The Direct to Consumer Playbook

The Stories and Strategies of the Brands that Wrote the DTC Rules

Mike Stevens

• Publisher: Kogan Page
• Year: 2022
• Print ISBN: 9781398605428
• eBook ISBN: 9781398605435
• Edition: 1
• Topic: Business
• Subtopic: Marketing
• Index: Business

SHORTLISTED: Business Book Awards 2023 - Start Up/Scale Up Build your DTC brand by learning from the best. As consumer buying habits continue to shift, more and more brands are turning their attention to e-commerce and selling direct. However, few manage to succeed at scale. Overcome the challenges of the ever-increasing cost of marketing, the demands of customer service, complicated logistical requirements and the perils of selecting the right technology by learning from the DTC pioneers who have got it right. Read the founding stories, strategies, failures and eventual success of DTC brands such as Huel, graze, Snag, tails.com, Who Gives a Crap, Casper, Lick, allplants, Bloom & Wild and more to discover: · How they got started, what worked then and what works now
· The importance of building a community and how to use data
· When to consider going multichannel
· Why you need a bulletproof brand
· Navigating funding, margins, growth, customer service and product development and moreFor the first time, the best in class of DTC share their playbooks so that you can understand and build on their successes.

01

In the beginning was graze.com

graze

When Dan and I started Peppersmith in 2009, we had a road map. Between us, we had spent 14 years at innocent, one of the most successful UK food and drink start-ups in the last few decades. We had seen how to do it; find a category to disrupt, develop a high-quality product and brand, and convince supermarkets and wholesalers to stock it. Marketing would be done in-store and, if we could afford it, using print and media. This roadmap was the world we knew, and while it was never going to be easy, we felt very little pressure to follow a different path.

A few miles down the road from our office in Putney, there was a company that was playing by a different set of rules. It did not take us long to become aware of graze, who launched about a year before us. They were different. While the rest of the food and drink start-up world, including us, were zigging, they were zagging. It seemed that everything they did was unique. They were a new snack brand, but they were not in the shops. Instead, they were selling their products using a DTC subscription model. What’s more, rather than outsourcing production, they had their own factory. Also, unlike us, who made just a couple of products, they were making dozens and were adding more to their portfolio each week.

While we were haggling with the UK’s biggest retailers, graze did their own thing and were succeeding. By the time we had hit our first million, they already had £40 million of sales with over 100,000 weekly subscribers. It seemed that they were three steps ahead of the rest of us and operating in a different world. I was a fanboy. I desperately wanted to know how they achieved these results and see if I could incorporate any of their strategies into my business. It was becoming an obsession, and that obsession became the genesis for this book. What was it about DTC that was better than the traditional launch model we were using? And if it was a better model, what did you have to do to get it right?

While I was trying to figure out the mysteries of DTC, graze became one of the UK’s biggest snack brands and was eventually acquired by Unilever in a nine-figure deal in 2019. Their success had proved that DTC needed to be taken seriously. Therefore graze was the natural place to start my odyssey to understand DTC brands and what they did differently from companies like mine. Hence my interview with graze CEO Anthony Fletcher was the first for this book. I had a lot to learn. Fortunately, he was happy to walk me through the story.

Why being industry outsiders was an advantage

One of the reasons graze were so different was that they were started by experts in technology and logistics and not in food. So what could have been a weakness was actually a strength. Freed from any preconceptions, they thought differently from the rest of the industry.

The foundations for the graze method can be traced back to another pioneering UK business, LoveFilm. LoveFilm was the UK’s answer to the first, pre-streaming, iteration of Netflix. LoveFilm was a business that sent DVDs through the post, thus saving you the hassle and the late fees of getting your DVD rentals from your local Blockbuster. Graham Bosher was a co-founder at LoveFilm, and when he left the business during its acquisition by Amazon, he turned his gaze to new opportunities. It did not take long for him to identify the snacking category as the next target to use his experience of tech, logistics and brand building.

