Why "just sell direct" is bad advice for premium brands (and the best advertising you're not paying for)

Speaker A: You're listening to the Brand Marketing show, the show for the creators, the innovators, the ones who wake up at 3am with an idea that won't let go and refuse to accept. That's just how it's done. Who sketch prototypes on napkins and turn kitchen tables into laboratories, who look at every impossible and whisper back, watch me. You don't just create products and you understand that people don't fall in love with features and benefits. They fall in love with the future you're building, the problems you're solving, the way you make them feel when they hold your creation in their hands and you're determined to make them feel something extraordinary. Some might call you perfectionists, dreamers, disruptors. We call you the future because while the world is drowning in ordinary, you're busy crafting extraordinary while mass market settles for mediocre. You're obsessing over every detail that transforms a simple product into an experience people can't stop talking about. Hi, I'm, um, Cath Langman, and, um, I'm here to lift the lid on what's possible. When innovation meets obsession, when purpose meets profit, when that crazy idea in your head becomes the must have product in their hands. Are you ready to turn your vision into their obsession? Let's go. Hello. Hello, listeners. Welcome back to the show. Kath Langman here with you again, as usual. So, last weekend was actually my birthday. Uh, not a milestone stone one. It was, you know, no zeros on the end, uh, or anything fabulous or exciting. But my family did take me out for lunch to celebrate and it was really lovely. We went to this little Italian, uh, place that was, that is just near us. And it's on one of those. I think probably every city has one of these streets or every suburb even. You know, it's near the city. There's al Fresco dining spilling onto the footpath. There's cafes and restaurants and bars and funky hairdressers, bookshops, someone selling artisan chocolates, a handful of independent boutiques and so on and so forth. Close to the city, but, you know, somehow just has this real village feel to it. And it pulls people in definitely all weekend, but during the week as well. And it's just such a lovely vibe, you know, it's such a great experience to go and hang out there. But this particular day, I mean, it was pouring with rain, so we really were sitting indoors and just doing a lot of people watching. And I noticed something over lunch that I just haven't been able to put to rest. And that is that there were a few more empty shop fronts than I remembered from the last time I was there. Just a couple too many. Four lease signs in windows that used to have something really wonderful in them. And it got me thinking about those shops and you know, the independent boutiques, especially not just on this particular shopping strip, but everywhere and about how much they actually matter, uh, to the brands lucky enough to sit on their shelves. Because a great little shop, you know, the right little shop in the right area is doing something for those brands that it stocks that those brands very often massively undervalue. And it's not just a place that happens to sell their product. It's one of the best pieces of advertising that they will ever have and approached in the right way, one of the more lucrative channels that they've actually got. And yet the advice that I hear handed to brands over and over again points them in the exact opposite direction. Go direct, just go direct to consumer, just sell E commerce only. Cut out the middleman. Stop giving half your margin away to a retailer. Own the customer relationship yourself. Why on earth would you sell your beautiful products to a shop for half of what it's worth when you could sell it yourself online and keep the whole lot? I mean, it sounds so obvious when you put it like that. You know, more control, more money in a single clean move. But here's the thing. For a certain kind of brand at a certain moment, it's genuinely good advice. And I'm not going to sit here and tell you that it's always wrong for everyone. But somewhere along the way it stopped being one option among several and just kind of hardened into some E commerce gospel. Just go dtc. It gets handed out to every product business at every stage as though it's the answer to everything and it just simply isn't. For a lot of premium brands it's actually the wrong advice, or at least very dangerously oversimplified advice. And today I want to walk you through why and what I like to suggest instead. So to begin with, let's start with the moment that really crystallized for me because it just shows how badly this can go. A little while ago I was in a room where a, ah, reasonably well known marketing mentor was giving advice to a group of product brands. And these were brands that were sold, you know, not all of them but many of them were sold through retail stockists as well as online but you know, through those sorts of lovely independent retailers who had championed them, put them on their shelves, introduced them to a whole customer base, they you know, never have reached alone. And this person's advice, just delivered with enormous confidence, was essentially this. Run, you know, numerous discounts and promotions direct to your own customers, drop your online price to get people over the line to buy, get people buying from you instead of from the shops that stock you, and, uh, et cetera, et cetera. And I just remember sitting there thinking, do you actually understand what you've just told them to do? Because you've told them to undercut the very retailers who are helping them build their brand for them and to train their own customers to walk past the shops that champion them and come straight to a discount, to quietly sabotage the people carrying