last five years, between 2016 and 2021, at least 15 DTC companies have gone public.”

It’s estimated by the end of 2022, the U.S. DTC landscape will reach a record of $151.2 billion in sales. The rise of DTC has certainly been significant however, the current events in the economy have shifted the market.

As the plot continues to thicken with the rise of inflation, cost of goods rising, less companies going public, and stocks falling – consumers and owners have been conservative, which has put the market in a state of uncertainty.

According to CNN Money U.S. consumer confidence plunged to its lowest level in nearly nine years in October – posting its most dramatic decline since the Sept. 11 terrorist attacks — as a pillar of the U.S. economy showed severe signs of strain.

These current events have had a direct effect in the market. Unicorn brands like Allbirds, Peloton, Revolve, Warby Parker, and Wayfair all reported significant earnings losses this year. Allbirds saw a 64% drop just back in March, with Warby Parker not far behind at a 40% loss.

It seems like times are changing and the strategies that brands have used to grow their business are no longer working in a pre-covid era.

In this blog, I will share the #1 asset brands can and should be leveraging to maximize the longevity of their brand.

The State of the Market

When it comes to growing a brand 95% of companies focus on things like increasing ad spend, releasing new products, creating new offers, and distribution of marketing channels. However, with consumer acquisition costs rising, spending more on advertising is actually decreasing a brand’s profitability. According to BusinessWire “In 2013, merchants lost on average $9 for every new customer acquired, but today merchants lose $29, a 222% rise in the last eight years.”

What brands should be focusing on is building a strong community. Whether we are in a recession or heading into one in 2023, consumers are going to be assertive in where they spend their money, and just like we saw during covid consumers are only going to buy products from brands they know and trust. So if you’re not spending the time building a strong community that provides value to your consumers then your brand will face the consequences.

Why a community

People want to be a part of something. They want to feel important. Almost half of Americans feel alone and isolated, according to a 2018 study by Cigna This corresponds with people competing in sports, chess clubs, rec groups, and more. People want to be surrounded by like-minded individuals and have discourse. If they are emotionally invested they will most likely be financially invested.

Before I break down why a community is crucial for a brand’s success, I want to debunk a myth in the industry. “A brand community is a marketing strategy”. No, A brand community is a business strategy.

Back in the 90’s Harley Davidson was one of the most popular and successful motorcycle companies. A large contributor to their success was the community they have built. Their community consists of avid motorcycle enthusiasts that love to ride together. There was this perception that if you own a motorcycle it has to be a Harley. This is equivalent to owning an iPhone instead of an Android nowadays. Harley Davidson wasn’t just a company that sold motorcycles, it was a lifestyle.

Every business has a solution to its consumer’s problems whether it’s helping people lose weight, regrow their hair, or gain passive income. These are pain points that people want guidance to solve. If Brand A has a product that helps people lose weight however, Brand B has a product that claims to do the same, but Brand B is known for their community of individuals sharing their 6-month results of losing their love handles and getting in the best shape of their lives, then the consumer will buy Brand B’s product no doubt. A community doesn’t only provide social proof but it provides access, accountability, and guidance to a group of like-minded individuals. Don’t just sell a product, sell the lifestyle.

How to build a community

1/ Establish the problem you are trying to solve in your market.

2/ Create organic “engaging” content that will provide value to your consumers without anything in return. Ex: Content on social media platforms like YouTube, Instagram, Tik Tok, Twitter, etc.

3/ Establish a way to collect consumers’ emails/phone numbers that will provide further value than what they are getting from your socials. Ex: Blog or Newsletter. This does not mean running a lead gen campaign where you are collecting emails for a free PDF. This section is a form of “exclusive news/content” that consumers can get regularly from your brand.

4/ Building groups: In this section, you can build out a group tailored to loyal fans where they can share their thoughts and opinions about your products. You as a brand owner can give these fans special discounts and gifts. Use this group as a way to ask fans questions to improve your products and updates on new launches. These groups are subjective, you can create subgroups for certain fans and even a paid version based on your requirements.

Platforms to use

This section is subjective to how you would like to curate. A few free options are Reddit, Facebook groups, and Discord. Slack and Circle are both paid platforms that do a great job of creating a place for discussion, and their automations make publishing content simplistic.

My Final Take

The economy has indeed shifted the DTC landscape however, hope isn’t lost for owners today. The way we’ve once scaled brands by increasing ad spend, launching new products, and hoping our brand becomes successful is just a fantasy in 2022.

As consumer acquisition costs continue to rise every customer becomes 10x more important, so establishing the best customer experience is the biggest lever brands can pull to increase success, profitability, and most importantly longevity. When change happens you either adapt or perish in this case brands will either have to adapt or file for bankruptcy.

— Rudy Boateng, Media Buyer @ The Hemon Media Group