Highlights 

1. In the face of well-established giants who are slow to respond to evolving consumer demands, opportunities to improve user experiences are slowly emerging — this is where a lot of D2C brands come in.
2. It was only when a whole generation of ecommerce enablers and infrastructure-builders had solidified their reach did we begin to pave the way for D2C brands to emerge in the region. We are expecting a wave of new consumer brands hitting the region by storm.
3. 3Ss that can make a D2C brand: 
   1. Sales Journey: D2C brands own their sales journeys, having large control over how their product is perceived and sold. This control over experience is something that many traditional companies struggle to achieve but is all the more crucial for customer loyalty, retention, and organic growth. 
   2. Science (R&D, Patents, Product): Science is the most defensible moat. It provides the technological advantage beyond pure marketing which is difficult or physically impossible to replicate. In most cases, this even gives you legal protection over the technology you developed. 
   3. Supply Chain: This new generation of D2C clothing retailers is further reducing the number of touchpoints in their supply chain by integrating the end-to-end chain from production to doorstep. With full control of production processes, they are throwing on predictive modeling to not only identify future customer trends but volumes, regional tastes, production delays and many more insights.

I have been living in a ‘world without keys’ for almost a year now. For as long as I could remember, I had a spiel in my head going ‘keys, wallet, phone’ making sure these essential items were always on me. Flash forward to today, my wallet is gone, having hopped onto my phone. My keys are literally on my fingertips, which I physically use to unlock our front door, thanks to our friends at IglooHome. 

The forces of innovation modernising my front door is not any different from that driving better-documented trends like the fintech revolution. We have seen many direct-to-consumer (D2C) plays abroad — big names like Casper, the Dollar Shave Club, and Warby Parker have sought to tackle very ordinary consumer goods like mattresses, razors and spectacles, with the latter two becoming unicorns. Just like the many sub-verticals in the world of fintech, there is an army of Davids waiting to unseat the Goliaths, one product at a time. 

In the face of well-established giants who are slow to respond to evolving consumer demands, opportunities to improve user experiences are slowly emerging. No product will be spared as new contenders seek to provide better experiences with new and innovative plays to solidify their moat. 

Preparing for the D2C Party in Southeast Asia

As with our frontrunner IglooHome, the D2C party is arriving on Southeast Asian shores. It’s a fair question to ask what has taken us this long, and the problem is deeper-seated than simply income levels and internet penetration. There was simply no way for these brands to emerge five to ten years ago, when the first D2C wave in the US and Europe occurred. It is for this same reason that we have observed that investment themes, which had favoured ‘enablers’ in the past few years, are shifting to favour D2C Brands now. 

D2C commerce needs more than internet and mobile penetration to work, and groundwork for a more seamless commerce experience continues to evolve

Many of us might be too comfortable with the new normal that we forget ecommerce is relatively new. The problems we were solving 5 years ago were about providing access and enabling commerce by providing infrastructure, both logistical (which we covered last week) and financial. Traditional offline businesses still tracked inventory with pen and paper and had no access to loans. Those that managed to make it online were severely limited by their reach as ecommerce logistics was still in its infancy, especially outside of major cities. On the financial side of things many end-customers still lacked the ability to pay, without banking access. 

This generation of ‘enablers’ worked to tackle the many different issues that come with ecommerce. Last-mile solutions had to address cash-on-delivery payments, while agent-based selling eliminated financial barriers for people to shop online (themes we have seen in the likes of Super). A high-volume, fast-moving logistics system also had to be built, supporting world-class fulfilment and first-mile dispatch (as seen in Shipper). 

It was only when this whole generation of enablers and infrastructure-builders had solidified their reach did we begin to pave the way for ecommerce in the region. We are expecting a wave of new consumer brands hitting the region by storm. Just this month, we had announced our investment into Rainforest, Asia’s first ecommerce aggregator which invests into and scales D2C brands. It is Southeast Asia’s time to shine and we could not be more excited. 

3Ss that make a D2C brand the D2C brand

Familiar readers would remember Insignia’s love for abbreviations. We would now like to introduce our three S’s of D2C- Sales Journey, Science, and Supply Chain. 

The 3Ss for a D2C brand to be THE D2C brand

Sales Journey

Marketing/ Consideration→ purchase →  after-sales → repurchase

Selling directly to consumers is not a new phenomenon. It is all about owning the entire user experience throughout the sales journey, providing a one-up over incumbents. Apple is the best example of this and has established itself as the D2C brand since its popularised 1984 advert. Apple has made it clear from the start that they were the Davids breaking IBM’s Goliath, and they were out to break norms in personal computing with a new and innovative user experience.

