By Romain Lartigue, MD Europe, AKQA and Steffen Blauenfeldt Otkjaer, MD, AKQA Denmark
Covid-19 has changed the world’s economy as we knew it. Consequently, consumer habits have evolved a lot faster than experts predicted, which accelerated the need for brands to question what makes a successful business today.
Historically, most consumer brands are B2B businesses with product-centric models based on somewhat outdated values and mindsets, but the pandemic has exponentially amplified the fundamental impact of digital. In doing so, not only has digital changed how companies grow and build enduring relationships with customers, but it has also enabled connections, innovations and value streams that didn’t exist before.
The need for brands to understand how they can attract, delight, engage and retain customers over the long term is now just as important as acquiring sufficient data about those customers. And with the rise of metaverses more than just a Zuckerberg dream, digital’s influence on how brands go about their business is only set to increase.
In 2020, DTC sales rose by 45%, bringing in an estimated £81.97 billion in revenue (US$111.54 billion). This figure accounted for 14% of the world’s total retail ecommerce sales, and that figure is expected to climb to £128.58 billion (US$174.98 billion) by 2023. The upsides of ecommerce are clear, with brands such as Nike, Apple and Netflix constantly searching for innovative ways to diversify their revenue and value streams as a consequence of their DTC ecosystems.
With a significant number of customers now looking for elevated experiences that pay greater attention to things like sustainability, locally-sourced products and community-minded brands, a focus on core values is becoming more necessary than ever. In light of COP26, we have reached a point where we need to start buying quality over quantity and prioritising the most valuable product on the market: value itself.
Leaders in the field
It doesn’t matter whether you are a luxury fashion or automotive brand; in today’s world, commerce is driven by extraordinary experiences, which comprises ecosystems, services, applications and interactions – alongside the product.
Nike’s focus on selling direct to consumers is one of the reasons for its 25 per cent rise in direct sales in the first quarter of the 2021 financial year. Their business is focused on utilising data to deliver personalised experiences that create genuine value for their customers and they use every touchpoint as an opportunity to serve and enable them. Nike demonstrates this through their various memberships and physical experiences that build communities around fitness. For example, the Nike+ app inspires athletes to pursue their potential; Nike Training Club and Nike Run Club bring fitness enthusiasts together virtually and in real life; and Air Max Graffiti Stores reimagined retail experiences.
We’re seeing an increasing number of brands now actively demonstrating care for their customers instead of just trying to sell them products. “That’s the whole notion of brand equity, where you go beyond the functional, beyond the price relationship – you have this emotional relationship that comes from quality, not from convenience.
Most recently, amid talk of impending metaverses, Nike has also launched Nikeland. Set within Roblox’s immersive 3D space, Nike’s virtual world lets players interact with digital products and play free games.
Disney, which has long used technology to enhance entertainment, is another example of a brand intent on diversifying into the metaverse world. It has pledged to pursue boundaryless storytelling that connects the digital and physical worlds. The next version of the Disney+ streaming service is likely to include a 3D theme park of games, movies and virtual experiences, bringing new life to Mickey Mouse, Luke Skywalker and Frozen’s Elsa. In both Nike and Disney’s case, these ventures further demonstrate the importance of brands remaining ahead of the curve.
A shift to service
Like Nike, both Netflix and Apple have demonstrated the positive effects of becoming an ecosystem company offering consumers more than just services and products. Though Netflix is already a service, streaming a wide variety of the best TV shows, movies and documentaries directly into millions of homes across the world, in 2021, it considered how it could enhance its value offering. In November, Netflix Games, its new free gaming service, became available on mobile.
It gives subscribers exclusive access to games like Shooting Hoops, Gameloft’s Asphalt Xtreme and original immersive-themed games like Stranger Things: 1984, which will enable fans to dig deeper into their favourite Netflix stories. In collaboration with Adobe, Netflix also launched The Great Untold initiative, which calls for talented storytellers to share their concepts for what could become the next big Netflix show. The initiative demonstrates how a service brand as successful as Netflix should always look for ways to serve its customers further.
