DTC brands are shaking up retail by providing great customer experience - here's how big brands like Mastercard and MetLife are fighting back
- Direct-to-consumer brands are shaking up not just retail and advertising, but also the customer experience.
- Legacy brands including Mastercard and MetLife to Marriott are responding to the threat by appointing chief experience officers to build closer relationships with customers.
- The role goes beyond the traditional chief marketing officer function to include areas such as growth, innovation and user experience.
As new direct-to-consumer brands like Dollar Shave Club, Warby Parker, and Casper upend categories from eyeglasses to mattresses, legacy brands are rethinking not just how they approach retail and advertising, but the customer experience.
A growing roster of established brands including Mastercard, MetLife, and Marriott, have appointed chief experience officers dedicated to building closer relationships with customers.
"DTC brands are the disruptors that are providing a wake-up call for a lot of the other brands," said Nancy Kramer, chief evangelist at IBM iX. Kramer has helped brands including Sherwin Williams and Coca-Cola transition from being in the product business to the services business.
As of 2015, 6% of companies in the S&P 500 Index had a chief experience officer, according to Forrester analyst Harley Manning. He estimates that number to be at 11% to 12% at present.
"At a time when traditional brands are taking a step back and asking how they are going to compete, looking at DTC brands gives them proof that competing on customer experience is working," he said.
DTC brands have turned customer experience into a real competitive business advantage
DTC brands are different from traditional brands in that they are digital natives, own their first-party customer data, and rely heavily on performance marketing on digital channels to grow.
Their rapid growth can also be attributed to their focus on direct consumer relationships and more agile supply chains that can quickly adapt to consumers, according to a 2018 report from the Interactive Advertising Bureau.
"DTC brands have done an incredible job building on the premise that people care about experiences, not products," said Sam Appelbaum, general manager at performance marketing agency YellowHammer, which works with DTC brands. "They make emotional connections, which manifest through data-driven marketing."
These brands believe that having top customer experience gives them a competitive advantage. Casper, for instance, lets customers order a mattress online, try it for 100 days, and return it if they don't like it. It also frequently sets up pop-ups to tout its new products, and plans to set up nore permanent retail outposts.
"Casper's success, since the early days, can be distilled down to two simple things - a unique product, delivered with a unique experience," said Eleanor Morgan, Casper's chief experience officer. "Experience is a differentiator for us, and one that we invest in."
Legacy brands have started taking a page out of the DTC playbook
To be sure, such customer-centric roles have been around in industries like banking and hospitality for years. But the rise of DTC brands has prompted established brands to take a page straight from the DTC playbook.
Read More: To compete for customers, luxury brands are borrowing a tactic banking and hospitality have been using for years
For Mastercard, that's meant dedicating an executive, Donald Chestnut, as chief experience officer, starting this month. His role goes beyond the traditional chief marketing officer role and involves ensuring consistency in the company's interactions across all the touch points the company has across its business lines, from employees and issuers, to merchants and consumers.
"Whether you're running a business or you're a person shopping, you are looking for a simple, secure, convenient and intuitive way to go about your daily life - and payments are no exception," Michael Miebach, chief product officer at Mastercard, told Business Insider. "These same needs cut across our brand, products and services and also inform how we interact with and support the banks that issue our cards and the merchants that accept them."
Other marketers have taken steps to learn more about their customers by collecting personal information and data about their purchasing habits and online behavior.
Consumer packaged goods giant Unilever, for instance, set up a pop-up store for its skincare brand St. Ives in New York City in 2017 and 2018, where customers could create personalized facial scrubs and body lotions. St. Ives used the pop-up to collect contact data and consumer preferences, amassing more than 25,000 email addresses in 2017. Unilever used the data to develop products and target customers with personalized content.
"Investing in experiences helps brands to not only build connections and drive brand recall, but also allows them to drive addressable sales and eventually, return on ad spend," said YellowHammer's Applbaum.