their product, all to claw back a slice of margin. That is the just go direct logic followed all the way to its natural conclusion. And its natural conclusion is a brand quietly burning down relationships that were helping to make it. And here's the thing, you don't have to go that far that deliberately to do some damage. Most brands doing this aren't, um, sitting in a room being told to abandon their stockists. They still sell wholesale. They've still got their product in lovely shops. They just don't think about those shops for one second when they fire off the next online promotion. And it's really, you know, a polite little 15% off. Either. It's often 30, 40% off. Even more. It's a discount code to anyone who'll hand over an email address. And then the really big ones come around, you know, into financial year, Black Friday, etc. And suddenly it's up to 80% off splashed across every channel they own. And all of it online, of course, all of it quietly undercutting the exact retailers who are out there right now selling that same product or trying to sell it at full price and putting their own reputation behind it as well. These brands, uh, haven't dropped wholesale necessarily, but. But they are competing against it really aggressively several times a year without ever quite realizing that's what they're doing. I mean, maybe that's being a little extra kind. Maybe they do realize it and they don't care. Anyway, what I observe is that it hurts both channels at once. It hurts the stockist who can't possibly match that kind of discounting. And it hurts the brand that's just taught its own customers that full price was for mugs. So I want to examine all, you know, the myth underneath all of this, because on paper, I will grant you that selling direct to consumer DTC is pretty seductive. When you sell direct, you capture the full Retail price, potentially when you sell wholesale, you sell to a stockist at roughly half that price and they mark it up to the customer. So obviously the customer is intended, uh, to pay the same price at either channel. Um, and so at a glance, direct looks like it's worth twice as much to you as the brand owner. So full margin versus half margin, keep the lot versus give half away. And if I say it like that, you know, that's not really a debate. Obviously when you're in business, you are in business to make money. And so it seems like a no brainer, except that that headline number, that lovely full price, full retail price that you get to keep hides an enormous amount. Now we are going to properly pull that apart next week with real numbers from real brands because that's a really big and important topic. And I know many of you who listen to this show do appreciate it when I do, uh, address things like pricing and uh, whether it's price strategy or just really dissecting the numbers so that you can have confidence that you are doing things the right way for yourself. But next week when we pull this apart, you know, I think the answer is going to really genuinely surprise a lot of you today. I'm not going to do that maths today, but I just need you to hold one idea kind of loosely in the back of your mind. The full price you capture selling direct is not the same as the profit that you get to keep. There's a long and expensive gap between the two, which means that selling direct earns me double. Selling wholesale is not actually true, it just looks true from a bit of a distance. And once you stop believing that direct is automatically worth double wholesale starts to look like a very different proposition because it does things that selling direct simply cannot do. I mean, start with reach. A good stockist is going to put your brand in front of an entire audience that you would otherwise have to pay, probably handsomely and repeatedly to reach yourself, their customers, people who already walk through that door, who already trust that shop or the people who work in it, uh, now walking past your product, picking it up, turning it over, having a look. And you didn't have to run a single ad to achieve that. You didn't have to pay for a single click. The retailer's foot traffic is doing work that would cost you money to replicate direct to your own online store. And then there's simplicity. And I've said this to people before, but you know, I think this reframes the entire formula, uh, or puzzle or you know, channel mix picture 50 stockists each placing a $500 order. Yes, I'm keeping the numbers round here with you every month. M. Now picture 500 individual customers each spending $50 with you online. So the same ultimate revenue, $25,000 either way. But they are, uh, wildly different businesses to actually run. So the wholesale version is 50 invoices and 50 parcels to pack and 50 customers to deal with versus the direct version is 500 parcels to pack, 500 lots of postage, 500 pick and packs, customer service emails when something turns up in the wrong size, yet the same money coming in. Now that's not apples comparing with apples, I grant it, but there is a difference in the workload and therefore the cost of labor and the cost of overheads of getting that right. And then also think of the cash flow. I don't think anyone talks about that nearly enough in this industry. I mean, a wholesale order is a meaningful chunk of money arriving at once, often paid via direct deposit so that you don't not even losing out on margin with credit card transaction fees. Sometimes you do, but not often. You know, you're not usually funding After Pay or PayPal for those sorts of orders and from a customer that you didn't have to spend a lot of money acquiring one click at a time with your digital advertising. And for a growing brand trying to fund its next stock run, that rhythm of chunky money coming in can be the difference between growing or stalling. But here is the argument that I think that a lot of just go direct