How will the state of consumer purchase behaviors be impacted as their favorite DTC & Niche brands face a future of impending consolidation & buyouts?
One of the most notable outcomes of the 2008 recession was the consumer shift towards prioritizing their own needs and desired ways of living over traditional marketplace norms. Instead of accepting things as they were, consumers sought out new products & services that offered unique solutions where none had yet existed.
Essentially, Millennials disrupted everything.
Although consumers were happy to have their needs met in unique ways during this wave of disruption, the founders of the brands they coveted were (knowingly or unknowingly) placed on a path of expected growth and expansion. In a capitalist driven society obsessed where success can only be measured through positive ROI & growth, we find ourselves in a cultural moment of transition as CEOs and founders of niche, DTC companies are increasingly stepping away from brands that have either grown beyond their capabilities or, more ironically, been bought out by the conglomerates they initially set out to disrupt.
If the past decade was about disruption, decentralization and restructuring of the brand world, will the next chapter then be about the gathering & rebundling of these efforts by big business? How did we get here? Are we repeating history or are we simply generating the necessary ammunition to inspire & maintain future innovation?
Most importantly, how will these shifts influence the future of consumer purchasing behaviors, perceptions and values to come?
READING THE SIGNALS
1. The need for transparency, personalization, happiness & fulfillment converge. As the marketplace became flooded with niche & DTC brands, first time founders and inventors found themselves at the center of shifting the way we work, shop, live and exist on a daily basis.
For many consumers, the forced exposure of big businesses’ inner workings felt like progress as consumers began to turn their noses up to big business and corporations in favor of embracing the simplistic, authentic appeal of small businesses. Consumers wanted a way “in” and DTC brands gave them the kind of transparency they were seeking in ways their parents never had the luxury of even considering.
A side effect of this shift? The holy grail of happiness, joy and a sense of fulfillment. Consumers now had the power to choose brands that aligned with their own value systems. The founders’ story soon played an integral role in building brand affinity and cult followings in a very public way. Consumers could now be more intentional with their purchases, and have an opportunity to potentially be apart of something greater than themselves. The formula was intoxicating, addictive and eventually normalized. And it worked until it didn’t.
2. An overwhelming marketplace- option fatigue. The barrage of products & services being introduced to the marketplace soon began to leave happiness-minded consumers feeling drained and overwhelmed with the burden of choice. The emphasis of brands offering personalized products & services created a marketplace filled with too many options. In some categories, the problem became so pressing that an entire offering around subscription services has been developed to help consumers try, sample, and sort through the widening DTC ecosystem.
3. Entrepreneurial burn out Today more than ever, entrepreneurs grown out of recession-lead cultural shifts are stepping down or away from their companies at increasing rates. While some are going off to find their next new idea, others are coming to terms with the fact that their companies have simply outgrown them, or shifted in purpose & vision, especially after gaining investors or buy outs.
Recently, the CEOs and co-founders of Away and Wework stepped down from their positions after controversies surfaced about their innerworkings. Even the founder of Bonobos who, has also announced he was stepping down after his role expanded under the Walmart merger, was quoted as saying “You sell your business and you don’t think you’ll work as hard…but I’m working harder — just without the stress of wondering if we will make payroll.”
These removals & leadership changes are the source of marketplace uncertainty today as values-based-shopping consumers have to increasingly decide whether or not to stay with the brands they grew to love or to search for other options that can deliver on their emotional needs.
4. Big Business eats the competition At the beginning of the decade, understanding the growth, rise and success of niche brands was, for some established industries, a hard pill to swallow. Many businesses assumed that appeal of DTC offerings were temporary flukes which caused those corporations to struggle to remain relevant in the changing cultural landscape. Not only were they late to the table when it came to innovating their own product and service offerings, many of the big businesses did not have the nimbleness or internal infrastructure to keep up with the pace of innovation. They became dinosaurs in the same categories they were famous for.