Apple is an excellent example of a product company that has shifted to a service model, solving customer needs through augmented services and experiences. Apple TV+ now focuses almost solely on streaming original programming like Ted Lasso and The Morning Show, along with iCloud storage and computing services, Apple Music, Apple Fitness, Apple Pay, Today at Apple and Apple News. This ecosystem of services is built around an Apple ID and ultimately helps establish long-term customer loyalty while protecting itself against disruption.
No more crumbs in a cookieless world
The next level of value that brands can add will likely come through services and product innovation, with the emphasis moving from transactions to value, and digital is the engine that will make this possible.
But even the internet has reached a point in time where it needs to prioritise user privacy over company profit. The combination of updates to the iOS15 operating system and the impending change in Google’s advertising model will put an end to third-party cookies – previously used for targeting. Brands will have to find new ways to connect with audiences, and the prospect of a cookie-less world, therefore, heightens the significance of leveraging the first-party data brands have already acquired. After all, the biggest companies in the world are the ones that have the most extensive user databases, not necessarily those with the highest volume of sales.
Let’s get physical
While unlimited square metres exist online for brands to play in, physical retail spaces still have a part in the future of DTC ecommerce and beyond. “Bricks-and-mortar distribution will always be part of the plan, given that retail is still an enjoyable place for product discovery,” says Steffen. Crucially though, physical stores also have organisational value because only in these ecosystems can brands observe customers to gain valuable insights and create even better experiences. Interactive spaces and content creation studios within retail spaces are a good way of adding value and providing something else that is appealing to the customer, rather than squeezing as many products as possible into every square metre of a store. Featuring multiple interactive and immersive lifestyle zones, Verizon Destination Store is a great example of how brands can use retail spaces to enhance the experience of shopping for, in this case, a wireless internet provider.
Similarly, L’Oréal has opened its first omnichannel concept store in Shanghai. The store features personalised shopping via WeChat, face-scanning technology for skin analysis, and a live streaming studio so customers can create content in-store and post it directly to social media. Augmented reality also allows customers to experience a scenic cycle ride through the streets of Paris, the home of L’Oreal. These features only serve to engage and incentivise the customer to build greater brand loyalty.
A direct-to-value future
Customer lifetime value is a critical element in a DTC strategy. The terminology equates to the total worth of a customer to a business over the lifetime of their relationship and it’s essential to the success of a business model as repeat customers spend 67 per cent more than new customers. AKQAs Romain Lartigue says, “ultimately if customer care is well-managed, people will remain loyal.”
Some brands are guilty of prioritising customer acquisition to the extent that they don’t emphasise post-transaction services. Automotive brands are particularly good at thinking about a customer’s journey, with three key driving moments – the test drive, one month following the transaction, and the warranty extension two years later. In this respect, automotive has mastered the art of defining what post-transaction milestones matter to the customer. Hence, a brand that identifies its customer experience objectives increases the likelihood of customers returning time after time.
Customers will perceive a brand with a balanced value proposition as one that exists to serve their needs first and foremost which enhances its brand perception, and the incremental profits that brands can find in selling services are much higher. Having access to consumers in this way is regarded as having access to value. For this reason, the future of commerce very much lies in a greater direct-to-value (DTV) proposition, where brands who are more willing to conform to a service-centric, direct-to-consumer approach are most likely to prosper. DTV can be defined as an aspirational approach to customer relationships wherein the brand aspires to deliver as much value as it can, as directly as it can, to the customer.
It is a concept that explores where companies can create value and put it to use across different business models by improving the product, media space and knowledge in general. Finding value in today’s world comes in all shapes, sizes and propositions for customers, so the more value a brand can offer, the more potential there is for it to become an essential part of our everyday lives. Therefore, brands that continue to pursue transactions through a company-first conversion mindset are likely to be superseded by those geared for customer and society-first value creation and lifetime loyalty.
Change is now, and in this one-to-one world we live in, now is the time to ensure we all trade in the future currency of choice: value.