kind of people, brands, marketers almost missed entirely. And for a premium brand, I think this is the one that matters the most. For a considered premium buyer, being stocked in a respected retailer isn't just distribution, it's also trust. When your buyer, uh, discovers you sitting on the shelf of a shop that she already knows and loves, that shop's credibility quietly transfers to you. The retailer is vouching for you without saying a single word. They are inferring, we chose to stock this. We put some, you know, research and good thought and uh, reasoning behind stocking this. You know, we put it here next to the brands that we're known for, the brands our whole reputation rests on. I mean you just, it's very difficult to buy or acquire that kind of trustworthy endorsement and you're certainly not going to get it with as a brand running your own digital ads. You know, brand advertising is one of the least trusted forms of advertising or marketing according to customers, uh, via many, many research studies over many, many years. An ad is, you you know, telling someone that you're wonderful versus a trusted stockist is someone else telling them that you're wonderful. And, you know, someone with nothing necessarily to gain from the flattery and, uh, you know, they have their own to protect. And I think that's worth a lot more than, you know, anything that you can potentially say about yourself. But then also have a think about how a premium buyer actually shops, because we've talked about this over the last several weeks. This kind of a customer is going to encounter you somewhere. Sure, it might be an ad or a social media post or it might be a friend mentions you, or yes, they might see you in a shop or wherever on tv it could be in any number of places. And then though, before she's ever going to spend real money on a considered purchase from brand she's only just met, she goes looking for reasons to believe you. She checks you out, she wants validation. And one of the single most reassuring things that she can possibly do is to head into a retailer that she already respects and has chosen to stock you. That discovery does more to close the sale than almost anything that you could have told her yourself. So wholesale for a premium brand is not the channel that you grudgingly tolerate for the volume or you know, allow to sort of buy just whatever stock you might have left after you've served your own online customers. While, you know, the real action happens in your online store, it is actively doing discovery and trust building work that your direct marketing structurally can't do on its own. Which brings me to the fear that stops so many brands leaning into any of this. That deep nagging fear that direct and wholesale are secretly at war with each other. I mean, so many retailers believe this is the case. Uh, but you know, this belief that every sale that you make direct is one that you've stolen for a stockist and that every stockist you add is, you know, eating into your lovely full margin direct sales that you're forever robbing Peter to pay. Paul, A few years ago I sat on, sat, uh down on this podcast with our, uh, lovely client Amanda from Bell Art, a beautiful home and giftware brand which is built around original artworks of native Australian flora. I mean it really is the kind of thing that people fall genuinely in love with. And Amanda had this fear as well. Right? You know, she was, she at the time, she had actually started out as a wholesale only brand. So kind of the opposite scenario that many brand owners and founders are dealing with right now. But she was worried that if she really did start to Pursue selling direct to her own customers via E. Commerce as well, that she would cannibalize her wholesale side, uh, and, you know, that she'd end up competing with the very stockists who had backed her, and everyone would end up worse off, and she would end up losing all of those wholesale stockists that she'd work so hard, hard to win because they get so frustrated with her. And, you know, all of these things are reasonable fears. It's the fear that, you know, just go direct advice kind of praise on actually the idea that the middleman is taking something that's rightfully yours. But what actually happened was the exact opposite. Both her channels grew, her direct sales grew, and her, uh, wholesale sales grew at the same time, side by side. And the reason, I think, is, uh, simple once you see it, which is, I think, the whole point. I mean, why complicate things that don't need to be. But good direct marketing doesn't steal demand off the shelf. It creates demand that then shows up everywhere. When Amanda marketed her brand well, told her story, showed the artwork, built real, you know, real desire for what she's made. Some of those people came and bought directly from her, for sure, but plenty of others saw it and wanted it and then went and bought it where they already loved to shop from one of her stockists. So she was never dividing a fixed pool of buyers between two channels that had to fight or scrabble over them. You know, like seagulls fighting over a chip at the beach. She was raising the whole tide. She made more people want the thing, and then those people bought it wherever it suited them best. So direct and wholesale weren't two forks stabbing at one small piece. Done properly, direct made the pie bigger, and everyone at the table got more. But, and this is the rule that makes the entire thing hold together. And it takes us straight back to that marketing expert in that room. There is one thing that you must never, ever do. You must never undercut your own stockists. The moment you start, you know, aggressively discounting direct and dropping your online price below what your retailers could offer to their customers, you break the whole machine. I'm not talking about the occasional considered sale, particularly