Road to Challenger Brands: Customers as Tribes, Stores as Churches

There’s little to no evidence, however, that the desire to belong and find purpose has declined as well. If done right, one area that might benefit from these changes in culture is retail—especially among today’s young consumers, who, according to Gallup, are the least tied to organized religion.

“The hallmarks of community are exceptional levels of engagement between members,” said Oliver Chen, managing director and senior equity research analyst at financial services firm Cowen. “Community helps drive how you should innovate, and also helps drive user-generated content.”

We spoke to Chen ahead of Adweek’s Challenger Brands summit next month in New York about what modern customers want in a brand and why knowing that is only half the battle.

Customers want community

For young companies just starting out, raising brand awareness involves knowing both the value of their product or service and the wants and needs of the shoppers buying it, Chen said.

Another aspect to reaching new customers while satisfying existing ones is a firm’s ability to foster community. Brands that can establish, grow and manage a sense of collective togetherness among its customer base will increase their chances of success, while those that can’t—or won’t—face an uphill climb. Glossier, Peloton and Lululemon are all good examples of brands that have built solid communities, according to Chen.

The ability to create community is only made easier through brick-and-mortar stores, which is why DTC brands should invest in them, Chen argued.

“The physical manifestation of brands is important,” Chen said. “I think we’re moving toward a world where customers are part of tribes, and so the store, in a way, is a showroom or clubhouse. It’s almost a church to the brand.”

And they shouldn’t just be any old store. Modern retail outlets need to contain something that can’t be replicated online. They need to be highly experiential and Instagrammable, Chen said. Being digital-forward can help brands determine where they should set up shop.

“You have to create moments that are consistent with the brand and help drive wonderment,” Chen said, noting that while customers might not purchase anything in the store, transactions might occur either before or after a visit.

“The future is bricks plus clicks,” Chen said, adding that the majority of sales still take place in physical locations.

Establish a clear purpose

For Chen, DTC brands haven’t reached a saturation point yet because there’s a new generation of shoppers with a different set of priorities.

“What’s increasingly important for new customers is mission and purpose,” Chen said. “That needs to permeate the whole organization, as well as your product.”

On the investor side, DTC brands are also facing a new era as a number of young companies have made their debut on public markets, which are proving more skeptical of unprofitable businesses.

“I think it’s important more than ever for people to execute, and also execute within parameters that enable them to finance themselves versus lose money,” Chen said.

Chen argued that a path to profitability and better management of customer acquisition costs are both crucial. Investors also have more realistic expectations when it comes to valuations.

“The fact is that incremental funding is more challenging if you’re losing money,” Chen added. “So if you’re not running your business with that assumption, then you put yourself at risk.”