Our case (Brandless) and one of our readings (The Decline of Main Street) make the argument that the importance of brands is declining, opening the door for upstart firms to enter the market and steal...

Our case (Brandless) and one of our readings (The Decline of Main Street) make the argument that the importance of brands is declining, opening the door for upstart firms to enter the market and steal share, especially in the direct-to-consumer space. On the other hand, one of our other readings (Nike) describes huge growth in both sales and influence via a DTC strategy from a firm that seemingly represents the zenith of brand equity.

In a 400-500 word reflection, consider these perspectives. How can and should we continue to deliver value to consumers? Use the following questions to guide your thinking.

1. Are brands dead? Why or why not?




2. What role do platforms like direct-to-consumer distribution and distribution via third-party platforms (e.g., third-party sellers on Amazon.com and other websites) play in facilitating the growth and/or death of brands?




3. Brandless promotes their product as “BrandTax Free.” What is your evaluation of this strategy? Does it add or detract from value? Why?

9 - 518 - 044 R E V : O C T O B E R 18, 201 8 J I LL A V ER Y Brandless: Disrupting Consumer Packaged Goods On July 11, 2017, Brandless, an online direct-to-consumer seller of its own branded consumer packaged goods, opened its virtual doors from its offices in Minneapolis and San Francisco. With 250 pantry staples all available for sale for $3.00, the company, founded by consumer packaged goods veterans Tina Sharkey (53) and Ido Leffler (39), was heralded as the “Procter & Gamble of millennials.”1 It offered consumers a curated, limited assortment of healthy and values-conscious products delivered directly to their homes. With the simplicity of one fixed price point, the company promised an average savings of 40% versus leading brands of similar quality through the elimination of the BrandTax™, the hidden costs the company claimed that consumers paid for a traditional brand. Brandless entered a large and fiercely competitive consumer packaged goods (CPG) industry under attack. The low-priced, private-label store brands of retailer partners appealed to consumers still hurting from a recessionary environment. Discount retailers were squeezing the margins they paid to CPG companies so they could offer their consumers the lowest prices on national brands. Quirky startups were appealing to consumers’ increasing desire to explore small, local, niche brands. Online retailers, particularly Amazon, were investing heavily to uncover viable digital distribution channels for national brands and were actively testing private-label brands of their own. With $50 million in venture funding in its coffers, could Brandless simultaneously take on both the world’s greatest brands and the world’s most dominant retailers to change the way consumers bought the essential items that filled their pantries and medicine cabinets? Industry pundits had long predicted both the death of brands and the death of brick-and-mortar retailing in the contemporary marketplace. Would Brandless be the last nail in the coffin? The Brandless Business Model In 2014, Sharkey, a venture partner at Sherpa Capital, was deep in conversation with Leffler, one of the founders with whom she worked. The two were brainstorming business models with the potential to significantly disrupt existing industries when Leffler said something that made her take notice. She recalled, “He started with a story about how he literally woke up in the middle of the night with the unsettling feeling that people were paying too much for items they shouldn’t think twice about and therefore getting underserved by retailers and merchandisers and everyone in between.”2 Leffler had previously founded several consumer brands, including Cheeky (tableware), YesTo (beauty and skincare), and Yoobi (school supplies), and thus had seen things from an insider’s perspective. Sharkey Senior Lecturer Jill Avery prepared this case. This case was developed from published sources. Funding for the development of this case was provided by Harvard Business School and not by the company. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2017, 2018 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545- 7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School. 518-044Brandless: Disrupting Consumer Packaged Goods continued, “Ido was really bothered by the idea that if people really understood what things cost versus what they pay for them there would be rioting in the streets.”3 Sharkey was also an industry insider. Earlier in her career, she had served as CEO of BabyCenter, a Johnson & Johnson subsidiary, and as head of community networks at AOL. She was also a cofounder of the media platform iVillage, which at one time was the largest online community for women. She explained, “Ido’s insights perfectly complemented my thinking. I was watching the wholesale rejection of legacy brands and institutions by the ‘new consumer.’ I know with every fiber of my being that today is the most opportune time in modern history to rethink what we buy and how we buy it.”4 She continued, “It felt like modern consumption was really broken.”5 The two formulated an idea for a new type of company that would deliver high-quality own-label CPG products direct to consumers at a good value. A $16 million Series A round was led by Redpoint, and a $35 million Series B round was led by New Enterprise Associates and Google Ventures. Redpoint investor Jeff Brody observed, “They mapped out the future of the CPG industry and deconstructed it in a way that I realized the opportunity there was to create a new brand and category. The vision is massive and these are the right people to execute it.”6 The Value Proposition Brandless produced its own line of products by working directly with dozens of contract manu- facturers to keep costs low and quality high. The founders were particularly motivated by helping customers shop with their values in mind. Sharkey elaborated, “There’s a new guard of retailers and brands defined by a greater consciousness of health, the environment, and social good, but this tends to come with hefty price tags. In the end, the person who matters most, the consumer, is forced to choose between what’s good for them and what’s affordable and accessible.”7 Their website illuminated these aspects of the value proposition: Everyone deserves better. We’ve created a thoughtful, irresistible selection of the food and household products you reach for every day. Searching far and wide for high-quality materials and healthy ingredients, everything that’s Brandless is also bad-stuff-less and goodness-ful. We rigorously vet, taste, try, and sometimes create hundreds of formulations for deliciousness, safety, quality, and pure goodness. From there, we partner with our suppliers to create packaging that makes sense, limits waste, and distills the values and ingredients you care about most. We try to keep it simple, so hopefully you can easily find Just What Matters™ to you. We really care about that. Our products are made under the highest standards of safety, quality, and social ethics such as Global Food Safety (GFSI) or Good Manufacturing Practices (GMP). Brandless products adhere to the strictest of performance and nontoxic safer-chemical standards set by the EPA. Our paper products are either made with bamboo and sugarcane fiber or are FSC certified ensuring sustainable forestry practices. Our vast food assortment is entirely non GMO and well over half of it is organic. Our food is made without any artificial preservatives, flavors, or colors. We’re against animal testing. In addition, we’ve banned over 400 harmful ingredients like parabens, polypropylene, phthalates, and sulfates.8 Brandless defined its consumer target as the conscious urban millennial. According to Brody: 2 Brandless: Disrupting Consumer Packaged Goods518-044 Consumer buying behavior has massively shifted but the big brands and retailers are struggling to keep up. Today’s consumers think differently, act differently and they consume differently. The stats speak for themselves. Millennials value price as their number one buying consideration. 77% says they won’t buy the brands their parents use. 88% of people consider private labels to be as good as national brands. 75% of youth in the United States expect brands to behave in a socially responsible way. Simply put: this generation doesn’t buy into the legacy establishment and they don’t have a connection with traditional CPG brands.9 Echoed Sharkey, “They don’t want their parents’ government. They don’t want their parents’ institutions and they don’t want to go with their brands.”10 Leffler added, “Consumers want new options. They don’t necessarily care about buying Heinz or Tide.”11 Curating the Product Assortment Rachael Vegas was brought in as Chief Merchant to lead the product development team. She combined 19 years of food merchandising experience at Target, Food Lion, and Hannaford Supermarkets with novel insights derived from consumer focus groups, flavor experts, and product testing to compile an innovative launch assortment that included on-trend products such as sea salt quinoa chips, organic sweet potato tortilla chips, and gochujang sauce. An assortment of 250 nonperishable food, personal care, and home goods was available for sale at launch (see Exhibit 1). Leffler noted, “We’ve edited down the assortment. Today at Brandless.com you’ll find hundreds of items versus the millions of items you can find across . . . Amazon or the 30– 40,000 you can find in Whole Foods. And we’ve made it easier for people to shop.”12 Added Sharkey: If you go to Food Emporium, you’re overwhelmed. You go to the deodorant