where, you know, you also are able to offer it through your stockers. I'm talking about those bigger, uh, promotions, 30, 40, up to 80% off several times a year that we started this episode off with. Because you train your customers to skip the shops that champion you and wait for your next big online blowout. Instead, you make a mug of every retailer who puts Their reputation on the line to stock you, because how are they meant to compete with the brand itself at 80% off? And you land yourself right back in the discounting death spiral that we keep coming back to on this show. Teaching people that your real price is the sale price, quietly dismantling that premium positioning that you worked so hard to build. Rewarding genuine loyalty is absolutely fine. A considered occasional sale is fine. But discounting direct in a way that undercuts the partners. Building your brand or helping you build your brand is a slow act of self harm. It's like a, watching a, a, uh, slow train wreck. And it's precisely what that mentor was cheerfully recommending. Now, does all of this mean that you should race off and sign up every stockist who will have you and pour cold water on your online store? No, absolutely not. And to be really genuinely clear about this, because it would be so easy to hear this episode as wholesale is good and direct is bad. And that is not even slightly what I'm saying, because the point is not that one channel beats the other. The point is that your channel mix should be a decision that you make on purpose. It should be intentionally designed and not defaulted into because someone told you that one was the one right way to play the game. So how do you actually decide for your own brand? I think, you know, starting with a few honest questions would be helpful. Like where does your buyer genuinely expect to encounter a product like yours? Is it in a beautiful shop in her hands being lifted off a shelf? Or online on her phone at 11 o' clock at night? Or both? Uh, is, you know, what is your average order value? Because a lower priced product can sometimes be really hard to make pay when you're selling it direct on paid traffic, and often genuinely belongs on a shelf where the discovery is free. Whereas, you know, a high value considered piece can comfortably carry the economics of selling direct. And then what is your actual capacity? Could you even service 50 or 100 new stockers if you won them next week? And what does your cash flow really need right now? I mean, there would be many more questions as well, but all these answers contribute to how you decide on your channel mix. Not just a slogan, not what happened to work for some completely different brand with a completely different product and a completely different buyer. Let me make one of those a little bit more real for a second because it's the one I think that brands undervalue the most. Think about the top last time that you personally discovered a brand that you now love in a shop. And I Don't mean online. I mean in an actual shop where you were browsing, maybe not necessarily looking for anything in particular, and something caught your eye. You know, you pick it up and there's a particular feeling in that moment. You know, it's that kind of private little thrill of oh, what's this? And you turn it over and you read the story on the back or you notice the care in how it's made or maybe you taste it or try it. Nobody necessarily targeted you. No ad was chasing you around the Internet for a week. You just found it. And because you found it in a shop that you already, uh, trusted and enjoyed spending time in it, it felt like yours, like a discovery that you made, not a sale that someone made to you. I think that feeling is worth a fortune. I mean, not literally, obviously we don't want you brands going broke out there. But you know, it really is very difficult to manufacture, uh, that kind of an experience, discovery experience online. And every single brand on that shelf is getting it for free. I mean, not free. Obviously you're giving up your margin, you know, some of your margin for it, but you're not paying more than that, right? And you're getting that every single day that the shop is open. Here's a way that you can actually put a number on that because it's, you know, it's good for the brand is, you know, you can't quantify that. It's easy to wave it away. Think about what it costs you though, to create just one moment of discovery online, to get one brand new person who has never heard of you to stop and pay attention and seriously consider buying from you. You're paying for the ad and you're paying for the clicks and for a considered premium product. Most of those people still don't buy on the first visit. By the time you've actually acquired one genuine new customer through your paid ads, you might be paying $50, $80, even over 100 dol for that first single introduction. And you know, honestly, I've seen it sit north of a hundred dollars a customer for their new, you know, acquiring a new customer more often than you'd think. But now walk back into that lovely shop. Every single person who wanders in and encounters your product on the shelf is having that exact same moment of discovery. A brand new introduction to your products and to your brand. And you didn't have to pay for it, the shop did. It's their rent, their lease, their staff, their years of building, that foot traffic and reputation, of course. So a Stockist placing an order with you every month isn't just buying product from you. They are also handing you a shop front full of brand new introductions that you would otherwise be paying through the nose to buy via your digital marketing one expensive click at a time. That is the part that I think the whole keep your full margin, go direct maths never ever counts. Now does that mean direct only is always a mistake? No, of course not. You