Executive's Corner

DNVBs Face Their Biggest Challenge Yet: Overcoming Singular Channel Success and Breaking the Silos of Natural Growth

Web Smith / 4 min read

You hear their names everywhere.

In fact, it’s likely that your favorite brand these days is what is known in the industry as a digital native vertical brand (DNVB).

These brands – from the mattress wars between Casper and Hyphen, to the grassroots growth of Andie Swim and Jeni’s Ice cream – have been disrupting traditional retail for the past decade.

Lower technology cost has reduced the barrier to entry in these markets, and DNVB start-ups driven by a niche focus and often a millennial understanding of paid digital channels has lead these agile companies to multi-million dollar acquisitions, IPOs and private investing.

These days, when a brand is first launched, founders have the likes of Hickies and Paul Mitchell in mind.

The same is true for CPG brands launching new products and channels. Just look at Proctor & Gamble’s New Chapter direct-to-consumer site.

With its quizzes, scrollable pages and philanthropic messaging, it mimics and appeals to those DNVBs in its category, including: Care/of, Ritual, Thrive Market and more.

But 10 years in, we are seeing stymied growth of many DNVBs, including notable closures of once well-financed brands.

We are officially in the teenage years, where the wild west of DNVB growth slows, and these smaller brands must find more scalable, less volatile growth models for the next phase.

Core Components of DNVB Growth

With very few exceptions, a digitally native vertical brand (DNVB) that succeeds over the long term will have commanded over three core components.

To CMO-level operators, these core components develop a virtuous sales cycle.

The top brands:

  1. Foster organic (word of mouth) community.
  2. Convert social following into revenue.
  3. Optimize performance marketing spend.

But there are hazards to consider, especially when a balance isn’t a priority for a brand.

When a DNVB depends too heavily on one of the three components, growth will stall.

In an upcoming report commissioned by 2PM and Common Thread Collective, the firm’s Managing Partner Taylor Holiday and I discuss the limits of a DNVB’s proverbial adolescent years.

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The Teenage Years: The End of a Brand’s Natural Growth

It’s how brands position themselves for the next phase of growth that separates them from their competitors.

For brands, the teenage years can look different.

Here are three cases:

1. Dependency: grassroots community.

An online kitchenware brand has a coveted, quarterly brochure. The production of the brochure is 60% of all marketing spend.

Historically, it has converted well.

Sales have begun to stall as fresh entrants have begun to eat away at their awareness by spending heavily on performance marketing.

Rather than competing to amplify their sales through social channels and performance marketing, they spend more on the next quarter’s brochure.

This exacerbates the problem and opens them to more competition.

2. Dependency: performance marketing.

An online dress shirt brand builds a strategy around Facebook Advertising.

They hyper-target potential customers and reach them again and again.

But the cost per thousand (CPM) for DNVB advertising has risen 50% per year over the last three years.

It’s not sustainable and as such, the brand begins to lose to products with word-of-mouth influence and great social capital.

3. Dependency: social.

A CPG beauty brand is backed by a high-powered celebrity.

Each Instagram post generates 100,000 clicks to her site and sales are nearly automatic to the tune of a 7% conversion rate.

But Instagram’s algorithm changes to deemphasize promotional posts that aren’t run through Facebook’s ad server.

Traffic decreases and there is no performance marketing system in place.

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Overcoming Singular Channel Success & Increased Incumbent Crack Down

For DNVBs, it’s often easier to stick with what works at the expense of missing out on efficient, long-term growth.

In a recent article on ecommerce innovation and DNVBs, Internet Retailer’s James Risley got something completely wrong.

DNVBs’ ability to create unique products and connect with niche audiences insulate them from some competition with Amazon.com Inc. (No. 1) and other big retailers.

And the direct-to-consumer model keeps prices down as well, making their unique wears more affordable to the niche or mass-market audience they want to draw.

Brands are not at all insulated.

In fact, you’re beginning to see well-funded startups and brand conglomerates go after early-stage retailers even earlier these days.

When direct to consumer shoe brand Atoms launched, Allbirds immediately went on the offensive.

And fashion retailers, including Stitch Fix, were met with opposition very early on.

Amazon has launched their version of nearly every product offering on the market.

Brands don’t win by insulating themselves.

Quite the opposite: they succeed by moving beyond silos and reaching the customers that are adjacent to their most passionate advocates.

Eventually, every DNVB faces the incumbent but first, they have to get out of their own way.

3 Examples of DNVBs Maturing Past Adolescence

To leave adolescence behind, diversification is often a necessity.

There are several brands who’ve successfully navigated brand adolescence:

1. Warby Parker.

Originally (and passionately) online-only, Warby Parker began opening up retail locations to influence customers who were hesitant to purchase without touching the product.

2. Harry’s.

Though Harry’s was competing with Gillette by marketing directly to consumers and getting to customers before they made it to stores, the razor brand eventually partnered with Target stores to compete with Gillette head to head.

3. Fenty Beauty.

Rihanna’s Fenty Beauty is driven by the superstar’s social following.

However, to reach new potential customers, she began paying for traditional advertising in major cities.

This allowed her to back off promoting the product so often through her primary channel – Instagram.

dnvb graph

Executive Summary: What CMOs Should Do Next

For C-Suite level marketers, there is a three-part operational exercise that can go a long way in identifying best practices for a DNVB’s demand generation program.

  1. Identify the most important variables that drive your brand’s success.
  2. Collect and interpret data from a diversity of marketing research materials to better evaluate marketing mix strategies.
  3. Develop marketing recommendations that are fact-based and free of inference.

Diversification, within reason, is often the outcome of this exercise.

To move beyond the early days of a brand’s growth, it is necessary to meet potential customers half way.

This often means reinvesting in new marketing verticals is a worthwhile strategy.

Advantage goes to the brands that see this and act on it before the market makes the decision for them

Want more insights like this?

We’re on a mission to provide businesses like yours marketing and sales tips, tricks and industry leading knowledge to build the next house-hold name brand. Don’t miss a post. Sign up for our weekly newsletter.


Web Smith

Web Smith

Web Smith is the Founder of 2PM and focuses on investing/advising digitally vertical native brands. Prior to this, he spent most of his time at the crux of digital media and eCommerce. Most recently working for Uncrate and then Gear Patrol (Hearst Magazines). He co-founded Mizzen+Main in 2012. There, he worked extensively to find a founder-product-market fit, voice, and cost-effective approach to establishing Mizzen+Main's market-leading position. He's been featured in the New York Times, TechCrunch, Pando Daily, Wall Street Journal, and Esquire. Previously, he's written for Forbes, TechCrunch, and the Wall Street Journal.

View all posts by Web Smith
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