Perfect Storm: Traits of Digital-native Brands to Leverage Now

What a crazy time in our lives, when we get hit with three historic events at the same time: pandemic, racial tensions and financial crisis. At no other time in history have we been in this perfect storm: something equivalent to the 1918 Spanish flu pandemic, racial tensions mirror that of the 60’s and the financial crisis all at once is likely going to surpass the depression era decline.

McKinsey wrote a nice piece on this in July that I thought foundationally laid this out really well.

“Consumer behaviors are settling into a new normal, as people everywhere learn to live aith the reality of COVID-19... five themes have become evident among consumers across the globe:

Shift to Value and Essentials
Flight to Digital and Omnichannel
Shock to Loyalty
Health and “caring” economy
Homebody economy"

When you dig through each, one common theme is consistent: with the narrowing of in-person interactions and the extended duration of these crises, innovation and risk taking may not match the rapid shift in consumer sentiment and new digital habits that are forming in all generational groups.

Email is relatively recession proof and tends to be used when an organization's goals are customer-focused and not reach-focused.

This then conjures up discussion of digital native brands and digital transformation. A few years ago digital-native brands were a novelty, outside of a few unicorns; some paid attention, some ran fast, and some just couldn't get off the ground. Today, it's a forced digital-first world. How are companies transitioning?

I’ve resurfaced a timeless article i wrote a few years ago to serve as the backdrop to our Only-Influencers-members-only live Zoom discussion this Thursday, August 20, 2020 from 12:00 noon to 1:00 PM ET (not an OI member? Contact Jeanne Jennings at jeanne@onlyinfluencers.com and ask if you can join us as my guest).

There's lots of buzz surrounding digital-native brands and what's making them so disruptive and relevant today. While the definition of digital-native is evolving, they are companies that launch as web-only retailers with the belief that superior technology can be a differentiator. They often engender loyalty by projecting authenticity and effectively leveraging social media. More importantly, they believe in a few core operational traits that can serve as a template for larger companies to emulate.

Digital-native brands act like startups. They move fast, iterate and quickly reconsider failed initiatives. Don’t look at this post as another definition of digital-native brands; rather, we will look at the principles of how they operate and the collective cultures and thinking involved with outpacing competitive options in a super competitive, if not challenged, retail industry.

Consumers want authenticity, trusted brands, and brands that are agile enough to match the pace and relevance of their interests, moods and device-switching worlds.

Digital natives don't run on conventional thinking. Being digitally native is about being unconventional, fluid and agile — and sometimes it’s about being ready to let go of some control.

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Here are a few traits that are catalysts to the culture of digital-native brands:

Digital Native is Not E-Commerce, it’s Vertical Commerce

In vertical commerce, where retailers serve a niche audience and its specific needs, product gross margins are at least double that of e-commerce (e.g., 65 percent vs. 30 percent). The contribution margins can be four times to five times higher (e.g., 40 percent to 50 percent vs. 10 percent). Vertical commerce radically transforms the economics of e-commerce. Vertical commerce can make money. E-commerce, not so much, especially with third-party e-commerce dominated by Amazon.com.

To live vertical commerce, you must love data, automation and artificial intelligence. All three in concert yield customer intimacy, ability to act, personalize and apply the proper connections through shopping, buying, fulfillment and post-purchase remarketing.

Digital-Native Brands Are Not Technology Companies

Some investors have skewed this, and who’s to blame them after Unilever acquired Dollar Shave club for $1 billion in 2016? However, don’t pretend digital-native retailers are technology companies investing like technology companies. They're still retail. The subtle difference is they see brand as the platform vs. technology as the platform, and use it ubiquitously across the customer experience in very agile, personalized ways. Don’t look further than Airbnb, Uber, Lyft, and LinkedIn as examples of where technology is the foundation, but the brand is, in the end, the platform.

Going online with a brand and targeting millennials doesn't make it a digital native. Some big brands believe they can build a native brand, but they struggle to move at the speed of their typically smaller digital-native competitors. As the old saying goes, “It’s not the big that eat the small, it’s the fast that eat the slow.” Digital-native commerce requires an agile startup culture that's out of reach of many large, established brands, but not completely out of reach, as many brands are striving to kick-start these cultures in big companies. The path for many is through acquisition vs. organic culture design.

Digital-Native Brands Are Hyperfocused on the Customer and Experience

Successful digital-native brands create thriving user communities that rely on content, experience and product to attract loyal customers. With customer centricity, agility and integrated technology stacks, digital native and/or modern marketing brands are embracing change.

While born digitally, the digital-native brand need not end up digital-only. This means the brand can extend offline. Usually its offline incarnation is through its own experiential physical storefront, pop-up strategy, or highly selective partnerships. In nearly all cases of partnerships with third parties, the brand controls its external distribution. Any offline retail is not about warehousing product, it’s about marketing the brand and delivering great one-to-one customer service.

You know who figured this out first? Steve Jobs. The Apple Store was the first scalable, experiential, vertical-retail concept, capitalizing on great product and innate commitment to the customer and experiences.

There are many parallels to the terms digital-first, digital-native and modern marketing models. They all look similar, yet operate so vastly differently.

Don’t let yesterday take too much of today. Strive for change, strive for speed, and be as flexible as you can, with the customer at the center. It starts small, yet needs to be ingrained in the culture, or road maps and strategies will flounder in times of stress.

There is a very overused phrase “insanity is doing things over and over again and expecting different results.” In our space, I don't think this jibes, as what works works well, email, is about persistence and execution, not big ideas. Absent a culture that recognizes that and is foundationally solid, organizations will struggle through these times.