7 reasons to be interested in DNVB

Analyzing the business model of the future that changes the rules

in brief

After appearing for the first time in the article entitled “The Book of DNVB : The Rise Of Digitally Native Vertical Brands”, kind of a manifesto by Andy Dunn written in May 2016 on Medium, the DNVB acronym (meaning Digitally-Native Vertical Brands) was invented to describe the business model he managed to conceive with his associate Brian Spaly when creating Bonobos in 2007.

Too often compared with standard e-commerce companies, DNVBs are startups/companies with radically different business model when compared with traditional actors ; in terms of conceiving their brand and its roles in consumers life as much as in their way of approaching, understanding and addressing them.

This new type of brand include most of the succeeding innovative startups born around year 2007, which are already rivaling against big companies, such as Warby Parker, Dollar Shave Club, Glossier or Casper. These companies thrived in a short period of time, with brands now multiplying to emerge in new areas.

But what makes a DNVB truly strong and singular ?

1. Above all is the ability of these companies born on the internet to commercialize a highly differentiated product and/or service offering, seducing consumers by giving them a good value for money and conveniency. Their core business mostly lies in the digital world, principally using the internet to interact with their clients, tell their stories and, finally, for selling. Mainly targeting younger generations, they seduce them through the uniqueness of the buying experiences they provide and the way they handle it almost perfectly: not only do their product and service offering are of premium quality (compared to many traditional actors), but the handling of their product, of the web/mobile experience and the customer relationship is done by a single actor, which enables customers to have a single and consistent image of the DNVBs in their minds. This ability to preserve their brands, from upstream to downstream, acts as a seal of approval to millennials and digital natives, inspiring them equivalent levels of affinity similar to the best modern e-commerce experiences (preferences which takes its roots in customization at Bonobos, the good value for money and the resulting brand image for Warby Parker or accessibility and conveniency at Dollar Shave Club).

Photo : Dollar Shave Club

2. Contrarily to pure e-commerce, these brands invest on a zero sum market from the very beginning : in simple terms, if you’re a DNVB, this means that your offering is built in a way that buying from your brand makes it impossible to shop from a competitor (meaning there are no substitutes and no needs for additional purchases). This marks a significative difference between vertical brands and e-commerce from an economic point of view, with better margins for the first one (it was recently estimated that gross margins were two times more profitable and four to five times more profitable in terms of contribution margins). 

3. They adopted a « direct to consumer » approach, by choosing right from the start areas in which their competitors can only access consumers through large retailers. However, although an e-commerce platform is inherent to their existence, they also need to materialize in real life at some point in order to thrive, through partnerships with third party retailers, pop-up stores or by creating their own physical shops (all the while they make sure that they are the ones in charge or the ones who own these physical channels). Being Digitally-native doesn’t mean being digital only, which brings the need to consider the digital world like an activation channel rather than the core asset of these brands.

4. They practice asymmetric marketing tactics, by selecting categories in which large competitors invest massively in traditional advertising. Their marketing practices are then very different, capitalizing on new viral phenomenons (which is less expensive and thus more profitable) such as recommandations and/or word of mouth, buzz marketing, social media,…

Photo : Warby Parker

5. Agility is one of their key strength : nowadays, many DNVBs exist in categories in which their competitors are like a mammoth, or an octopus, way too big and diversified to react fast and retaliate fast enough to resist them, and also to slow to decide in what way to fight these new competitors (with which brand, which department, which market,…). 

6. DNVBs attach a specific importance to the customer experience, and as a result, to the many insights they receive and the development of their data strategy : the true strength of these new business models is that it leans on the unconditional studying and adoption of customers insights (they pay a great attention to their needs and the way they desire to consume). Rather than try to change their habits, they constantly try to bring a concrete answer to their desires while adapting their value chain to their wants and needs. It results in an unprecedented business model that combines to autonomy businesses : a qualitative physical product brand combined to strong and relevant service experiences.

Photo : Glossier

7. Finally, DNVBs relentlessly apply test & learn principles. Globally, these startups are operate in product and services categories that generate vast amounts of datas, large enough to use deep learning (or other methods) in order to improve their offering in the long term, through suggestion and product sampling. DNVBs harvest these data themselves, through each interaction and transaction, a process made easier by their control of the entire value chain (which spares them the trouble of gathering raw data from multiple actors). As sole actors of the customer relationship management, they are as a result closer to their customers, giving them a level of understanding of these people that is almost intimate, which constitutes in itself a serious competitive advantage. Therefore, they become able to get closer to the customer but also more relevant, which makes it possible for instance that every workers are trained in order to take care of a single customer in the same manner.

With clear advantages for customers (value for money, convenience, transparency, quality of experiences,…), DVNBs seem to be the modern answer to the many flaws of the actual distribution model, facing many hurdles related to production, storage, but also pricing ; harmful for the brands and the perceived value of their offering. However, in order to adapt themselves to the situation, it will be necessary for big companies to grasp the impact of these new business models, which makes it necessary for them to rethink their business approach and question their commercial practices, as much as the way they enter a market and the way they operate.

Photo: Wardrobe.NYC

Furthermore, Fast Fashion’s pioneers are on the front line, facing digitally-native competitors such as Boohoo, ASOS or Missguided, which combine a level of supply-chain efficiency comparable to those of Zara and H&M to a state of the art digital expertise (in terms of quality of the experiences they provide and marketing investments). Even more, other DNVBs are stretching their imagination, by challenging the traditional ways of selling a fashion product (in terms of product conditioning), by applying Bundling principles to the fashion market. Even though this name sounds odd, let’s remember that the concept in itself has nothing new (think about your usual McDonald’s menus or Steam sales for gamers). This way, many companies like Wardrobe.NYC, Reformation, The Kit and Outdoor Voices are now selling their collections in bundles rather than piece by pice ; a process that offers more advantageous prices points for consumers (with a total price of the bundle less expensive than buying the same products separately). This innovative approach might inspire other young fashion brands for its clear benefits (storytelling, better storage management and economies of scale that also benefits consumers, in the form of incentives and free services that improve conveniency). Will this be enough to make the Total Look trendy again ?

This post was written in partnership with DEFI France, as part of its support to innovation and fashion companies.

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