Consideration sets the scene for our customer journey and is all about building brand identity- defining who you are and the values you stand for. Apple has established itself as the David, and Steve Jobs had even explicitly said that IBM was dominating and controlling their users. Through successful marketing, Apple had established itself as a game-changers in the computing industry, where its users are characterised as young, trendy and creative. 

Because the first step to becoming a customer is the point of sale, cutting out the middleman and selling direct-to-consumer has become a crucial step to owning this experience. Apple products have always been sold direct-to-consumer, whether online or through the physical Apple Store. This means that from consideration to purchase, Apple dominates the experience: you are presented and sold the production just as intended. 

Beyond its sleek hardware, and intuitive easy-to-use software, Apple is at its core an NPS (Net Promoter Score) 72 Company. This means that 72% of Apple users are likely to recommend Apple. NPS is a simple but powerful tool to measure customer retention and growth; a score above 50 is excellent, and any score above 70 is considered first-class. 

The top benefit of being a D2C brand is therefore owning your sales journey, having large control on how your product is perceived and sold, way beyond the product itself. This control over experience is something that many traditional companies struggle to achieve but is all the more crucial for customer loyalty, retention, and organic growth.

Science

We have established that taking control of the customer journey is paramount to building a modern service, differentiated from the traditional businesses of yesteryears, but this is not enough- D2C brands have to further ensure they build-up a defensible moat. There is no guarantee that other contenders might have the same idea; the Goliaths may (and eventually will) snap back! 

There are two ways to build a strong moat: (1) technological innovation, gained through scientific research and product development, or (2) business model innovation, using data to improve the supply chain. We now focus on science, where the role of R&D-driven product differentiation to create a defensible moat is most apparent. 

An increasingly crowded space in consumer brands today is in plant-based meat substitutes, where the rise of Beyond Meat in 2012 has signaled for many contenders to enter the space. With rising consumer trends demanding for alternatives to meat, we have seen several contenders rising to the challenge, winning over even the most meat-loving of consumers. From Quorn in the UK to Impossible in the US, there are a handful of brands that have emulated meat and meat products, producing anything from meatballs to sausages and burger patties. 

To solidify their moat and differentiate themselves from others, these players have gone to great lengths to replicate the taste, smell, and texture of the real deal. Some have even found ways to pack in higher protein content than actual meat. The business motivation behind all these great lengths in R&D is simple: science is the most defensible moat. It provides the technological advantage beyond pure marketing which is difficult or physically impossible to replicate. In most cases, this even gives you legal protection over the technology you developed. 

Growthwell partnered with Ippudo to launch a plant-based ramen

Beyond just taste and texture, Growthwell, a Singapore-based player, has gone a step further to ensure their plant-based meats are allergen-free. Where other players use some combination of soy, cashews, and nuts, Growthwell has the exclusive technology to develop plant-based meat products using Chickpea, which has no known allergens. This is a strong moat backed by science and gives the company a clear advantage over competitors. Technological innovation, having proprietary science backed by legal guarantee is a sure-win way to gain a defensible moat against other contenders.

Supply Chain

Where science does not always apply to many D2C brands, we also highlight the importance of business model innovation. These contenders have found better ways to do things, and have solidified their advantage as a first-mover or with access to resources others do not. 

When fast fashion first hit stores, traditional clothing retailers could not compete. Clothing brands used to release new clothing lines by ‘seasons’; this meant that it took over three months to research consumer trends, design, produce, and ship clothing to stores. Zara does this in thirty days. Store managers send feedback to designers on a daily basis. Production runs are short, increasing the number of styles to fit endless customer wants. Also for this reason, costs are low as turnover days are short and the company does not excess inventory, nor does it resort to clearance sales, which further boosts its profit margins. From its founding in the 1970s, Zara had truly turned the fashion industry upside down, but today new contenders like Boohoo and Shein have found ways to reduce the thirty-day turnover to just two weeks.

This new generation of D2C clothing retailers is further reducing the number of touchpoints in their supply chain by integrating the end-to-end chain from production to doorstep. With full control of production processes, they are throwing on predictive modelling to not only identify future customer trends, but volumes, regional tastes, production delays, and many more. The end result is the same: the user-experience is highly controlled. This speed and design for individuals increases customer satisfaction and loyalty and gives the brand a strong moat, which others cannot compete with. And this innovation in the supply chain and distribution can apply not only to clothing but the whole ocean of other consumer goods as well. 

It’s time to D2C the future of ecommerce in Southeast Asia

We have started to see a new wave of consumer brands in Southeast Asia, and are always on the lookout. We believe that companies that fit our three Ss are in a good position to take full advantage and ride this new D2C wave, ready to tackle the Goliaths of the consumer goods industry. In the face of well-established giants and other contenders, winners will successfully provide better experiences with new and innovative plays to solidify their moat.