Direct-to-Community

Thriving in a Values-Driven Retail Environment Why DTC Should Matter to Marketers

What is Direct-to-Community

Why Direct-to-Community Matters

The Technology Behind Direct-to-Community

Consumer-Based Marketing vs. Direct-to-Community Marketing Why Consumer-Based Marketing Doesn’t Work

Direct-to-Community Marketing

SponsorIdentification

Graph Technology: Powering Direct-to-Community Marketing

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TABLE OF CONTENTS

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Thriving in a Values-Driven Retail Environment

While Coresight Research predicts that up to 12,000 retail stores are at risk of closure in

20191, there is one sector of the retail market whose star is clearly on the rise: direct-to-consumer (DTC). Brands such as Dollar Shave Club, Everlane, Allbirds, Entireworld, among many others, have captured the imagination of consumers and investors alike. Many have achieved unicorn status (with valuations of $1 billion or more, an impressive feat for young startups). Why?

The DTC brands are laser focused on their values, and consumers who share them reward them with their loyalty and promote them among their community. For instance, Dollar Shave Club and Harry’s entered the razor business because its founders were frustrated with the commoditization of shaving products and the impact that trend had on quality2. Everlane, an emerging apparel brand, invites consumers to learn about the ethical standards they apply when selecting factories to manufacture its clothes from its top navigation bar. Pact, a women’s intimates brand, lists its water usage from its home page, and Allbirds won the hearts and loyalty of environmentalists and consumers for successfully becoming 100% carbon neutral3. The success of DTC brands that promote sustainability should come as no surprise given that Nielsen Research revealed that more than 80% of consumers across most nationalities,

ages, and genders say it is “extremely” or “very” important for companies to implement programs that improve the environment.

Clearly, consumers are attracted to and reward brands that share their values. While those values vary widely -- ranging from product quality and authenticity, to lifestyles, interests, passions and so on -- they share an important commonality: they are effective motivators in brand loyalty. Brands that successfully focus on the values that inspire people to buy their products are poised to grow.

Why DTC Should Matter to Marketers

But values-sharing only tells part of the story, as there are other inherent benefits to the DTC retail model. Selling directly to customers via the web means the brands have first-party data for every person who uses their products. And the passion consumers feel towards, say, a Casper mattress or Dollar Shave Club razors ensures lifetime loyalty. In fact, a lower cost of customer acquisition (CAC) measurably combined with a higher lifetime value (LTV) are hallmarks of DTC model.

And, as the IAB points out in its report, How To Build a 21st Century Brand4, the reduced CAC and higher LTV are a direct result of DTC companies creating a community. Beyond promotion, they’ve leveraged social and digital

1 https://www.retaildive.com/news/coresight-12k-stores-could-shutter-in-2019/555130/2 https://www.cbinsights.com/research/direct-to-consumer-retail-strategies/#harry13 https://fashionunited.uk/news/fashion/allbirds-to-go-100-percent-carbon-neutral/20190424428174 https://www.iab.com/insights/how-to-build-a-21st-century-brand-2019/

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5 https://coresight.com/research/the-13-billion-us-womens-underwear-industry-disruption-creates-opportunity/

THRIVING IN A VALUES-DRIVEN RETAIL ENVIRONMENT

channels to distribute content that engages and helps grow their customer base through earned engagements.

These DTC brands know that brand loyalty comes from customers feeling like the brand knows them personally, and isn’t always “selling” them, which is how they’ve managed to make their brands an integral part of this community they create, and thus reap the benefits of brand loyalty and high lifetime value.

In short, the IAB notes that DTC brands:

• Move away from customer acquisition cost (CAC) to focus on lifetime value (LTV)

• Acquire individual customers at scale

• Leverage storytelling to lower acquisition costs

What is Direct-to-Community?

