The Foundation of D-to-C Growth is Changing — Radically
As we move further into 2022, it’s more apparent than ever: The business of business is changing — radically. And that’s especially true for direct-to-consumer (D-to-C) brands, which have always relied on a slightly different playbook.
For the last few years, D-to-C companies have been on a roll. Hundreds of brands sprang up with accessible stack-your-own supply chains, turning ideas into products virtually overnight. Coupled with advertiser-friendly and inexpensive customer acquisition channels such as social media and paid search, D-to-C brands quickly broke into familiar (and often mature) categories such as mattresses, beauty and shoes.
Flash forward to today and the landscape is wildly different. Those same customer acquisition channels, mainly Facebook and Instagram, are oversaturated, with rising CPMs and targeting that no longer delivers profitable results. Meanwhile, traditional brands, tired of being disrupted, are moving into D-to-C themselves — and they have deep pockets and brand recognition to boot. Nike, for example, now sells 40 percent of its product D-to-C, with plans to increase that to $50 billion in 2022.
All this means that new D-to-C brands (or old ones that want to thrive) need to think differently to see the next phase of growth. Paid media excellence alone won’t cut it. Surviving and thriving requires mastering the entirety of an ever-changing digital landscape.
Here’s just some of what successful D-to-C brands know that their competitors do not:
Omnichannel is the new normal.
Put another way: Never rely on one or two channels for growth. A great channel is addictive and it’s easy to max it out. But investing in only two acquisition channels (hello, Facebook and Google) to drive growth is guaranteed to hit diminishing returns. D-to-C brands that merely chase Facebook's (or Instagram’s or Google’s) latest product releases as a source of growth aren't effectively planning for the future. Instead, it's critical to test new channels such as SMS, direct mail, video, podcasts, and more. Hundreds of D-to-C brands have launched direct mail and catalog programs because the results are strong and work in tandem with digital channels. No successful brand is just an online or just an offline marketer — it's engaging with customers across channels. Furthermore, not all channels are equal. For example, if someone's converting through Instagram, it's likely at a lower average order value than if they received a 24-page catalog, which has a direct impact on lifetime value.
First-party data is magic.
D-to-C brands use their data to acquire, retain and reactivate customers. As cookies expire and targeting becomes less accurate, first-party data can be the most important asset for finding new customers. Online retailer Stitch Fix saw its revenue sink during the early days of the pandemic until it was able to use its first-party data to model nonsubscribers and offer them one-off purchases without committing to a subscription. The results speak for themselves: Stitch Fix increased revenue by 3x as a result of this approach. D-to-Cs brand must have a first-party data strategy as lookalike modeling remains a powerful way to find new prospects.
Focus on deepening customer relationships, not just making one sale.
Once the basics of a paid media program are in place, marketing needs to go beyond the automatic and algorithmic. The best returns aren't from new customers, but from return customers making a second and third purchase. For example, No Bull, a D-to-C footwear and apparel brand for athletes, wants its customers to feel like they’re part of a community. The brand fosters that community via a group, No Bull Connect, with 2,500 members who chat via weekly Zooms. The brand also uses a product drop model — new products launch at midnight in limited quantities to reinforce the exclusive community. It’s just one of many possible digital tactics that can engage and retain avid customers.
Don’t ignore alternative search.
Nearly half of all product searches begin on Amazon.com, which is why many D-to-C brands like Glossier, Allbirds, and Away employ a hybrid strategy, selling a limited selection of merchandise on Amazon to intercept product searches and migrate the relationship back to owned channels. We’re not suggesting all D-to-C brands begin selling on Amazon, but it's key to understand that many consumers start their searches in other places. Consider a strategy (retail media, anyone?) for reaching these customers and maintaining control of the experience.
Today’s successful D-to-C brands are best-in-class digital organizations, constantly tuning their marketing mix. They're ruthless with reporting, forecasting and planning. They're consistently testing their paid media tactics and new channels. They prioritize great customer experience and on-site marketing. And they're always optimizing their sales channel mix. It’s the best way to prepare for the only constant in the new business of business: nonstop change.
Calla Murphy is vice president, digital strategy and integrated marketing at Belardi Wong, the leading direct marketing firm in the industry, working with more than 100 retailers and best-in-class brands.