The new business was to be similar to LoveFilm, i.e. subscription products through the post, but instead of DVDs, they would send snacks instead. A DTC model had never been tried at scale in the snacking industry before. Snacks were all about immediate satisfaction. What’s more, the products were cheap, making the relative delivery costs high. Despite this, Graham had planned to offer a variety of low-cost, healthy snacks delivered to your door, or more often than not, to your office desk. As this was all new and untested, they had some fundamental challenges to overcome, such as how they package and send out their products, what snacks are best, how to find customers willing to subscribe and how to keep the costs down. The list turned out to be quite long and, according to Anthony, led many would-be investors and industry veterans to describe the business model as ‘bonkers’.

The outsider status of the founding team resulted in a contrarian approach that most dismissive food industry professionals were quick to reject. They failed to see graze was years ahead of its time, and the way they were doing business would soon become the envy of the industry. Not so, Anthony, who was one of the first food and drink insiders to take what graze was trying to do seriously and was getting very excited about it.

At the time, Anthony was innovation manager at innocent, responsible for new product development and market entry strategies. He was getting restless and toyed with starting his own food business. ‘I was annoying the hell out of my wife, tampering with all sorts of food and drink ideas at home in our kitchen, when I came across graze,’ explained Anthony.

It wasn’t just a brand idea; it was also a new business model that intrigued me. So I got my job at graze by going down and knocking on the door, saying that I had been at innocent and thought graze was the next innocent drinks and a really big and exciting idea.

Using data to drive every decision

Graze had been in operation for about a year when Anthony joined, initially as their marketing manager. He quickly discovered that one of the main differences between a traditional fast-moving consumer goods (FMCG) brand and a DTC company was the importance of data and something called performance marketing.

I think the easiest way to explain performance marketing is that as soon as you are an online business, there is a huge amount of additional information available to you. And this gives you new strategies in terms of how you invest in traffic, building a brand, how your website looks. It completely changes the visibility of your marketing metrics and the way you can go about marketing.

In its simplest form, performance marketing is using your online data to make better decisions more quickly. Leaning forward to emphasize his feelings on this further, Anthony went on, ‘I would argue that if you want to scale an online business, sooner or later you will have to master performance marketing.’

Anthony discovered graze was a business built around the data it collected. He also found an operating model that was flexible enough to adapt to what that data was telling them. From the start, customers were able to rate the different products they received. These ratings made it easy to see which products their customers enjoyed and which needed to be redeveloped or scrapped. For example, one of the things graze did in their early days was to send fruit out to their customers. However, the data and the customer service emails quickly let them know that fruit in the post is not a great idea. Anthony explained:

At the time, the solution [to fixing the product problem] was unusual. But because we are an online business, it was easy to iterate and try out new things. The amazing thing about graze is that it wasn’t one of those businesses which started with an amazing product; it was the business model which helped the business discover what were the relevant and right quality products that people wanted.

The advantages of keeping operations in-house

Being nimble with their product range was one of the main reasons they had built their production facility. Most start-up food and drink brands tend to outsource their manufacturing and buy time and expertise from existing producers to make their products. The advantages of outsourcing are low capital requirements, flexibility to grow, smaller production runs and access to accredited and audited equipment and processes. The significant downside is that it is much harder to do something completely new. It only usually makes sense for a factory to sell more of what it already does. If you are trying to reinvent the wheel, it is much harder to source your products from others. If you are to be unique, you will inevitability need to do it yourself.

Using the credibility Bosher had acquired through his experience and success with LoveFilm, he raised enough seed capital to handpick a founding team, create a brand, build a dedicated production and packing facility and conceive a new relationship with the Post Office. One of the major operational constraints was to make their packaging small enough to qualify as a ‘large letter’ rather than a parcel, thus significantly reducing their postage costs. As no one could do this for them, they assembled their own production, packing and warehousing. As a result, they had become what is now known as vertically integrated.

Vertically integrated organizations do as much as possible in-house. The advantage of doing this is gaining total autonomy and control of their operational processes, including sourcing, manufacturing, logistics and customer orders. Vertically integrated supply chains are now popular with many DTC brands whose products are significantly different from industry standards. It also gives these companies total responsiveness and the ability to innovate rapidly. The other benefit is that every cost driver is known and controlled. Knowing exactly how much something costs to make is critical to getting your margins to work.

