Retail

Digital Only Brands

How Digital Only Brands Can Challenge Incumbents

Born and raised on the internet

Digital only – also known as born digital, or direct to consumer brands – are internet only businesses currently challenging the status quo in retail. With the low start up and operational costs that come from a lack of physical stores, digital only brands are ideally placed to provide value to customers. A crucial factor in their success is the influencer economy, which has transformed the fashion, beauty and lifestyle industries in recent years and created a wealth of new business opportunities.

From product based to experience based

Social media, and the influencer economy, is integral to the rise of the digital only brand. The interactive nature of social media communication between consumers and companies has taken marketing from a product based to an experience based model. Through social media stars and popular influencers, consumers now have much greater connection to products in their real life contexts. Consequently, they seek to emulate the lifestyles of the people they follow online, infusing well placed Instagram posts, tweets and YouTube videos with serious purchasing power.

The relationships that brands create with their followers online mean that social media not only reflects trends but helps to shape them. The beauty industry in particular has been defined by social media in recent years, with consumers seeking camera ready looks and Instagram friendly products. The need for industries to keep up with the pace of change in digital only industries is crucial – the speed of the ecosystem has increased, trends move faster and customers demand instant access to products. Brands must be able to respond quickly or face losing their following.

Creating competition

Thanks to lower fixed costs and the ease of marketing via social, digital has opened the door to smaller businesses looking to establish themselves in certain industries. While it seems the likes of Amazon might have consumer goods and ecommerce all sewn up, there is space for smaller companies if they can find their niche. In fashion and beauty, for example, up and coming digital only brands frequently earn themselves cult status amongst internet followers.

The success of internet only beauty brands might come as a surprise in an industry which typically relies on the need for consumers to try out products in store. The growth of internet beauty therefore proves the strength of the influencer economy. It not only taps into consumer desire to discover new products, but convinces them to spend money on items they haven’t seen, haven’t tried, and won’t be able to send back for a refund…

Greater inclusivity

So how does this work? How are digital only brands making a success of such an ephemeral shopping experience?

For a start, social media fulfils a longstanding consumer preference in the purchasing process – the ability to see products used by people who look like them. While big beauty brands are heavily investing in technology to show consumers what makeup is likely to look like on their faces, smaller companies have a more cost effective solution. Send out product samples to popular influencers, and their video reviews and blog posts will take care of the rest.

It’s not all about the product itself, either. With consumers looking to engage in a conversation with brands, YouTube tutorials such as those created by UK company Charlotte Tilbury are now central to a product’s success. Packaging is crucial too: cult US beauty brand Glossier is renowned for the unique packaging on its items, making its products doubly desirable. From its origins as an internet only company three years ago, the brand now has a physical store in Los Angeles and offers global shipping – an eagerly awaited development for its legion of fans around the world.

50 shades of change

The ability of digital only brands to respond to consumer preferences has further implications for the beauty sector. Catering to a typically young and ethically conscious audience, cult brands such as Milk Makeup are keen to emphasise the 100 per cent vegan, cruelty free and paraben free status of their products. This kind of attitude plugs a gap that was traditionally overlooked by existing brands, who tailored their offerings to a mass market audience.

This differentiation of products between digital only and standard beauty brands is also seen in customer demographic, with newer brands catering to more diverse skin tones. At Fenty Beauty (the makeup brand founded by singer Rihanna) for example, models of different ethnicities are used to display every single product on the site. Some items, such as foundation and concealers, are available in 50 shades, with a different model photographed wearing each one. This redresses a serious imbalance in the beauty industry, where consumers with darker complexions have hitherto been stuck with limited choice and availability.

More than just a pretty face

The rise of the digital only brand might be best characterised by beauty industry, but it has also had a significant impact on fashion. ASOS, In The Style and Gymshark are just some of the internet only, fast fashion brands whose appeal is largely driven by social media, whilst Net A Porter caters to a wealthier, more luxury conscious demographic.

Whatever the industry, it’s clear that digital offers a wealth of opportunities to up and coming brands – all made possible by the strength of the influencer economy. What can legacy brands do to combat this disruption? One possible avenue is to acquire their trendier rivals. For example, although it was founded long before the creation of social media in 1998, makeup challenger Too Faced quickly became one of the internet’s favourite brands, and was acquired by Estée Lauder for a cool $1.45bn in 2016.

As in other industries shaken up by digital, this merger and acquisition strategy matches corporate stability with ecommerce nous. It may prove a good option for digital only brands in general – whose existence in a fast paced, saturated market could be a serious threat to their longevity. For while the influencer economy provides new opportunities for brands, it also comes with a catch. When influencers and their followers turn their attention to the next product of the moment, the days of the current cult brands are numbered…

To find out more about digital disruption in retail, subscribe to our free weekly newsletter.