How the retail revolution introduced by

Digital native brands pose a threat to all

And since we are talking about the retail industry, it is worth considering that about 67% of the United
States GDP comes from the retail consumption. The total retail sales reached up to $24 trillion in 2015,
as per the report of eMarketer.com. So, these opening and closing of retail stores might seem
insignificant news to a common man but this is a gauge to measure how well the US economy is doing
because it is the trillions industry we are talking about. And unsteady economy resulted because of the
significant number of store closings in 2016 surely made that clear to us.

To have a thorough understanding of the concept, we must differentiate the terms DNVB and DTC; that
are found excessively in the retail articles these days. DTCs (Direct to Consumer) are independent of
retailers and distributers and sell their products/services through their franchise having a direct
interaction with the customers. While DNVBs (Digitally Native Vertical Brands) as the name suggests, are
digitally native and operate mainly from the internet and control their entire supply chain. Digitally
native means that they use digital media for marketing, building their brands image and connecting with
their market customers that may even lead to selling. Though these terms are used interchangeably,
DNVBs are in fact the subset of DTCs.

Now, let’s move on the core of the discussion that why these DTC/DNVB brands exist and what were the
reasons of their enormous growth in such a short time? Our approach to the answer of this question will
be easier to interpret if we understand the concept of affinity and how these brands use it to earn
money.

The affinity is the strong bond created by the alignment of the customer preference with the
product/service/value offered by a brand. And in order to plot these affinities, four bases of customer
segmentations are used; namely demographic, behavioral, psychotic and geographic. The last one is
ignored as both DTCs and DNVBs use digital platforms thus ruling out the possibility of geography
causing an impact on customer preference. The remaining three segmentations serve as the three-
dimensional axes on which the alignment of individual customers is plotted as a point in space. And to
have the idea of all in-market consumers relative affinity, all of these individual points are added to form
a three dimensional histogram. The customer’s relative affinity to the brand can also be visualized by
mapping the brand center (or the targeted customers) on the same three-dimensional graph and then
connecting it with the customer preference (see figure 1). The distance between these two points will
give us the relative affinity to the brand. The brand center is actually the preference set by the brand
based on which their whole design, marketing, production and sales teams work.

Figure 1: Mapping of affinity

Every business is nothing but an idea or investment with zero customers. But they all have a motive to
provide a particular good/service to a specific audience. This audience is actually the targeted customers
for whom you proposed the idea. Some of the people will easily be on-boarded as soon they come to
know about your business. They are usually referred as Un-Aided or Organic in the terms of DNVB/DTC.

The brands usually targets on these preference sets to get more people on board. To visualize the
brands on-boarding based on their common preference; assume a concentric circle where affinity is
weakened as you move away from the center. There are basically four classes based on these customer
affinity segments (see figure 2).

1. Core/ Evangelist: Being in the center, they possess the highest affinity for the brand. Thus, grab
the title of being the most passionate customers. Initially, this band is comprised of social circle
of the brand’s founding members like their family, colleagues or friends; as they have a
preference set highly aligned with the brand. Later on, other people may also join this band but
only those manage to stay in here who personally evangelize the brand in their network.
2. Loyalist: These are the set of customers who lie next to core in the manner of decreasing
affinity. Their affinities for the brand is also high and are so satisfied with the good/service
provided by the band that they save their effort for discovering new options thus, resulting in
the repeated purchases. And that’s why are termed as loyalists. However, unlike the core they
don’t seem to indulge in evangelizing your brand.
3. Passives: Although they have been your customers in the past, but the decision of their next
purchase depends upon if their preference set matches better with your brand or your
opponents. Because this class of the band relies largely on opportunistic basis and they spend
 quite a time on discovering new options and checks which ones preference set is more aligned
with their own.
4. Agnostics: As the name suggests, they don’t favor a brand over another in-market brand.

Figure 2: Customers Affinity segments

The Legacy brands have been using a basic technique to maximize their shares for all classes of customer
affinity segments. But their focus has always been the average of all these customers’ affinities. But with
the rise of DTC/DNVBs, the loosely link customers are largely attracted to the new brands who gives
them exactly what they want; thus building a massive market of core or loyalist customers. That’s
exactly what Bryan Spaly, the founder of Bonobos did back in 2007. The event dates back to the time
when he was studying at Stanford Business School where he manufactured the first curved waist pant.
He then went door to door at the campus for sales. Then Andy Dunn (co-founder) hoped in and
introduced the idea of Digital storytelling along with the direct to consumer fulfillment and one-to-one
customer service interaction. The idea soon elevated the sales and fitted jeans became popular among
students, professional and friends. The large set of the customers were high earners and corporate
workers who cared well about their appearance and their preference set was just on-point with the
Bonobos center. But what exactly was the reason for its growth? The answer is quite simple. Previously,
all of these customers were either from passive or agnostic band and very loosely linked with the legacy
brands of that time. The Bonobos, however, attracted all of these weak affiliated customers by offering
a brand center just exactly on point with their preference set and thus building a massive market.

But apart from these growths, many intellectuals often show their “concern” that these DNVBs/DTCs
will ever be able to deliver $1B+ revenue or are they just being formed as a rebellion against Legacy
brands? Again the answer can be explained by an example; Away. They started with the launch of carry-
on suitcase that resulted in a very passionate though small core of audience. But they didn’t stop there
and moved on further with the launch of “job-to-be done” markets under the broader travel umbrella.
So, instead of moving away from the preference set of their passionate but limited audience or sticking
to a very limited product range; they diverged from a single core to a series of tightly connected clusters.
Thus, they crafted their way that was beneficial both to the customers as well as the brand.
And since the DNVBs and DTCs are growing and getting applause from the audience by delivering the
brand set just in accordance with the customer preference; now is the time for all Legacy brands to
introduce this policy and digitally anchor themselves to get a better understanding for their customers’
needs and develop a deep relationship for details. The best way is, no doubt, to interact with them
digitally and physically. But if these Big names do not adapt to this change, they will soon be replaced by
the challenger DNVB/DTC as they are building up their entire brands on these weak customer affinities.
This new technique of interacting and building a relationship with each customer is way more personal
than the previously adopted method where brands were only steered by these Legacy brands towards
the middle of large customer segments’ average. The optimization of these newly emerging brands to an
individual specificity is a huge step forward in human interaction and consumer quality of life.