Q&A: IAB's CEO on the Need for Brands to Connect Directly With Consumers

At February's Interactive Advertising Bureau annual Leadership Meeting, the trade organization’s CEO, Randall Rothenberg, opened the three-day event by walking the audience through the history of branding, starting with what he says is the beginning of the consumer economy, Procter & Gamble’s Ivory soap, from 1879, and culminating with the term du jour, “direct brand”—the new model that allows, he says, brands to connect directly with the end consumer. “D-to-c [direct-to-consumer] in most people’s minds is about delivery of a product to a home,” he says. “This is bigger than a delivery to the home. It’s about two things. One: this open-source, or rented supply chain, and the ability of companies to access that. The second: the direct connection between the brand and the consumer, as opposed to the connection of a series of third-party handoffs.” Adweek: How can data be the fuel to jump-start this idea? Randall Rothenberg: It is in fact all about the data because the relationships involved here, between the company and its stack-your-own supply chain, are all about the exchange of data. And then, the relationship between the brand and consumer is obviously realized in the form of continuously enriched first-party data. So what does this all mean for marketers? If you’re talking about what it means for incumbent brands, like big category leaders, it means that they have no choice but to become direct. They are at a disadvantage if they do not have these direct relationships with their end consumers, which means they do not have the data about those consumers; their needs, their desires, their patterns, their habits, their behaviors and their interests. And that data informs every other function in the enterprise. So if you have access to that data, at some scale, you are advantaged over any company that doesn’t have that data. [kickout id="1"] How do brands take control of their own data? They have to take steps to become direct. It doesn’t imply that all their sales will all of a sudden be done directly to consumers, nor even the majority. Because it seems at least for any foreseeable future, a majority of selling will still take place in a physical retail store. But more and more selling will take place through these direct relationships with consumers, which means more and more, first-party data will be drawn off. For brands that have structured their enterprises around fulfillment through third-party stores, they have to start building the mechanisms that will enable them to acquire and manage first-party consumer relationships. With all this data that brands are playing with, how much data is too much? It’s a great question, and I think the answer is TBD. It’s going to depend on the category. It’s going to depend upon the company. It’s going to depend on the volume of customers it has. I’ve long believed that “data” is the vaguest buzzword of the modern era. There’s lots of data that’s existed for years, and there are big questions about what kinds of new data are truly additive to the company and ultimately to the consumer herself. I don’t think we particularly know. How do we make data work better for us, and not harder? Again, I don’t think you can answer that generically. That’s part of the problem; there’s no one thing called data. So how do brands then get a handle on all these different types of data? If you look at IAB research, many parts are striking. One is that according to IDC, something on the order of 38 percent of all consumer-facing companies are not selling directly to the public. Less than 20 percent are selling a significant number of goods directly to the public. There’s a lot of building that needs to be done. Who’s doing this well? Nike is a great example. It recognized more than a decade ago that if it continued to tether itself to third-party physical retail stores like Foot Locker, it will be dead in the water. So, it began developing, as best it could, each step of the way, the building blocks of a direct brand strategy. First, they start by selling existing products online. Then they move to allow customers to start customizing products online, which gives them new sets of data. Then they start digitally oriented service businesses—Nike+. That gives them access to more and different kinds of data. And then there’s another way to go about it, which you see at Unilever. Unilever bought Dollar Shave Club. Paul Polman, the CEO of Unilever, very explicitly said, “We’re not buying just because it’s a really good business in the razor category. We’re buying this because of capabilities that we can infuse in the rest of the organization.” You’ll see a lot more of that. There will be a gold rush of acquisitions of well-established expert direct brand companies by slow-growing category leaders.