aisle of Duane Reade, and there’s an explosion of SKUs. It is completely paralyzing.13 We’re not overwhelming you with options (there aren’t 100 pasta sauces to compare, there are three) or forcing you to over-consume (no need to stock up to save, you can get great value buying just one). We don’t want you to spend your time and energy trying to figure out the difference between 20 different Italian dressings or hunting for the best deal. We’re bringing you an edited assortment of better products at a fairer price.14 Brandless is about limiting the choice. It’s about curating the just what matters. It’s overwhelming to use a web service with a database of millions and millions of products to figure out the ones you want, how to shop, how to identify the values.15 Leffler continued, “We’ve tested fifty different ketchups. We’ve tested a hundred different types of granola, mustard, everything that you could possibly want And we’ve tested and created it so that the one that you get from Brandless is the one you want and should have.”16 Great Value at a Simple Price By selling direct to consumers and using digital marketing to attract customers, Brandless hoped to eliminate two costs faced by national brands: (1) the retailer margins that Big CPG paid to retailers to stock and sell their products, which could run between 15%–50% of the retail price, and (2) the advertising investments Big CPG made to build their brand equity and drive sales, which could range from 5%–20% of their net sales. The two outlined their strategy in a blog post to prospective customers: 3 518-044Brandless: Disrupting Consumer Packaged Goods We believe better shouldn’t cost more so we hacked the BrandTax™, the hidden costs you pay for a national brand often associated with promotion and retailer margin. We’ve been trained to believe these markups increase the quality of the product, but they rarely do. And those markups seriously add up. In fact, you pay an average of 40% more to have a big-name brand on the label. At Brandless, everything is ‘BrandTax™-free,’ which means we’ve stripped out all of those excess costs. It’s how we’re able to offer the best stuff at the fairest price, everyday to everyone. That’s why our Daily Moisturizing Facial Lotion costs 367% less and our Blueberry Flax Granola costs 90% less than top household brand products with similar quality and ingredients.17 Leffler asserted, “It’s an inefficient process. We are re-appropriating those dollars back to the consumers.”18 This allowed the company to price each of its products at a fixed $3.00 price point. Less expensive items were offered two-for-$3 or three-for-$3. (See Exhibit 2 for a price comparison of Brandless and three of its competitors, Walmart, the country’s largest discount retailer; Kroger, the country’s largest supermarket chain; and Amazon, the country’s largest online retailer.) Leffler explained the choice of the $3.00 price point: “The $3 was about simplicity. We wanted people to understand just how easy it was to shop across an entire line without having to pay what we call a brand tax.”19 Added Sharkey, “We really wanted something that was very simple, so you almost psychologically don’t have to think about it.”20 BrandTax™ savings were calculated and displayed for each order during the checkout process. Distribution Strategy Brandless built a user-friendly e-commerce website that allowed shoppers to virtually browse the same aisles they would find in a physical store. Shoppers could also choose to “shop by values” by clicking on a value that was important to them (e.g., no added sugar) to view all products that featured that benefit. Products were shipped from two distribution centers, one on the West Coast and one in the Midwest, for a $9 flat shipping rate (at launch; it was later dropped to $5) that ensured delivery within two to four days. During the launch period, a promotional code offered consumers a special $3 shipping rate on their first order. Leffler described the appeal of the direct-to-consumer model: “The average consumer shops in multiple locations. For some people, we’ll be their everyday destination, and for some people we will be their No. 5.”21 Branding Brandless Branding Brandless created an interesting dilemma. Said Sharkey, “We’re not anti-brand, we’re not not a brand, we’re just reimagining what it means to be a brand.”22 She continued, “We’re trying to reimagine what it means to be a brand in today’s world, a brand rooted in authenticity, transparency, and trust. If we do this right, we’re actually building a community of people who want to change the way we live, where we can focus on living more and branding less.”23 Emily Heyward, a partner at Red Antler, the branding agency brought in to design Brandless’s brand identity, explained, “I think we really wanted to be conscious from the start about not being insincere. Of course Brandless is a brand. We didn’t want that to