Direct-to-Community™ is a concept invented by Affinio, the result of social-media analysis we’ve conducted for numerous brands worldwide, and now apply to all datasets, not just social media. By applying AI and machine learning to a wide variety of consumer behavior data, we have discovered that every brand and product

has a community associated with it, often unbeknownst to the brand itself. We believe that any brand that successfully identifies and leverages an existing community can benefit from the same success as the new DTC brands that are currently disrupting the market.

The premise of direct-to-community is simple: communities who are receptive to a brand because it resonates with their core values already exist. Rather than attempt to build a community from scratch as the DTC companies have done, established brands can leverage and integrate themselves into those existing and thriving communities. Authentic content tailored to the passions, interests and values of the existing communities is pretty much the only prerequisite to launching a direct-to-community effort.

Why Direct-to-Community Matters

Obviously, market share is a key issue for incumbent brands eyeing the emerging companies. Once iconic brands are losing ground. For example, although Victoria’s Secret is still a dominant player with 24% of the market share, in 2018 the smaller brands, including Everlane, captured 36.2% of the market5.

Critically, this content is authentic, native and personalized to the community that the brand is growing. For instance, Glossier, a skincare and makeup brand with a cult-like following features the real-life routines of its real-life customers on its home page.

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THRIVING IN A VALUES-DRIVEN RETAIL ENVIRONMENT

The more urgent issue, however, is the way that GDPR and the California Consumer Privacy Act of 2018 have upended digital marketing for established brands, particularly CPG companies, that have long relied on third-party retailers, distributors and marketplaces to sell their products. These companies typically relied on third-party data to reach potential customers and raise brand awareness. The new privacy regulations have made corporate lawyers uneasy, as sharing or using data without explicit consumer consent now has costly consequences, including multi-million dollar fines and reputational damage. Marketers now find many of their routine initiatives hopelessly delayed as jittery legal departments pore over the potential risks.

The brilliance behind the DTC brands (and direct-to-community as a marketing strategy) is three fold. First, by focusing on the values that are important to people, those people are more apt to share their first-party data, thus enabling the brand to begin amassing privacy-compliant first-party data.

Second, content and messaging that speaks directly to a consumer’s core values will be shared and promoted by that consumer him or herself. Put another way, it is the community members themselves who help to expand the community.

Third, direct-to-community solves a challenge that has long plagued marketers: media inefficiency. John Wanamaker famously quipped, “Half the money I spend on advertising is wasted; the trouble is I don’t know which half.” Today’s CMO is under more pressure than ever

to tie media spend to direct business outcomes. By identifying and focusing media spend on community members (who may not be current customers), marketers ensure their media budgets target people who have a propensity to convert.

The Technology Behind Direct-to-Community(™) Marketing

Affinio has leveraged a combination of machine learning and graph technology to help marketers quickly and easily identify the communities that exist within a brand’s customer base -- insight that can then be used to create highly relevant messages, as well as identify the appropriate places to reach and engage other consumers who belong to that community. Direct-to-community is one of the few digital tools that help marketers build their upper funnel, as it doesn’t rely on consumers to visit a products website prior to targeting.

Our solution is designed to parse massive datasets in order to identify statistically relevant connections among people which, taken together, indicate the existence of a community. Once that community is identified, brands can engage with those consumers with relevant content, which they can share. Additionally, brands who identify and target other community members who are not customers, but because of their shared values, will have a higher propensity to convert.

This paper examines the direct-to-community marketing strategy in detail, along with the technology that powers it.

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Consumer-Based Marketing vs. Direct-to-Community Marketing

According to Wikipedia, a community is “a feeling of fellowship with others, as a result

of sharing common attitudes, interests, and goals.” In other words, community goes beyond physical proximity and speaks more towards a set of shared values, which is precisely where brands need to focus their community-building efforts.

For instance, a community can be composed of people who value sustainability, spending time in the great outdoors and following a keto diet. These are values and motivations that go far beyond their decision to purchase a particular product, and understanding them will enable savvy marketers to create brand stories that align with the intrinsic values of the community.

