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It’s Time for the E-Commerce Revolution 2.0

Get Ready for the E-Commerce Revolution 2.0

The way consumers buy products has radically changed as a result of the digital revolution. Now, small businesses can compete directly with huge corporations and win by selling direct-to-consumer (D2C).

Consumers have benefitted from more choice over what they buy as well as how and where they buy. Now, consumers have more control over the purchase process and are demanding great customer experiences.

Small, upstart brands selling D2C have been able to deliver both better products and experiences for profitable niches. The success of companies like Dollar Shave Club and Bonobos has been a wakeup call for large enterprises, who are now responding to this disruption by leveraging the power of personalization to create great customer experiences at scale.

For the small brands hoping to emulate the success of Dollar Shave Club and the like, they are facing a significant challenge to growing their businesses beyond a beachhead niche. In this article, we layout our vision for how small brands can achieve the dream of the e-commerce revolution and unlock sustainable growth for their business.

It’s clear that personalization will play a role, but how will small marketing teams execute it? What capabilities and technology are lacking that keep personalization a pipedream?

How will these small D2C upstarts build large brands with limited budgets and demands to meet performance goals? How can e-commerce marketers leverage and prove the power of brand to drive sustained growth?

We will address these challenges and layout a path for small brands to achieve sustainable growth that is based on:

  • Doubling down on a niche-based strategy to scale instead of abandoning it
  • Solving the impediments to personalization specific to small and medium size businesses (that no one is talking about)
  • Merging brand and performance marketing so that e-commerce marketers can simultaneously drive efficient growth and differentiate their brand (i.e. approaching brand with a hypothesis and data-driven performance framework)

Our recommendations come from our experience helping hundreds of small D2C brands build sustainable growth. Matcha’s aim is to give every brand the power of storytelling. We believe that when storytelling is both artful and scientific, businesses can deliver better customer experience. Specifically, we help lean marketing teams with the challenge of content production, strategy, distribution, and measurement.

Ultimately, our aim is to generate conversation between marketers at small D2C brands and marketing technology companies that we hope will ultimately usher in the next revolution for e-commerce marketers. We hope you enjoy!

Thomas Shields, Head of Marketing and Fynn Glover, Founder/CEO at Matcha

The e-commerce revolution 1.0

In the last 4 years, entrepreneurs launched an astonishing 800,000 new e-commerce companies — most of them small lifestyle brands, selling direct to consumer. As Mary Meeker described in her state of the internet report, we’re living through an e-commerce revolution driven by two distinct market forces, where it’s easier than ever before to:

  1. Start an online store, thanks to services like Shopify, Amazon Merchant Services, and Stripe
    Reach and acquire early niche customers thanks to Facebook and Google advertising
  2. The Shopify + Facebook effect has allowed SMBs to set up shop and acquire an initial customer base for a fraction of the costs from just a decade ago.

E-Commerce Revolution 1.0 .       

Previously, the costs to get started were prohibitive. Even if you could finance the development of an e-commerce website, brand building and customer acquisition were too expensive.

While companies like Shopify solved the challenge of setting up an online store, Facebook and Google have democratized advertising, allowing entrepreneurs to access the two most powerful advertising networks ever. Uniquely, these networks allow marketers to granularly target niche audiences to achieve better advertising performance. With no minimum ad spend requirements, direct-to-consumer (D2C) entrepreneurs are able to rapidly test niche audiences and establish passionate tribes in underserved segments where Goliath corporations have ruled for decades.

Stratechery’s Ben Thompson illustrates the transformation in advertising, as advertisers and their agencies have moved from the complexity of reaching audiences via multiple publishers, to the complexity of reaching audiences aggregated by Facebook and Google.

Trends in distribution .            Advertising consolidation

Stratechery’s Ben Thompson illustrates the transformation in advertising, as advertisers and their agencies have moved from the complexity of reaching audiences via multiple publishers, to the complexity of reaching audiences aggregated by Facebook and Google.

Writing for Inc., Tom Foster explains the appeal of the D2C movement, “by connect­­ing directly with consumers online, you can also better control your messages to them and, in turn, gather data about their purchase behavior, thereby enabling you to build a smarter product engine. If you do this while developing an “authentic” brand—one that stands for something more than selling stuff—you can effectively steal the future out from under giant legacy corporations.”

Breakout successes like Dollar Shave Club (acquired for $1B), RXBar (acquired for $600MM), and Warby Parker (valued at more than $1.75B), have shown how an upstart can quickly create a huge business by leveraging the tools of the e-commerce revolution. They’ve paved a path to success for thousands of D2C companies to follow.

