Can Diversification Save DTC Scalability in a Post-Acquisition World?


Less than two decades ago, the first crop of DTC (direct-to-consumer) brands stormed into public consciousness, upending the rules of retail and delighting customers with high-quality products at low prices.

The scale was simple: buy new customers from Google, Facebook, and (later) Instagram, run retargeting ads, and, if desired, optimize for conversions onsite.

As long as competition was low and ad costs ran at a few cents per click, the winners were those that mastered paid acquisition.

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In 2019 and beyond, that playbook is a recipe for disaster.

As of Q1 2019, Facebook’s limited ad inventory is shared by 7m+ advertisers, increasing customer fatigue and ad blindness. Traditional retargeting is also declining: one study found that 83% of advertisers doubt the effectiveness of retargeted ads while 57% of customers said that these ads didn’t influence buying decisions — and of course, all this is against a backdrop of ballooning costs.

“While eCommerce continues to gain share vs. physical retail,” said Mary Meeker’s 2019 Internet Trends Report, “growth rates are slowing. While internet advertising growth is solid [and] innovation is healthy, there are areas where customer acquisition costs may be rising to unsustainable levels.”

Or, if you prefer your doom and gloom in slide-deck form:

And, here’s the tragic kicker…

78% of DTC brands have increased their marketing budgets from 2018 to 2019 with the lion’s share going to those very same

Via Yotpo State of D2C Marketing 2019

More of the same won’t cut it. Instead, the new normal ought to be diversification. Four paths offer a viable way forward:

Retail Reinvented: Pop-Up Profitability, Product Dev, and Brand

Pop-ups aren’t new, but their underlying strategies are evolving. Previously the seasonal events, pop-ups aren’t just a matter of accommodating spiked demand with local supply.

Rather, the new face of temporary retail includes (1) profitability from launch, (2) accelerating product development, and (3) leveraging brand awareness — all in service of driving localized demand.

DTC beauty and makeup brand Winky Lux organizes ticketed pop-ups called the Winky Lux Experience Store where people can go with friends and family, take Instagrammable pics, and try products out instead of buying them online.

Popsugar added the Chicago store to its December must-visit list, and the brand generates buzz by giving away tickets and discounts in conjunction with charities.

For online brands, retail experiences are invaluable in building a deeper connection with consumers as well as driving exposure to a much wider audience:

Away, a premium DTC luggage brand, discovered that cities with retail locations recorded 40% more online sales compared to cities without retail locations.

“When done well, pop-up experiences drive user-generated content that can help bump up those pesky social stats, help you capture customer data from truly engaged individuals (hello, acquisition), and support product adaptation,” Kate Fernandez, Brand + Content Director at GEM, told me.

“Pop-ups do all of the above while also fostering a community in the physical world and increasing your brand impact and direct sales numbers while driving down acquisition costs. If you’re considering a rotating pop-up shop residency like what we’re doing at GEM with Showfields or launching pop-to-perm experience stores like Winky Lux, look at the investment as an ongoing test and acquisition play where brand awareness isn’t the goal, but a given.”

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What’s That Sound? Podcasts, Audio Channels, and Beyond

Naturally, DTC brands are pouring money into podcast ads and sponsorships. One analysis found that they account for the single largest share: 22% of 2018’s estimated $479m in podcast ads. By comparison, financial services companies spent 21%.

DTC brands are also creating podcasts of their own. Blue Apron’s “Why We Eat What We Eat” is an example of a branded podcast designed as both a sales-and-marketing channel and a loyalty driver.

Lively, a DTC lingerie brand, plans to use its newly launched podcast to connect with customers. And according to the CEO of MeUndies, a DTC underwear brand, its podcast “resembled the same characteristics as a friend referral.”

Gravity Products is an especially creative DTC brand that sells weighted blankets designed to help people sleep better. While it runs campaigns across digital channels including social and SEM, it also uses classic radio broadcasting to drive sales and build community.

In fact, Gravity’s approach to diversification is itself exemplary of DTC’s widening definition.

“If you want to scale like national brands,” says Greg Lopez, CFO at Gravity Products, “then you need a retail strategy beyond DTC and drop shipping. The downside is that it costs years and years of investment into those channels on the distribution and partnership side.

“The upside is that you gain more market share, but many retailers are now giving preference to owned and operated brands. Look at many brands in Target (odds are you won’t see them elsewhere because Target created them) and Amazon with AmazonBasics and their other private label brands in clothing and shoes.

“The ‘DTC playbook’ doesn’t exist. The experience needs to be (and should be) bespoke for your customer. Consumers are familiar with buying online and want to be the ones to discover new and exciting brands that fit their.”

Out of Home Advertising: Acquisition Writ Large

From billboards, to subways, to bus shelters, DTC brands are increasingly exploring out of home advertising to attract the attention of current and potential customers.

Burrow, a customizable sofa brand out of Manhattan, generated quite the buzz with their New York subway ads. But the ads did more than just get people talking. The campaign doubled organic site traffic, and 60% of customers said that they bought only because of the ads.

According to Erica Amatori, director of marketing at Burrow, “We thought subway ads were just top-of-the-funnel, but we’ve found that they’re actually a really big part of a buyer’s decision process.”

As with print and digital ads, out of home advertising can be programmatic as well. Kylie Jenner’s DTC brand Kylie Skin used programmatic OOH to splash ads on 5,800 screens across 1,000 cities, including iconic spots like Times Square and Las Vegas Boulevard.

While Kylie Skin is backed by Kylie Jenner’s billions, programmatic digital OOH is well suited for budget-conscious DTC brands because ads can be:

  • Rolled out simultaneously across multiple locations
  • Bought through digital exchanges and displayed for as long as the brand wants, much like digital ads
  • Measured against metrics like other digital channels.

What’s more, research found that OOH ads can increase customer loyalty by 275%, while increasing paid media’s effectiveness by 31%. But perhaps 2PM founder Web Smith put it best:

Community Over Brand; Brand from Community

Last but not least, a number of savvy DTC brands are investing heavily in organic community engagement to drive loyalty (CLTV), product development, and customer acquisition.

Taylor Stitch, a fashion brand, uses a crowdfunding model to finance product runs. It releases new designs on its site and sets a funding goal. Products that meet the goal are manufactured and delivered to backers with a 20% discount.

Cult beauty brand and DTC unicorn, Glossier, considers ”co-creation” to be a part of its hardwired ethos and uses customer feedback to design products even when it seems to go against the bottom line.

Unlike traditional brands who sell makeup remover and face wash as two separate products, Glossier listened to customer feedback and created a makeup remover facewash: Milky Jelly Cleanser.

Like many others, Glossier features ordinary customers on its social media channels. But Glossier is one of the few brands with a closed Slack group for die-hard fans and includes user-generated content like tutorials and beauty routines on its product pages.

What’s Next for DTC Channel Diversification?

If you are a DTC brand seeking to diversify your customer acquisition channels, don’t rush headlong into implementing any, or all, of the above channels.

The channel that you pick to take the load off Facebook, Instagram, or Google will be determined by a variety of factors, like product-market fit, demographics, and geography.

At the very least, you will need to create a customer journey map to understand how your customer interacts with your brand across different touchpoints.

Regardless of the channel you pick, the most important element will be a brand story that customers can relate to.

The post Can Diversification Save DTC Scalability in a Post-Acquisition World? appeared first on Post Funnel.


Online enterprenuer. Lean leadership consultant.

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