Direct-to-consumer brands are redefining marketing in the age of authenticity

Direct-to-consumer brands have disrupted nearly every industry. Names like Warby Parker, Uber, Allbirds, Stitch Fix, and HelloFresh are inescapable, with plenty more coming into the collective American consumer consciousness on a regular basis. These brands are also the subject of intense interest — even borderline obsession, in some cases — within the marketing discipline and the business community at large.

That obsession is manifesting across the M&A landscape: The list of direct-to-consumer (DTC) company acquisitions by established brands is growing rapidly, with multiples that frequently resemble Silicon Valley software company deals. Things kicked into gear in mid-2016, with Walmart’s landmark $3.3 billion purchase of Jet.com (at the time, the biggest e-commerce deal in history) and Unilever’s $1 billion acquisition of Dollar Shave Club. Since then, we've seen Kroger snap up Home Chef, Nordstrom land Trunk Club, and Walmart further pad its portfolio with Bonobos, ModCloth, and Eloquii. P&G’s also getting into the action by acquiring Native.

Incumbents aren’t gobbling up consumer-direct brands at billion-dollar price tags for their products, however. The reason goes much deeper than that.

Step back and consider the DTC topography. These brands aren’t united by a single product, a single approach to financing, or even a single centralized location like Silicon Valley. What unites them is their authenticity when compared to the legacy brands they’ve disrupted.

That authenticity — those meaningful interactions that enable consumers to feel personally connected to a brand, and even make it feel like something more than a brand — emanates from the fact that these companies know, in a consistent and comprehensive way, who their customers are. It’s a connection forged by a common marketing strategy based on continuous, real-time relationships with known users.

This marketing strategy — which is infinitely adjustable and hyper-performance-oriented — is DTC’s billion-dollar competitive advantage.

The quest for identity: build or buy?

Identity is the capability to recognize customers and prospects at an individual level, across all devices and touchpoints. DTC brands are defined and powered by their identity-centric go-to-market approaches. They have risen to prominence at a critical juncture where there is an abundance of technologies — and talent — native to this world of one-to-one marketing at scale.

The most successful DTC brands have built their entire foundations on identity-driven capabilities. Knowledge of the customer powers every interaction. It informs how DTC brands hire, how they design products, how they grow, and — yes — how they sell.

The multiples being spent to acquire consumer-direct upstarts demonstrate not only how valuable the identity playbook is, but also how far behind legacy brands trail in implementing that playbook. Due to the urgency to reinvent themselves as people-based brands, many are choosing to acquire identity-driven competitors rather than re-envision and rebuild their own strategies.

But every dollar spent to acquire these DTC companies adds to the real-world cost of this fundamental failure to adapt. Authenticity is not something that a brand can acquire, after all — true authenticity needs to develop organically, from within. Moreover, there’s nothing that DTC companies are using in their strategies that isn’t readily accessible to incumbents: the technological mechanisms for identity-based marketing are available to organizations of all shapes and sizes.

Keep this in mind as the surge of interest in DTC brands continues, and M&A activity accelerates. Literally any brand in any vertical can benefit massively from building its foundations on knowledge of the individual customer, and making real-time, persistent identity the cornerstone of that effort. What’s too often forgotten is that brands don’t need to spend a billion dollars to do it.

Mike Sands is chief executive officer of Signal

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