The solution? Acquisitions. If they couldn’t beat their competition, they could at least bring it into the fold of their own brand portfolios. As DTC brands have proven their strength & staying power, this has now become a universal winning formula.
Iris Nova, for example, famous for introducing Dirty Lemon to the marketplace, has shared its plans to invest $100 million into start-up brands in the next 3–5 years. The goal is to develop a beverage portfolio formidable enough to rival PepsiCo and Coke, companies that are also expanding their portfolios with emergent newcomers. Unilever has also been acquiring DTC brands like Shea Moisture, Native, Harry’s and Dollar Shave Club with the goal of entering new product categories that have large consumer followings in a way that is faster, and easier to manage.
THE CONSUMER IMPACT- A ROLLERCOASTER OF DECISION MAKING
The stage for the next cultural shift in consumer shopping habits has been set. Given the popularity of DTC brands, the messy, crowded marketplace of new entrants, the need for founders to develop scalable businesses and the inevitable trajectory of entrepreneurial fatigue, big business is poised to win back the upper hand they had before the recession of 2008.
Think pieces on this topic have mostly been positioned as B2B content, but how consumers will fare in the changing landscape is highly unknown.
We can however, potentially take cues from what is currently happening in the cable & streaming industry. When cord cutting first emerged, the trend was slow to catch on especially as streaming options were initially limited in capability. Today, consumers face more than 300 streaming service options, constant restructuring of channel line ups, and an abundance of content and new streaming entrants on daily basis. As is expected, consumers are beginning to grow weary of what was initially meant to be a better option of choices for their viewing pleasure.
FX’s recent announcement of streaming solely on Hulu is a potential window into what will likely end up happening in the near future: network ally-ship & consolidation. Once the marketplace becomes oversaturated with too many options, we will likely see cross-platform offerings or big-business buy outs in an effort to increase subscribership while appealing to consumer’s need for simpler service offerings.
A new era of purchasing behavior- A landscape of unknowns CEOs & founders stepping down from organizations is nothing new, however, the formula for entering a consumers’ consideration set — buying into a brand’s origin story, and its founders- has been sewn into the fabric of how we choose what to consume & purchase. What happens if all of those brands simply become spokes on the wheel of a larger conglomerate machine? What will then become the “new” brand attributes for consumers to align themselves with? How will consumers decide what to buy into?
Where will the founder story come into play? Will we eventually transition to a space where origin & founder stories matter less than the ability for consumers to experience simplicity of choice, or, will this formula simply transfer to the heads of states in big business machines? Will consumers be looking for top level executives to tell their own stories and can such a move even be seen authentic? What ultimately becomes the determinant for preferring small businesses vs. larger, well established ones? To what extent does the reputation of the larger company seep into and harm the equity, reputation and perceptions of the brands they purchase? Will consumers ever truly abandoned their negative associations & distrust of big business or can such distrust be easily forgotten if the incentive is sweet enough to outweigh those negative factors? Will the smaller brands that initially disrupted the marketplace simply go the way of their buyers and become dinosaurs themselves?
We could hypothesize a variety of scenarios but we won’t truly know until we are in the midst of the cultural shifts themselves.
One potential outcome could be a return to luxury items & services that provide unique & original offerings as consumers face the potential decline of product differentiation due to market saturation, big brand buyouts, and loss of founder stories. This could be especially true if consumerist shifts towards owning less material items remain permanent, which would place more value on the ability to purchase more expensive, staple pieces that can ensure longevity especially as fast fashion brands like ASOS & Forever 21 face demise. Another potential outcome could center around the pressing need for sustainability in which we could hypothesize that there will always be a need for smaller, more nimble brands that can offer sustainable solutions & manufacturing processes faster than older, more established brands.
As the mergers and acquisitions of DTC brands continue to occur over time, how consumers react to them, and where they place their values will be key to understanding the future of consumption behaviors.