Getting started is the easy part, scaling is the challenge

Although many startup D2C companies have gained a foothold, many falter as they scale. There are three key challenges to sustainable growth once a young brand gets off the ground:

  1. Few barriers to entry
  2. Ineffective scaling strategy
  3. Corporations adapt to entrants

Few Barriers to Entry
From incumbents to Amazon to the thousands of other recently-founded direct to consumer brands, competition can be fierce. Once a young brand establishes a beachhead for a profitable niche, it can draw attention from other upstarts and corporations. Dollar Shave Club shook up the razor industry; now, Harry’s and other new brands are fighting for market share while Gillette evolves its strategy with D2C offerings.

As Comcast Ventures Daniel Gultai observes, acquiring customers from these platforms has become the new rent for the lifestyle brands. The problem Foster writes, “can be especially acute, because many product categories now have multiple upstarts armed with tens of millions of dollars of venture capital, all targeting roughly the same users and, in the process, driving one another’s marketing costs up. It gets worse when the incum­bents take notice and start pouring their fortunes into the same ad buckets.”

Ineffective Scaling Strategy
The most common and deadly mistake growing brands make when scaling is abandoning their niche-based approach. To scale, they broaden their messaging and advertising. Tactically, this means moving from targeting a highly segmented audience to using broader targeting criteria on Facebook, or going after more competitive keywords on Google.

When this happens, small brands lose the competitive advantage they established from tailoring their marketing to a niche audience. When this happens, not only does the cost of acquisition increase, but brand loyalty is threatened if early adopters feel that brand’s promise has been abandoned or become inauthentic.

Corporations Adapt to Entrants
This e-commerce revolution hasn’t occurred in a vacuum. Incumbents are not only paying attention, they’re both leveraging the innovations in technology and strategy pioneered by D2C start-ups, as well as acquiring the best D2C startups to deepen direct relationships with engaged communities.

As Sunny Dhillon, writes, “D2C brands are no longer nipping at the heels of CPG giants — they’re either teaming up with them or becoming them. Bonobos co-founder Andy Dunn is at the heart of the braintrust Walmart has assembled to take on Amazon, and Warby Parker, Casper, and Dollar Shave Club are billion-dollar brands.”

Incumbents have many more resources to execute a personalized strategy at scale and across multiple audience segments, but despite their resource superiority, there is much SMB teams can learn from the best of the incumbents and beat them at their own game.

Take a company like Patagonia. They are personalizing the brand and message for different audiences. Their content and website are compelling, visually stunning, and speak directly to different audiences.

Patagonia content example for e-commerce revolution 2.0

Instead of growing by advertising a singular message to a broad audience, innovative corporations are personalizing. The image above, taken from Patagonia’s homepage, speaks directly to environmentalists, surfers, baby-boomers, families, and hardcore trail runners. They’re taking the customer acquisition strategy deployed by thousands of SMB upstarts—niche tribe building—and executing at scale through substantial investments in content personalization. In effect, they’re scaling micro-targeting across multiple customer segments.

It’s becoming very clear that personalization and authentic storytelling constitute the new norm for brands. So, how will small, upstart D2C brands compete?

How can lean marketing teams win

While a cutting-edge company like Patagonia is making huge investments to personalize its brand, small D2C brands have two critical advantages that will allow them to achieve the promise of the e-commerce revolution.

The first is speed—the same advantage every small, nimble company has over larger adversaries. The second is that small companies don’t have the luxury of large brand budgets like a Patagonia, and thus must apply a performance lens to all of their marketing. Ultimately, emerging D2C companies must successfully combine brand and performance marketing to build a competitive advantage and grow sustainably.

The critical weapon to win is brand. But a new type of brand. Not brand as the fluffy intangible that makes e-commerce marketers nauseous when they see the budget. Instead, brand that is grounded in the performance-based approach of niche marketing.

D2C companies must build brands whose communities help them establish competitive advantage, and the single most important activity to build community is storytelling, which must serve three primary aims:

  • Provide constant value to the community
  • Acquire and retain customers from the community
  • Inform marketing and product decisions through content consumption insights

As Sunny Dhillon, founding Partner at Signia VC, points out, “D2C disruption occurs in two ways: supply-chain disruption and brand disruption…Brand disruption is when startups use internet platforms that revolve around content — such as social media and blogging — to create a more multidimensional brand experience that creates super-engaged customers and a devoted digital community.” He goes onto argue that brand disruption is the real future of the D2C movement, writing, “A strong community oriented around a brand that lives on multiple online channels — and provides unique IRL experiences — is a deep moat.”

If we apply the performance and speed advantages to community building, marketers at SMB brands can quickly identify and test various niches to find profitable segments where they can win. Then, personalize and scale their branding efforts for each one of these niches. With this hypothesis based approach, blending performance and brand marketing efforts, upstart D2C brands will outpace incumbents grabbing profitable market share from under their noses.

