At 29 Next, we have had the opportunity to work with a lot direct to consumer ecommerce brands, agencies, and entrepreneurs across a broad spectrum of industries. After helping to launch dozens of products and campaigns, certain patterns of success or failure start to emerge.
This blog series - What it Takes to Win at Ecommerce - will take a deep dive into the different elements that comprise developing, launching, and growing a successful DTC ecommerce brand. At each step, we’ll identify a common challenge and its solution, as well as a case study for added context (where applicable).
Use this series as a reference or to be pointed in the right direction when starting a digital brand and launching into the DTC arena.
To kick off this series, we’re looking at the primary piece of the puzzle - The Product.
Products are at the core of every ecommerce brand and are what dictate sales, marketing, and growth strategies. Ultimately, a brand’s products are its most important asset; yet, a lot of brands get tripped up in product development before even getting off the ground.
Why? Brand owners are often unfamiliar with the micro details or proven strategies of designing a product. Not every ecommerce merchant has the benefit of experience, which is where 29 Next comes in.
Regardless of the product category, here are a few critical tenets of the product design process that must be considered to build a successful DTC product and brand.
Meeting Market Demand
I think I have a great idea for a new product and I want to be sure others will be interested in it too.
When choosing a product strategy, it’s necessary to avoid being swayed by personal biases and do detailed research on what the market wants and what it will need - great product ideas are ahead of trends, not responding to them.
One of the hardest lessons new brand owners learn is that not everyone is as interested in a product as the owners are, no matter how great it is. Through failure, they learn that it’s always better to sell products that intersect with consumers’ interests and pain points than to bank on manufacturing consumer interest in a product type.
Seek feedback from affiliates and performance networks (the people who risk their own capital to generate demand day after day) or other parties who have reputable insights on consumer behavior and trends.
Case Study: Remember Google Glass? They were sleek, futuristic, and had the perception of being a bridge to the next generation of smart technology. But Google Glass mainly failed because the product A) did not meet any consumer demand and B) did not solve any problems consumers were having. It was believed that the exciting technology would be enough to generate its own demand, but ultimately it did not.
Focusing on Specialized Features
There is a lot of competition in my space - I don’t know what my differentiation strategy will be.
It’s important to value a product by its “offer,” not as a sum of its features. The “offer” includes other aspects in addition to features, such as the presentation and packaging, price points, timeliness, and purchase options, as well as the amount paid out to marketing partners.
One common mistake made in product design is bloating a product with a lot of “okay” features in an effort to satisfy every want or appeal to more audiences. Despite how convincing the logic may seem, this strategy typically fails because the features, on an individual level, aren’t of a high enough quality for consumers in that niche.
Try focusing on one or two features that address market demand and do them excellently - bonus points if for being innovative in delivering value - then round out the other aspects of the “offer.”
Case Study: In the early 2000’s, Nintendo’s GameCube was vastly outsold by Sony’s Playstation 2 and Microsoft’s Xbox. Both Xbox and Playstation 2 had a steady library of games with excellent graphics that could be played online, features that gamers wanted and that GameCube didn’t have the hardware to support. With Microsoft and Sony entrenched in a console war, Nintendo decided not to compete head-to-head-to-head, instead heavily investing in their 1st-party games and adopting a Blue Ocean strategy towards video game innovation.
In 2006, around the same time Microsoft and Sony debuted a new generation of consoles, Nintendo released the motion control-enabled Wii console and new installments of their proprietary franchises featuring motion control gameplay. The Wii remains one of the most innovative and best selling consoles of all time, with 15% greater sales than Microsoft and Sony’s consoles.
Controlling Supply Costs, Reliability & Quality
I’m struggling to balance product quality with keeping costs low with my suppliers.
Spend time sourcing multiple quality and reliable suppliers for raw materials in order to find the most cost-effective mix, and save costs at every step of the manufacturing process. Don’t be hasty and accept the first quote - pennies matter.
Margins are everything for a consumer product, and the top priority at the start of a brand’s journey is to get products into customers’ hands. Having a greater gross margin provides more room for flexibility with pricing promotions and offers. For DTC Ecommerce, cost of goods sold (COGS) should not exceed 25% of net sales, unless the product has a high price or is part of a subscription offer with low churn rates.
