Until recently, the recipe to starting an online-only brand was simple: find a commodity product (shaving gear, say) and quickly give it a modern spin (easy with some Instagram-friendly packaging and sharp copy that aligns the brand with a strong social mission). Then start selling it on a sleek website, pump money into social media advertisements to acquire a large customer base, then tempt a major company into buying you out.
Today, this model has become much more difficult. Not only is it becoming harder for brands to distinguish themselves, but escalating advertising prices have also pushed customer-acquisition costs beyond the customer lifetime value. Without a shortcut to high returns, investors are taking their money elsewhere and online retail brands are having to rethink their approach.
‘Any brand can run ads and acquire customers, but if they only buy once and never return, you don’t have a viable business,’ says Helena Hambrecht, co-founder of Haus, the California-based farm-to-bottle alcohol brand. ‘It’s important to find alternative ways to grow.’ Here are a few methods.
Haus used its social media spend to instead set up its own production house, increasing margins at the point of sale. Many other online retail brands are also looking to become vertically integrated by owning and controlling their own production and supply chains. Although this hits profits in the short term, new brands are increasingly looking to play a longer game.
‘To win customers long term, you need to be invested in every part of the customer experience, from the purchasing flow to unboxing to the ultimate quality of the product,’ Helen says. ‘Make [it] good enough that people can’t stop talking about it, then you won’t need to depend on ads in the first place.’
Free marketing channels
Haus also sought to maximise free methods of spreading the word about its products, by writing posts on open publishing platform Medium, which has turned out to be its most successful means of customer acquisition – and an increasingly popular method for new brands.
Before the pandemic hit, a lot of online retail brands were opening bricks-and-mortar stores again. These spaces served as immersive tools for brand awareness rather than points of sale, which is why so many new brands rarely fill their stores with many products.
Referrals, when brands incentivise existing customers to market their products through discounts, is a ‘missed opportunity’, says Tim Bond, head of insight at the UK’s Data and Marketing Association. People who come through referrals tend to spend more and spend more often, and they’re more likely to refer others.
While the glory days of online retail brands finding immediate success largely thanks to paid social spend have come to an end, there are still plenty of opportunities in this space. According to eMarketer, online sales in the US alone accounted for nearly $18bn in 2020, a 24% jump from the previous year. But just keep in mind that your launching a successful new online retail brand will likely be underpinned by the pillars of sustainability and scalability rather than a grow-at-all-costs mentality.