According to Azul Couzens, VP of Marketing and Business Development at Helinox USA, “it’s critical that marketers use content to test and learn about audiences in rapid iterations. Too often, brand marketers think they know their customer from a brand perspective, which came from some mood board they put together. But the reality is that the data might prove otherwise. The question I ask is, to what cost is it worth achieving that customer data to better refine a more profitable customer. I think marketers often find that many of their best customers aren’t necessarily the sexy archetypes they put on their mood boards.”

The constraint of limited budgets combined with brand disruption and nimbleness, will enable emerging brands to successfully outmaneuver and win customers from incumbents.

While this paints a clear path to success, it is particularly challenging for SMB brands and their lean marketing teams to simultaneously function as performance marketers and brand marketers. How do brands, with marketing teams of 1-3 people, actually do this?

Bring on the e-commerce revolution 2.0

Just as the advent of the e-commerce revolution was powered by companies like Shopify, Facebook, and Google, solving what had seemed like intractable challenges, a new breed of solutions and platforms must empower lean marketing teams to sustainably scale their businesses.

Matcha believes that the playbook for sustainable growth is a niche-based scaling strategy. This approach combines the best of brand and performance marketing, maximizing customer lifetime value and minimizing acquisition costs. To succeed, the strategy requires personalized marketing for each niche.

Personalization allows lean marketers to maximize lifetime value (LTV) by building a brand that resonates with varied audiences, thereby delivering pricing power and customer loyalty. Personalization minimizes customer acquisition costs (CAC) by emphasizing the very microtargeting activity that fueled early growth versus broad based advertising that becomes more expensive over time as ads begin to saturate. Brand engagement and community loyalty also serve to mitigate the competitive threats posed by incumbents and copycats by allowing marketers to leverage insights from the community in both marketing production and product design.

To execute this strategy, new companies must empower lean marketing teams to:

  • Personalize their brand and marketing efforts easily
  • Scale storytelling and make content cost-effective
  • Apply a performance lens to branding and storytelling by showing how content performs, gaining deeper insight into customer niches, and proving the influence of content on revenue
  • Gain insight into the best strategies, activities, and optimizations to execute next through proactive recommendations

We believe that the companies that enable these capabilities will usher in the e-commerce revolution 2.0. Some may leverage AI, human-powered services, or a combination of both to meet the needs of lean marketing teams.

One company that is already helping to lead the e-commerce revolution 2.0 is Yotpo. They help brands acquire and leverage user-generated content, such as customer reviews to scale content, personalize marketing, authentically build brand, and deliver insights on customers.

How we’re solving this problem at Matcha

Matcha is committed to solving the challenges e-commerce brands face and ushering in the e-commerce revolution 2.0. We believe in lean marketing teams, and we also believe that better solutions for content acquisition, distribution, and measurement will catalyze the type of personalization necessary for SMB’s to achieve a second e-commerce revolution.

While there are already many technologies that enable marketers to trigger messages based on actions or customer data, allowing for personalized campaigns at scale, there is a significant gap in the drive towards personalization. All of these marketing tools need content to fuel each campaign and actually personalize the experience for the consumer.

Fundamentally, SMBs cannot produce enough content to personalize their brand and message to multiple audiences across multiple tools. Without enough content, SMB marketers continue to live in siloed worlds with no bridge between brand and performance marketing. Until lean marketing teams can scale content for different customer groups, personalization remains limited to product purchase history, rather than to brand-differentiating storytelling.

For Matcha, delivering on the promise of the e-commerce revolution 2.0 hinges around 3 core beliefs:

  1. The power of content to engage an audience, create brand engagement and loyalty, and to drive sustainable growth
  2. Scientific storytelling that leverages data to provide insight about target audiences, show how content influences revenue, and informs intelligent automation.
  3. The lean marketing team should be able to punch-above their weight and be able to approach what a Patagonia can do, but do it even with a marketing team of one and limited budget

Matcha is the only comprehensive content marketing solution that solves the challenges of content production, distribution, and measurement specifically for small and growing D2C brands.

Already, we’ve helped hundreds of small brands to execute and scale a niche-based growth strategy. Matcha combines a content marketplace with smart distribution and a content analytics that allows marketers to scale storytelling and content, personalize their marketing to different niches without any complex automation or data analysis, and prove the ROI of their efforts. We couple our platform with on-demand services to allow the lean-marketing team to expand their capabilities as needed.

While it’s still early, we’ve seen positive results when e-commerce marketers can cost-effectively solve the content supply challenge, personalize across niches, and have the right analytics to optimize their efforts.