Anthony explained the advantages:

Having our own factory was something that most start-up brands did not have. The big difference for us is that we could deeply understand our products and how they are made. This knowledge allowed us to invest in innovation in a very different way. We used data to tell us what to change. We now have over half a billion reviews which we use to make better products.

The power of performance marketing

As well as using data to improve on their products, data is also critical to finding and retaining customers.

When it came to generating demand, this is where performance marketing came in. It needed to help us work out how to get people to try this new concept, which many people thought of as a bonkers idea. So we used performance marketing to work out how we get people to try the snacks and how much it costs to do so. There are two metrics to think about: ‘Acquisition Cost’ and ‘Lifetime Value’. You can fairly quickly calculate how much it costs for each new visit and conversion on the website. Then after several years of purchasing habits, you can very accurately work out if you make money on that investment.

One of the problems you have with any new DTC business is that while it is relatively easy to measure the customer acquisition cost, broader assumptions are required to calculate lifetime value. When asked how you manage this, Anthony’s view was:

You need to decide how you want to run your business; do you want to start quickly acquiring customers at a cost which might not be supported by the lifetime value but achieve lots of growth and trial. Or do you want to be more conservative and manage your cash until the situation becomes more clear? Getting this wrong is the main reason many DTC start-up businesses go bust.

The intense focus on numbers and data has been one of the reasons for graze’s success.

One of the things which really helped us was our attitude to data. Very early on in the business, we put a lot of effort into how data was stored and how it could be accessed. It wasn’t just performance marketing. It was everything from finance data, product review data, any data that could help our customer service team respond to queries. It helped that we have a pretty geeky company culture.

The importance of looking beyond your own data

While recording, storing, analysing and making good decisions using data has significantly contributed to their success, Anthony was also keen to point out that it is still possible to get things wrong even with all this information. For example, in 2013, when launching in the United States, they used data to quickly test their assumptions, refine their products and figure out the best marketing techniques for a new market. However, the challenges that caused the most problems in the United States came externally, from the macro general market trends and what their competitors were doing. This information was not obvious from their internal data.

‘When it came to our US launch, I think we got one thing absolutely right and one thing wrong,’ explained Anthony.

The thing we got right was the minimum viable product test we did. We took about eight weeks to make a US website and actually launched nationally. We measured over 100 KPIs [key performance indicators] for eight weeks to understand all sorts of things. This data was incredibly useful in flushing out what were the real issues of going into the US market, and it turned out some of the things we thought would be a problem were not. For example, we thought portion size would be a big issue for us, but it was clear via the MVP [minimum viable product] process that the US consumer appreciated that it was a good size for the product. At the same time, it was clear that the US market did not understand our British colloquialisms. For example, they didn’t understand what mango chutney was and thought it was a grim acidic lump of yellow goo and not a tasty condiment. It taught us that we quickly needed to adapt the product range for that market. The challenge and the thing we did not anticipate came from the fact that the US market was also evolving at the same time graze had entered the market. We were guilty of not paying enough attention to the competition and what they were doing, which in hinds...

Table of contents

• About the author
• Key terms
• Introduction
• 1 In the beginning was graze.com: graze
• 2 From a side hustle to international stardom: Huel
• 3 Unearthing a huge problem hidden in plain sight: Snag
• 4 Measuring satisfaction and why it matters: Bloom & Wild
• 5 Moving with the times and the art of resilience: Cornerstone
• 6 Why bigger is not always better: Sugru
• 7 Using DTC toilet paper to build toilets and ensure access to sanitation for every person on the planet by 2050: Who Gives A Crap
• 8 Building a community for a higher purpose: TRIBE
• 9 Launching a DTC brand in the 2020s. The new rules of the game: Lick | Clearing
• 10 The importance of an emotional connection with your customers: tails.com
• 11 From startup to IPO. How Casper achieved unicorn status but has still to win over Wall Street: Casper
• 12 Using stress and burnout as the inspiration to build a better business: Heights
• 13 How to use your low margin DTC channel as your omnichannel marketing machine: Ugly Drinks
• 14 Overcoming the challenges of a frozen supply chain to accelerate an inevitable shift to plant-based diets: allplants
• 15 How DTC is helping a whole town get its mojo back: Hiut Denim
• Summing up
• A note to the reader
• Acknowledgements
• Index