What traditional retailers can learn from digitally native brands

Explosive growth in e-commerce has shaken up the retail industry, challenging traditional brands to find new ways to digitally engage customers.

As consumers spend more time online, marketers must consider how to make their brands more experiential via digital channels. Don’t fall into the trap of treating digital as a strictly transactional medium.

Traditional retailers and brands can learn a thing a two from digitally native vertical brands (DNVBs) – those that were “born” online, have a vertically integrated supply chain and don’t have a large physical retail presence (think: Glossier and Wayfair).

These companies never had to spend time overhauling legacy retail systems and had a much smaller barrier of entry into the digital space. As a result, digitally native brands have gotten a head start at things like data and customer intelligence, e-commerce, and omnichannel digital experiences.

DNVBs this year are likely to thrive after a Cyber Week that saw online sales surge almost 21% year-over-year, reaching $34.4 billion. That growth is about four times as much as the 5.2% that the NRF forecast for the entire holiday season. The global pandemic has accelerated a longer-term shift toward online shopping, with many traditional brands playing catch-up to the strategies already developed by DNVBs.

DNVBs generally share several characteristics that make them unique from traditional brands.

DNVBs drive loyalty through community
DNVBs place a big focus on branding and raising consumer awareness in marketing campaigns that drive online sales. Their goal is to build the kind of loyalty that transforms their customers into brand enthusiasts by prioritizing customer experience over customer service.

Oftentimes, DNVBs treat their customers like friends in a tightly knit community and emphasize a brand mission that resonates with consumers. They also tend to invest heavily in digital content and respond quickly to consumer demands by controlling the end-to-end of their supply chain.

Transforming a product into an experience is a central part of the strategy of DNVBs like Peloton, the maker of exercise bikes whose revenue more than tripled in the past year. Buying a Peloton bike is only the beginning of the experience with its brand, which gamifies ongoing usage by helping customers to set goals and urging them to participate in its virtual fitness classes while at home.

Peloton owners can find spinning instructors with different personalities and styles of workouts to personalize the experience. Even though Peloton's bikes are more expensive than many traditional brands of exercise equipment, its emphasis on simulating the experience of going to a group exercise class at the gym greatly increases the value proposition for consumers. Peloton generates ongoing revenue from membership fees that in many cases are less expensive than a gym membership.

DNVBs oftentimes have a strong brand mission

Having a strong brand mission is a key characteristic of DNVBs that transforms customers into loyal enthusiasts. That brand mission can include a social cause such as sustainability, promoting diversity, or giving back to their communities.

Electric vehicle maker Tesla is among the examples of brands that are cultivating the sense of participating in a broader movement of helping the environment by owning one of its emission-free cars or SUVs. The brand doesn't sell vehicles in traditional dealerships, preferring to use the term "experience center" to describe its showrooms that facilitate mobile orders through its app.

DNVBs often make their corporate mission a key part of their brand story, highlighting owners who are passionate for a cause. With many younger adults saying they prefer brands that show a commitment to a cause, every marketer should be mindful of articulating a brand mission that resonates with consumers.

DNVBs are customer-centric

Because people experience DNVBs through devices like their smartphones and computers, engaging digital content is a must. Glossier, the online retailer of beauty and skincare products that evolved from a blog for enthusiasts, urges customers to participate in its online community where makeup artists offer advice and tips.

The ongoing engagement with returning customers not only helps to foster loyalty and drive sales, but also inspires the development of new products. Glossier actively solicits feedback from customers to inform its strategy of sourcing items that consumers wish they could find.

DNVBs tend to support their customer-focused obsessions by controlling their supply chains as much as possible. By vertically integrating their operations all the way from manufacturing to the point of sale, and then actively maintaining relationships with customers, DNVBs tend to see gross margins that are double those for retail e-commerce.

Transforming retail in a digital economy

By adopting these strategies, traditional brands and retailers can transform their businesses. A recent example is GoPro, the maker of cameras for action sports that used to focus on traditional wholesale and retail outlets to avoid channel conflict.

The company recently shifted its model to direct sales and cultivating its online community of outdoor sports enthusiasts who revel in sharing videos of their exploits. A new subscription service that provides unlimited storage of footage, a camera replacement policy and discounts of accessories has helped to revive sales, with GoPro recently reporting record holiday sales.

Peter Sheldon is senior director of commerce strategy at Adobe.