With the right content, brands need just a few people to promote their messages within the community. After all, content that resonates with one member will likely resonate with them all due to their shared interests. The reactions of a few will naturally drive up earned engagements, enabling the brand to ultimately become part of the fabric of the community.

This is why marketers are wise to focus on community marketing, rather than consumer marketing.

Consumer marketing focuses almost entirely on a combination of demographic and behavioral

data (e.g., this high-income consumer visited the Lexus website and is therefore in-market for a new auto). Behavioral data, such as visiting a website, has a short shelf life, as after a purchase has been made the consumer is no longer in-market for that product.

Direct-to-community marketing, on the other hand, seeks to understand interests, passions, and values of consumers, which often last a lifetime. Critically, these values that aren’t even on the marketer’s radar, and yet will elevate that brand in the eyes of the consumer if messaged correctly. Moreover, these values will be held over the course of the consumer’s lifetime, enabling the brand to build long-term relationships with them.

Why Consumer-Based Marketing Doesn’t Work

As mentioned above, consumer marketing relies on demographics and a small set of recent behavioral attributes to predict customer behavior (e.g. last action or click). Demographics have been used to predict consumer behavior since the 1950s for a specific reason: it was one of the few reliable and scalable data sources available to marketers. However, demographics alone are by no means an accurate proxy of behavior.

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CONSUMER-BASED MARKETING VS. DIRECT-TO-COMMUNITY MARKETING

By way of example, let’s assume we want to build a targeted list of consumers based on these highly specific and nuanced characteristics. With the logic, the marketer assumes that members of this cohort are extremely similar, and are likely to respond to the same messages:

• What do they stand for?

• Where do they consume their content?

• Which topics are of interest to them?

• Which brands do they support?

• Which kind of entertainment or music do they like?

• Who do they look up to, who do they listen to?

• What are they vocal about?

Direct-to-community marketing examines a wide array of engagement, transactional, interest, and behavioural patterns to identify existing communities of people. It can begin with analyzing a specific dataset, e.g. audience members who have visited Ozzy Osebourne’s website, or has search his 2019 tour dates.

• Born in 1948 and grew up in England

• Married more than once

• Has multiple children

• Successful in business

• Wealthy

• Winters in the Alps

Under this approach, Prince Charles and Ozzy Osbourne are members of the same cohort.

Additionally, consumer marketing can’t take advantage of the network effect, of leveraging word of mouth, social media and other referrals that promote the brand. Consequently, the costs of customer acquisition are high, because the brand fails to reap the natural benefits of being integrated into a thriving community.

Direct-to-Community Marketing

Rather than ask, “what are the demographics of my customers and what are their behaviors” direct-to-community marketing seeks to answer these questions:

• What brings my customers together?

• What do they love?

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CONSUMER-BASED MARKETING VS. DIRECT-TO-COMMUNITY MARKETING

By applying graph technology to this data, community research identifies and analyzes the connections between those who have demonstrated an interest in, say Ozzy Osbourne. Next, it looks at their other affinities outside of their interests in Osbourne in order to detect common interests and passions. These interests define the clusters that audience members are segmented into allowing marketers to spot common interests quickly and easily. These insights become the foundations of the community. Let’s dive into this more deeply.

Let’s assume a concert promoter is organizing a world tour for Ozzy Osbourne. For the promoter to succeed, it will need to:

• Identify potential tour sponsors and convince them to buy a sponsorship package

• Identify potential ticket buyers in each market and promote the concert

Here’s how direct-to-community provides specific insight to the concert promoter.

Sponsor Identification

Sponsorship is costly, and brands want to know: is Ozzy Osbourne relevant to my audience? Will sponsorship promote my brand among my current and potential customers? By understanding the nuances of a sponsor’s audience, the concert promoter can make the case as to why the sponsorship is a worthy endeavor.

We began by running a report on the Ozzy Osbourne audience, then segmented these fans into different clusters based on their shared

interests. The fashionistas cluster was grouped together due to their similar interests in fashion accounts. We then looked at this group in detail.

