Digitally native vertical brands: How to build one & 5X profit margins

Only check the following boxes if they’re undeniably true of your brand:

• You were born on the internet and commercialize an eCommerce channel yet that channel is not your core asset
• You’re vertically integrated from factory to consumer, control where and how your product is sold, and use data to inform and personalize strategy
• You’re differentiated by the customer experience you offer, the proprietary merchandise you sell, and the unique way you bundle the product with service

If you checked each of these boxes, congratulations! You’re a digitally native vertical brand (DNVB)- an eCommerce 2.0 phenomena better positioned to compete with Amazon and earn significantly higher profit margins than typical eCommerce brands. If not, use these tenets as guideposts to build a DNVB.

But what exactly is a DNVB and why is caring crucial to your future?

Got soul?

With global eCommerce sales forecast to top $4.8 trillion by 2021, the impact on brick & mortar is significant and permanent as the rate of multi-billion dollar U.S. retail bankruptcies notched a six year high in 2017 in what some call a pandemic that’s not over yet. But there’s more to this trend as a new wave of eCommerce brands- now part of what some call eCommerce 2.0- are innovating differently, executing according to a new set of criteria, and growing faster and more profitably than their eCommerce predecessors.

These DNVBs have soul that isn’t easily quantifiable according to Andy Dunn, CEO at Bonobos. Dunn coined the term DNVB and defines it as:

In addition to the boxes you did or didn’t check at the top of the post, DNVBs are different from their eCommerce predecessors in the following ways:

• eCommerce companies are often commodities whereas DNVBs offer something proprietary
• eCommerce companies are channels while DNVBs are genuine brands that control their destiny because they control every aspect of their business

Vertical integration isn’t new.

But here’s why it can be especially lucrative for digital natives.

Trend #2: Enhanced end-to-end brand experience

Bundling the manufacturing of product with the customer journey and post-purchase service result in a brand identity often driven by user generated content (UGC) that positions DNVBs to compete on customer experience instead of price.

In lieu of traditional marketing, which millennials often don’t believe, UGC offers social proof that is perceived as authentic, builds trust, and results in higher conversion rates. It also organically amplifies the brand experience. In many cases, DNVBs leverage content to inspire and build an audience before trying to monetize the audience which is ultimately seen as a community to be nurtured rather than customers to be sold.

DNVBs are also fanatical about using data to inform procurement, product, and marketing techniques that build the brand and offer an ultra-personalized experience customers can feel.

Trend #3: Multi-channel alternative distribution

Besides selling direct, DNVBs understand that 94-percent of retail sales still occur in brick & mortar stores. To complement the mobile buying experience they offer, maturing DNVBs extend distribution offline by forming exclusive partnerships. Offline distribution is also highly experiential:

• Pop-up stores that blur the digital and physical worlds, and create 3D customer experiences that are attended by customers living hundreds of miles away.
• Immersive online-to-offline experiences or events that connect a brand’s community with the influencers they idolize to fuel commerce.

The DNVB paradox

While building or becoming a DNVB can be significantly more lucrative than a typical eCommerce brand, it’s also more complex. Managing product from creation, to warehouse, to distribution while simultaneously offering a differentiated customer experience requires the touch of a skilled and experienced operator

The top performing DNVBs- brands like MVMT, MM.LaFleur, and Warby Parker- all have robust technology stacks they use to manage and optimize the total customer experience. Crucial to that experience is intelligently integrating order processing, inventory management, and customer relationship tools.

These are the seeds from which a compelling customer experience grow.

It’s also one reason DNVBs are more profitable. By accurately forecasting demand, flexibly routing orders to ship from warehouses closest to the customer, and automating the supply chain, DNVBs uniquely position themselves to earn something rare; lasting customer loyalty.

The future of retail is yours to shape.

Your approach- and the tools you use- will largely dictate the outcome.