MIT_Sloan_Management_Review_-_Spring_2020

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SLOANREVIEW.MIT.EDU SPRING 2020 MIT SLOAN MANAGEMENT REVIEW 31


Given the success, reliability, and proven value of
these new D2C competitors, it’s hardly surprising
that the value of many established brands is in sharp
decline. Just as digital technologies allow companies
to build businesses almost overnight, social media,
digital channels, and online influencers can help new
brands build meaningful identities and reputations
at warp speed.


The Digital Elements of the
New Disruptive Model
These new D2C businesses have several similarities,
each driven by digital technologies, algorithms,
data analytics, and new forms of connectivity.



  • Access to assets, not ownership of assets. Tr a d i-
    tional organizations used the assets they owned
    to both create competitive differentiation and
    establish entry barriers. The D2C organizations,
    instead, participate in digital platforms that can
    virtually represent both sides of an on-demand
    transaction, removing friction and risk. Contract-
    ing for asset usage on an open market allows them
    to scale quickly. However, it also makes their busi-
    ness models relatively easy for others to copy. The
    online mattress-in-a-box business, for instance, is
    thought to have as many as 150 new entrants. The
    amount of new entry echoes what Harvard pro-
    fessors William Sahlman and Howard Stevenson
    years ago called capital market myopia, in which
    startups charge into a category that can’t possibly
    sustain all of them.^4

  • Cocreation with customers. Digital channels
    eliminate middlemen. As their name implies,
    D2C companies create a direct relationship with
    their customers. This gives them powerful feedback
    loops in which they can more rapidly experiment,
    iterate, and customize offerings with far more flexi-
    bility than a traditional retailer. The best D2C
    brands create a complete end-to-end experience,
    capturing the customer’s attention, loyalty, and
    data through the entire process rather than sharing
    it with anyone else.

  • Always-on and mobile. There have always been
    organizations that sold directly to consumers
    (think L.L. Bean or Lands’ End). The new breed of


D2C companies, however, uses mobile technology
and mobile infrastructure to make interaction a
24-hour, always-on experience. Consumers have
come to expect that a D2C company is an easy and
accessible partner for transactions and support,
giving them what they want when they want it.


  • Capital-light ecosystem business models. One
    common hallmark of D2C startups is that they
    require relatively little in terms of conventional
    capital. They outsource much of the operations,
    joining ecosystems built on digital platforms,
    where infrastructure becomes a shared resource.
    These companies don’t compete on better distri-
    bution or supply chains — they can put together
    complex supply chains in a fraction of the time
    and expense it would take in an analog world.
    Instead, they compete on what really matters: a
    better customer experience.


The Theory of Disruption:
What Stays the Same
Christensen’s original theory of disruption has
held up very well in explaining why startups with
little in the way of assets or existing brands can
capture market share from well-entrenched in-
cumbents. Just as the theory predicted, incumbents
considering investments in innovation that has the
potential to cannibalize the existing business still
find it unattractive and dangerous. They have little
incentive to pursue opportunities with thinner
margins than those enjoyed by their core business,
and their corporate metrics tend to reinforce this
status quo.
As Christensen also predicted, the “jobs” cus-
tomers seek to get done in their lives remain
remarkably stable^5 — even though digital technol-
ogies have created entirely new ways to get those
jobs done. Consider the job of making an apart-
ment comfortable by furnishing it. Today’s young,
nomadic urban workers often find that it’s more
convenient to accomplish that job by leasing furni-
ture than buying it. Incumbents can get blindsided
by this kind of shift in how a job gets done. In par-
ticular, they may find that their competitor isn’t a
traditional one but a company from a different in-
dustry altogether that has mastered the new digital
technologies. Apple, for instance, is partnering

These
companies
compete on
what really
matters:
a better
customer
experience.
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