know, it's never that black and white. There are absolutely brands for whom direct only is the right answer and you know, reaching that decision entirely on purpose. And you know the, if, if we were trying to be everywhere all the time, then you know, and, and force every single brand and product into the same model, then that just wouldn't, uh, but you know, I think for those sorts of brands, staying direct is going to be a smart considered strategy and not a failure to graduate to wholesale. But if we knock one very common belief on the head while we're here, because it's the reason a lot of premium brands wrongly rule wholesale out. There's this idea that if your brand is really special, really considered, then you have to keep it direct to protect that entire customer experience. That the moment it lands on someone else's shelf, that you've lost control of everything that you thought so carefully built. I don't buy it because a beautiful shop, the right shop, you know, where your customers hang out and, and uh, that would really suit your particular brand and positioning and all of that kind of stuff is not where you lose the experience. It's actually one of the only places that you get it all at once. Because online you have, how many senses do you get to play with? Sight, sound, maybe a bit of imagined touch, but that's really it. Whereas in a shop with beautifully designed packaging, uh, and where your customer can pick the thing up, they can feel the weight of it, they can hear the rustle of, you know, depending on what the packaging is made of, they can taste it, they can hear it. I mean it really depends on, depends on what kind of product it is, of course, how these five, our five senses would combine into the experience. But you know, seeing it in maybe some beautiful lighting, sitting next to brands that make it look even better than it might do on its own. That's not a watered down experience, it's a, you know, for a lot of premium brands, it's the richest, fullest version of the customer experience there could be. Because every sense is engaged all at once in a way that, you know, online simply can't do, Obviously, if you choose the wrong shop and you know, then yes, that's going to cheapen the experience or just damage it potentially. So you do have to choose the right stockers and, uh, then, uh, you know, it is possible to have an amazing stage for your product to sit on or stand on. But you know, in the end, the whole message of today is not that one is better than the other at all. It is to choose your channels on purpose for your brand, for your buyer and your real economics, not because just go direct happens to be the advice everyone's repeating this year. Because just go direct is the same shape of bad advice that just crack this one thing and you'll finally scale, uh, exemplifies, you know, it's a comforting simplification kind of dressed up as strategy. And the real answer is less exciting maybe, but definitely more useful. And that is a channel mix that you have designed deliberately where direct and wholesale compound each other instead of quietly competing, and where you never, ever undercut the partners helping to build your brand. Wholesale alone isn't the answer and direct alone isn't the answer, but the right mix chosen on purpose for your particular brand is the answer. And that brings me back to my gorgeous little village street and those empty shop fronts, because those independent shops are worth so much more to the brands they stock than most of those brands will ever quite appreciate. Not just as a place to sell, but as some of the best advertising and validation that money really would struggle to buy. I think the smart brands know it and you know, they would never, ever dream of undercutting the very shelves that are out there quietly building them now. Next week I'm going to do a bit of a follow on episode to this one. I'm going to make every bit of this that I've just shared today really concrete for you with some real numbers, pricing numbers and breakdowns from two real brands. And one of them is a brand that had steered almost entirely away from wholesale, completely convinced, you know, following that advice, that there was more profit in selling online, and found out the hard way that once we actually ran the numbers that it was nowhere near that simple. So if you've ever made a channel decision based on a gut feeling about where the money surely must be, or perhaps just a bit more of a, you know, a decision based off a little bit more superficial information, without actually necessarily understanding how pricing breaks down and all of the components that you need to take into account with your pricing, so that's what we're going to kind of go over next week. And if you've been struggling or worrying about any of these things, then that'll be one to give a, uh, listen to as well. And of course, if you would like some help designing your own channel mix properly or you know, looking at your actual numbers, your actual ideal customers, or your fuller marketing strategy mix rather than some kind of slogan handed to you on a stage, then that of course is what our brand growth strategy sessions are for. And the link to book one of those will be in the show notes as per usual. That is it though for this week's episode. A little bit of a different one today. I hope you've enjoyed it though, and as always, I look forward to being back in your ears again this time next week. Bye for now. You've been listening to the Brand Marketing show with Kath Langman and I hope this episode sparked something extraordinary for your brand. If it did, it would mean the absolute world to me if you'd write me a review over on Apple Podcasts, let me know what breakthrough moment you had or what game changing strategy you you're going to try in your business. Until next time, keep creating something remarkable.