Solving For Fragmentation In D2C Economy

Every direct-to-consumer brand needs scalable, cost-efficient distribution.  For many, that means cultivating online user communities, acquired from both organic and paid media, on platforms like Instagram.  These communities distribute brand narratives, values, and products online, turning digital media into institutionalized word-of-mouth.  If brands scale primarily on digital, however, they risk getting caught in a customer acquisition arms race that leads to overspending.  

It’s inevitable for D2C brands to rely on digital media to grow because social commerce has become essential to how we shop.  Today, Instagram acts like an online mall, aggregating a proliferation of D2C brands to fuel tendencies for conspicuous consumption and community-building.  

Importantly, social commerce offers consumers the breadth of choice and standards of convenience that Amazon conditions them to expect — but also the visual dynamism and heightened design that Amazon lacks.  With distinctive visual rhetoric, Instagram has turned online shopping into an experience of media and entertainment.  



It’s no surprise that media companies like Glossier moved into ecommerce once they resonated with avid consumers of — in Glossier’s case — blog content. 

I expect more media companies to become ecommerce companies, particularly within highly fragmented categories like apparel and beauty.    

Fragmentation is key here.  By fragmentation, I mean that consumers are dispersing their purchasing power across many different brands and products.  It’s easier than ever to launch a store on Shopify, partner with supply chain manufacturers on Alibaba and distribute products, as well as test demand for them, on digital media.  

This ease of manufacturing and distribution online has fragmented the D2C market.  Though a healthy outcome of lowering barriers to innovation, this fragmentation has caused inefficiencies in digital marketing.  It’s increasingly expensive for brands to resonate amid the noise and aesthetic redundancy of Instagram, inducing the customer acquisition arms race I mentioned above.  

In response to digital marketing’s inefficiencies, D2C brands are increasingly moving offline to market on mass-reach, undervalued media like TV.  

TV itself is combating audience fragmentation, with today’s average U.S. household receiving nearly 200 channels, up from 27 in 1990.  TV’s fragmentation necessitates that D2C brands cost-efficiently reach and acquire customers on the right channel at the right time.  

TV’s solution to fragmentation is audience-based buying.  As opposed to index-based buying, audience-based buying focuses on the raw number of target audience members watching a given program, their likelihood of being exposed to an ad, and the cost of reaching them with a particular spot.  Audience-based buying avoids concentrating budget on an expensive, narrow set of inventory that inflates frequency and limits reach.      

As they’re embracing TV to solve for digital marketing’s inefficiencies, D2C brands are also forming holding companies, exemplified by Pattern Brands and Iris Nova, for greater operating leverage.  These holding companies aggregate multiple brands and product lines and share services like customer support and fulfillment among them to save costs.  I expect more holding companies in the near term — and, eventually, the LVMH of D2Cs.  The D2C economy’s increasing consolidation enables cross-brand and cross-product marketing to tackle problems of distribution at scale.     

Do you agree?

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