We looked at the fashionista audience in a variety of ways. In this example, we will look at the behavioural data of Ozzy Osbourne fans. Note, any dataset is suitable and the more attributes the better.

Specifically, we will look at his:

• Cookie Data

• Keywords

• Reactions

• Transactional Data

• Interests

• Top Brands

Once we get this insight, we will dive into a cluster based on interests, and then identify the brands they favor. This list of brands will become the concert promoter’s prospect list for sponsorships.

We began the process by running a report on the Ozzy Osbourne audience, and Affinio then segmented these fans into different clusters based on their shared interests: the fashionistas cluster was grouped together due to their similar interests in fashion.

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CONSUMER-BASED MARKETING VS. DIRECT-TO-COMMUNITY MARKETING

Audience Data

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CONSUMER-BASED MARKETING VS. DIRECT-TO-COMMUNITY MARKETING

Reactions

Personal Keywords

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CONSUMER-BASED MARKETING VS. DIRECT-TO-COMMUNITY MARKETING

Brands of Interest

Sites Visited

*To purchase concert tickets online.

1.8x more likely0.07x more likely

0.09x more likely

0.7x more likely

Transactional Data

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CONSUMER-BASED MARKETING VS. DIRECT-TO-COMMUNITY MARKETING

These data points tell us that the Ozzy Osbourne fashionistas audience is largely female, family oriented, and religious. They follow the politics of persecution in the Sudan, a topic of interest in Christian communities in the US. Music is clearly very important to them, and are likely to be ammature musicians themselves. Not surprisingly, their tastes in music are far from sedate, as they follow both hip hop artists and heavy metal bands. They have a keen interest in fashion, and follow the high end brands, but shop at places like H&M, which fit more within their budget.

Brands of interest include: Forever 21, H&M, Marc Jacobs, Victoria’s Secret. This should be the fashion sponsorship target list for the concert promoter.

Element Community Insight

Keywords Interests in:

• Family: dogs (#better), nesting (#thisis40) • Religion and religious politics: (#praise, #encampRSFH) • Collier County, Florida • Twerk• God• Happy

Personal Keywords • Justin Bieber fans • dentify as singers or artists • God is important to them • Girl

Reactions • Hip hop artist Kapo Bravado, Meek Mill • Follow Jesus • Transitional Military Council Sudan • Inspirational African Americans: Esta Aini, Aaron C

Brands of interest • High and fast fashion: Chanel, H&M, Polyvore • Food: Starbucks, Whole Food

Sites Visited (Cookie Data) • Lamb of God (heavy metal band)

Transactional Data • This audience is 1.8 times more likely to purchase 1 concert ticket per year, online

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Graph Technology: Powering Direct-to-Community Advertising

Graph technology uses AI to identify connections, and to group data points into

clusters. Humans don’t tell the machine what to look for, the machine’s algorithms crunch through massive datasets, identifying and applying weights to observed connections.

We can easily see the power of graph technology by looking at the way in which Google leveraged it to revolutionize the search-engine business. In the early days of the web, all search engines used indexing algorithms to create a taxonomy of the web. They ingested data and tried to sort them into buckets, via a priori classification. Google realized that the real power of the information lay in the connectedness of websites as opposed to the content itself. It’s page-ranking methodology was built on a graph which understood the weightings of the connections between web pages. This led to massively improved search results.

Google succeeded because graph technology is ideal for analyzing network data and relationship-based data sets. It excels at identifying clustering patterns within connected datasets (which is why it is heavily used in bio, pharmaceutical, network threats, fraud detection and so on). These assets mean it’s also ideal for customer data, which is just as voluminous and connected as web pages.

By allowing AI to identify previously unknown clusters, direct-to-community allows marketers to zero in on the core values that bring members of a community together. That insight can be used to develop messaging that resonates with community members, as well as prompt them to share that content -- thus building brand awareness. It also helps identify the most appropriate places to reach and engage consumers.

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