Skip to main content

Analysis: What Dollar Shave Club’s Sale Means For Retail

8/1/2016

News of Dollar Shave Club’s recent $1 billion sale to global packaged-goods giant Unilever came like a splash of cold water to the face of most in the retail business.



But it shouldn’t have come as a surprise.



The booming success of subscription services is just the next step in the evolution towards seamless, contactless retail that emphasizes ease, convenience, common sense and just a touch of personality and cheeky humor.



This emerging model that has customers tossing aside their old brand loyalties like dull razors. Brands and retailers alike are worried. Headlines implore “Is Brand Loyalty Dead?” We don’t think it’s dead -- it’s just up for grabs.



Since its founding in 2011, Dollar Shave Club has accumulated 3.6 million customers who spend anywhere from just $3 to $9 per month to keep their faces looking fresh. It might be tough to fathom the speed of growth, but less than a year ago, Dollar Shave Club was valued at only half a million dollars, and the company is yet to turn a profit!



Now consider that Unilever paid about five times Dollar Shave Club’s expected revenue. Why? Not because razors from Dollar Shave Club are so much better, but because the company has made getting razors easier and switching brands harder. This frictionless experience has helped to generate customer loyalty fast. Loyalty is inherently built into the Dollar Shave Club business model. It effectively combines three elements of loyalty: affinity, trust and habit. The quirky advertising and branding help to create affinity. The consistently solid, no-frills product builds trust.



And Dollar Shave Club engineers habit-making by simplifying by default: once a customer signs up, future razor purchases are on autopilot, essentially switching off active future buying decisions. Subscribers whose razors are automatically delivered are much less likely to be tempted to switch, compared to in-store shoppers who are at the mercy of sales, coupons, fancy displays, and the latest bright and shiny object or new model with seven new and improved blades.



They’re Just Razors … So What?

This sale doesn’t live in a bubble. Yes, Unilever made this specific deal to strengthen its men’s business and attack the market share of competitor, Procter & Gamble.



But what it really means goes beyond that. It is one of the most visible (and expensive) acknowledgements of changing consumer behavior. Everyone is busy, busy, busy and customers are increasingly willing to pay to outsource mundane tasks that bring little joy -- such as shopping for razors.



Unilever’s purchase represents three key shifts in the retail business landscape:



1. Better data matters. Companies that thrive will be the ones that are able to convert masses of customer information into meaningful insights that build relationships.



2. Loyalty is fickle and fleeting. Consumers are more willing to try new brands and buying models.



3. Advertising is losing its pull. It is no longer just enough to make customers aware of your products. Customers reward companies that invest in innovation and new delivery models that are relevant to their lives.



The Battle for Data and Direct Relationships

Packaged goods manufacturers don’t necessarily own or have access to their consumer’s data, and they’ve long been at the mercy of the retail store to learn about shopper buying behavior. In these circumstances, the retailer has the upper hand. But subscriptions help manufacturers and brands create an ongoing, direct relationship with the customer, providing richer opportunities for interaction beyond the transaction.



Dollar Shave Club doesn’t just offer customers a compelling reason to buy their razors, they offer a reason to engage with the brand. And as a direct subscription service provider, they’re shifting power in their favor by owning their customer data - and their customer relationships - in a way Big Razor never could. No wonder Gillette (a P&G brand) started its own subscription razor club while Unilever simply bought its way in.



Shaving Away at Brand Loyalty

CPG brands are particularly vulnerable to shifting brand loyalties. Today, one-third of shoppers are buying more private label products, and only 6.5%, a new low, hope to return to name brands some day. Customers know that choosing a certain brand of soda won’t make you more popular and that a particular brand of detergent doesn’t make you a better parent. If emotional involvement is low, and there is no real product differentiation, customers will happily jump ship when an easier, more convenient or cheaper option becomes available.



What’s more, legacy doesn’t necessarily translate to loyalty. Being the oldest, biggest, or having the highest unaided brand recognition in your category is no longer something companies can rely on to drive the business. In fact, those may actually be liabilities when trying to attract younger consumers who are wary of corporations and tend to appreciate more novel, innovative, digital-savvy challenger brands.



Loyalty is not a club. It’s not a card. It can’t be calculated in points. It can’t be bought with coupons, mobile or otherwise. Loyalty is earned, one interaction at a time.



Traditional Advertising is Crumbling

At the L2 Digital Leadership Academy in New York, Professor Scott Galloway stated, “the value chain of how brands are built is being reshaped … if you’re the largest advertiser in the space, you’re probably in decline.” Advertising has lost the impact of its once powerful punch, and brands are responding accordingly. All of L’Oreal’s fastest growing brands share a common characteristic - they don’t advertise. Instead they redirect ad spend to refining new sets of capabilities, e.g. search visibility, new channels of distribution, and agile product innovation.



What’s Next?

Dollar Shave Club made a billion dollars taking on behemoth brands, by focusing on one low-cost, disposable product and doing it differently. The lesson is to understand why it worked so well and to adopt some of that thinking into your own retail strategy.





Dianne Inniss is customer experience and innovation strategist atThoughtWorks Retail.


X
This ad will auto-close in 10 seconds