The supply chain is the backbone of any operation and suppliers need to be relied upon to have quality raw materials in steady supply. But remember, keeping COGS low does not mean sacrificing quality. Without a dependable supply chain, all marketing and sales efforts could be sunk by a lack of inventory, or returns and complaints due to product defects.
Case Study: The history of Toms Shoes is a story of supply chain brilliance. Toms, a for-profit business, championed the Buy One Give One business model, where for every pair of shoes purchased they would donate a pair to a person in need. In order to achieve their mission while also making a profit, Toms needed to keep manufacturing costs low and build a cushion into their pricing.
Toms set up manufacturing facilities in developing countries where they would ultimately distribute their free shoes, thus saving on both manufacturing and distribution costs. They also leveraged their business model and manufacturing practices in their marketing which resulted in consumers accepting a higher price in exchange for a philanthropic contribution.
Perception of Quality & Packaging
As a new brand, I need a way to make my brand, not just my product, stick with consumers.
First impressions usually dictate how customers feel about the product and brand as a whole, and product build quality is among the first attributes a customer notices. Everything from packaging to how a product feels coming out of the box will have a meaningful impact on customer perception, so don’t cut corners.
Savvy marketers optimize packaging - including shipping boxes - as an ideal place to establish brand identity. Unboxing videos are amazing UGC to use in ads and social posts, so consider designing branded packaging.
All that said, take the above notes on COGS in account before investing too heavily in customized packaging. Depending on the brand, kraft-style cardboard might communicate authenticity better than an embossed foil-print box that costs four times as much. Above all else, resist the urge to endlessly iterate packaging during the first few runs – save the effort (and cash) for when there is real-world customer feedback to act upon.
Case Study: Using the founder’s personal experience with acne as a test case, LuminSkin had a strong belief that the skincare industry wasn’t just for women. Their research found that increasingly, males were investing in their skin health, but that most customers didn’t know which products they needed. Lumin captured this market by proving that their products were effective and could address each customer’s individual needs.
Because Lumin targeted men who needed education on skin care, they devised a short survey that would inform in-house experts as to which products a particular customer needed. They also invested in having premium packaging so that when these new-to-skincare customers received their products, their first impressions were that Lumin was an ultra-premium product. On top of having effective products, together, these elements quickly solidified LuminSkin as a brand men could trust.
Pricing that Works
I need to be competitive in the market when I launch my product.
Spend meaningful time researching competitor’s pricing and features and analyzing the market to understand the target consumers’ spending habits. Once a narrowed-down price range has been determined, factor in COGS and come away with a flexible margin that works.
Determining proper pricing takes a lot of research and finesse - there’s no easy way about it. Price too high and the product might not sell, regardless of quality; price too low and the brand will be viewed as cheap. While there’s never an absolute perfect price point, successful brands typically find a sweet spot by harmonizing their marketing and pricing strategies with the wants of their target market. Ultimately, customers who use a product want to feel that they got good value for the price.
If sales are an issue, an easy way to increase conversion rate is to drop pricing - but consider the long term value of customers willing to pay a higher ticket price. Many consumers also expect free shipping, so weigh the need to drive up average order values (AOVs) versus conversion rates when setting shipping prices. Higher prices + paying higher CPAs might be more sustainable in the long run.
Case Study: At its launch in 2014, Los Angeles-based cosmetics company ColourPop understood the pain points of its millennial target market. The beauty brands that dominated the social media influencer scene were all positioned with premium pricing, which made it difficult for the average target consumer to fully identify with the brand. ColourPop knew that cash-strapped millennials were yearning for affordable, quality cosmetics that they could build a personal relationship with and set their pricing at the low end of the market.
But that’s not all ColourPop did to grow their brand. They worked with beauty influencers to spread the word that ColourPop was both high value and high quality, then leveraged their low price points to entice customers to buy different variants and products. It suited their customer base to buy a handful of different ColourPop cosmetics for the same price as one product from another brand, thus building brand loyalty across multiple product categories.
The truth is, most brands don’t get all of these elements right on the first or second try. The most important thing is to continually improve every aspect of a business with a focus on the customer – the rest tends to fall into place. But it also doesn’t hurt to have an ally who’s got your back.
29 Next has helped dozens of brands overcome these challenges and fill in the blanks where they might be lacking resources or direction.
Ask us today how we can help grow and scale up your DTC brand.
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