The Warby Wagon isn't for everyone

Thursday 19 April 2018

Article

I'm not sure whether to be excited about or terrified by this article on the explosion in Direct-to-Consumer (DTC) businesses. 

At one level the idea that the Warbyfication of a whole swathe of poorly served categories is going to improve my life as a consumer is really exciting - but at another level I can't help but think the dynamics of some of the categories are so very different that a DTC model will never work.

The basic premise of these DTC models is that by building a dedicated product offering and serving it directly to consumers we can improve choice, increase convenience and efficiency and deliver value.

The problem is that for the smaller categories there is a risk that we are creating a new pain point for consumers called 'managing all of your subscription services'!

It's also very well observed in this article that the development of these businesses relies heavily on Google, Facebook, etc to drive customer acquisition. In a world where these costs are inflating rapidly (171% inflation in like-for-like Facebook costs in H1 2017) - many of the less sticky DTC businesses are simply replacing the traditional landlord costs of retail with a huge ongoing cost of paid search and digital marketing.

Many are already turning to retail as a way of lowering customer acquisition costs "If customer acquisitions cost is the new rent - why not pay actual rent?". Surely these businesses are then undermining the unique advantage that the DTC model allows them. I suspect what they are really discovering is that the frequency and urgency of customer need for their product or service is not sufficient to warrant a dedicated model - the pain of managing this new subscription is greater than the problem it's resolving.

So perhaps the 400 DTC start ups that are receiving support and funding will be quite quickly whittled down to a set of categories where the product promise is not being delivered and margin structure allows for incumbents to be challenged. 

You'll know when you've been Warby-ed!