Building Moats for Consumer Brands
Updated: Dec 24, 2020
All startup pitches include a conversation about competitive advantage or “moats,” and these moats are what ultimately allow companies to stand differentiated over the long run.
How do you find a moat as an early-stage consumer brand?
A question that a lot of early-stage consumers startups face is when should one start thinking about moat in the first place?
At the start, the problem statement is to not protect from the competition because there is no competition for you on day zero. One should think about moat as the value you're providing to consumers. As you progress, it keeps evolving. You should start thinking about moats as you scale up in order to establish the value.
So what does the elusive 'moat' mean for brand building? According to Vineeta Singh, CEO and Co-founder, Sugar Cosmetics:
Their brand has been one of their biggest moats. As entrepreneurs, a lot of them are engineers, and conditioned to be metrics driven. One gets onto the treadmill of performance marketing and CAC optimisation. 95% of Sugar Cosmetics spend was initially going into performance marketing.Their dependence on Facebook and Google is increasing day by day but it was necessary to build a sense of brand identity
“Brand Building, Community and Content are your biggest Moats and one should build them as early as possible.” - Vineeta Singh, CEO and Co-founder, Sugar Cosmetics
“Initially, Product was our moat followed by technology and scaling but Brand is the final sustainable, long term moat, which you realise overtime today. Investing in it or thinking about how to sustain it early is impossible for most startups. What is relevant is how do you solve a customer's problem.” - Chakradhar Gade, Co-founder, Country Delight
Now a journey starts with a product. Is that going to be the moat?
Initially, journey starts with a product but when the engine is set up and ready, it is prepared to take on further development.The Product can be developed with value-added products for the consumer and that’s where the moat is. Creating a differentiated product is not only about assembling the right team but also how you organise that team, how you celebrate their achievement, how you give them enough freedom or resources to spend and build. Small processes and small cultural insights eventually will help you create a long term sustainable moat that is very very difficult for other players to copy and replicate. Weighing in on what goes into building a formidable Product, Shibam weighed in on the importance of culture:
“The kind of R&D culture you build, the kind of organisation you build, the kind of insight that you get from the market, the kind of processes set around that. The ability to launch a product at the earliest is what the ultimate moat of a product company is.” - Shibam, Co-founder, Atomberg Technologies
You should aim to get a 10x better product, either through a business model or through sourcing practices or through good production practices, or delivery channels. It doesn't matter what route you would take but it has to lead to a 10x improvement.
If one doesn’t have a hero product, then there would be no place for that product because word of mouth has become so transparent on social media that all the reviews are transparently available everywhere. Data and speed of execution and iteration are the biggest drivers of product innovation
Is there any way for creating a differentiation strategy?
A Captive Customer Touch our customers daily across your distribution network. This helps create captive customers with the ability to sell multiple products under a clear brand promise to them at the lowest possible price
Creating Something Sustainable. If you don't have that direct customer connection, you don't know what to do and that leads to you again burning more money in promotions or trade discounts, and to lose money. Be sustainable in what you create.
Seamless Distribution The distribution strategy depends on two things. One is, what is your end goal for that particular year or that particular time frame and if you have the right kind of resources to provide a great end-user experience You should involve your own channels only when you have the right skill and ability to provide the experience bigger players like Amazon and Flipkart can provide, there is no point in doing it directly before that.
How do you do that trade-off about owning the customer or selling through a distribution platform?
Amazon, Flipkart, Nykaa are some of the most profitable channels. So it's a no brainer to go ahead with them initially because you need that bottom line to invest in things which are relatively more expensive.
But if you want end consumers to start buying from your own channels directly, you need to provide a superior end user experience around how to use this product along with being able to buy it, or getting people to get the app and use it on a regular basis. Once you get into people's phones, it's a very powerful position, because you get the customer exclusively and directly.
Over and above this: consistency should be maintained in product quality and design.
Brands have to keep their messaging, packaging, and design consistent. If that can be something which is consistent and stands out, you know, you get free access to the consumer mindspace.
It also matters how you define the percentage split of your investment across sales, and long-term brand building.
In summary, there are a lot of factors which can be considered for creating a sustainable & competitive moat for consumer brands. But the takeaway is that: Founders should stay focused on solving a problem that they are passionate about and building the brand and a community as they scale.