Source: interiordefine.com
Have performance marketing costs made DTC too pricey for brands to pursue?
Changing customer acquisition strategies was a big area of discussion last week at The Lead Innovation Summit in Brooklyn, NY, particularly as it relates to direct-to-consumer (DTC) performance marketing.
Attendees listened to executives from brands with established wholesale distribution operations discuss a more cautious approach when it comes to DTC.
Justine Mohr, chief revenue officer of 3.1 Philip Lam, said, “The margins of DTC are attractive, but the key lesson is learning how to be smart on digital. How much do you spend? How do you allocate and attribute? The ability to change allocation and target messaging quickly is a distinct advantage, but must be tempered with a data-driven strategy.”
For many brands, the data isn’t so positive. According to MediaPost, social media advertising cost per mille (CPMs) are up a whopping 41 percent YoY. Google and YouTube CPMs are up 108 percent, according to Hunch.
With monopolistic market dynamics, prices have gone through the roof and nearly half of marketers believe they will be priced out if ads continue to become more expensive. Cathaleen Chen, correspondent for The Business of Fashion, said, “The biggest issue of going DTC is the rising cost of performance marketing.”
So some brands are getting creative about organic techniques and content creation on new channels and revisiting old ones.
“The window for winning organically on Instagram has closed,” said Heath Golden, chief commercial & strategy officer of Marquee Brands. “There still is a window that’s closing rapidly on TikTok. … We have syndication deals on Roku, iHeart and TikTok. Content and embedded commerce is the future.”
Jill John, chief customer officer of Interior Define, said, “We are finding alternatives to performance advertising. Now we are sending catalogs. Now we are advertising on CTV.”
This is good news for new offerings like retail media networks as well as channels that have been overlooked or undersubscribed — even the much-hyped metaverse.
Rachel Wyatt, head of digital & customer experience at Signet Jewelers said, “You have to be where customers are at and you are missing an opportunity if they are spending time in the metaverse.”
Discussion Questions
DISCUSSION QUESTIONS – Have performance marketing prices on mainstream channels like Facebook, Instagram and Google hit their peak? Will rising costs slow DTC strategy adoption for incumbent brands? What new techniques are brands using to achieve a performance advantage?
Poll
Loading …BrainTrust
DeAnn Campbell
Head of Retail Insights, AAG Consulting Group
Neil Saunders
Managing Director, GlobalData
Customer acquisition costs for direct-to-consumer businesses have skyrocketed for online channels, in part because of the vast popularity of the online-only model over the past decade. But attention is now turning back to brick-and-mortar and wholesale models in efforts to strike a better balance between online and offline channels. The laws of supply and demand are clear – as marketing ceases to focus solely on the online channels, costs will begin to come down.
There are far too many DTC companies, and online-only retailers, that are great at driving sales but are completely hopeless at doing so profitably. In many cases, much of this comes down to very elevated customer acquisition and retention costs (Wayfair is a great example of this). With capital becoming scarcer and investors scrutinizing returns more closely this isn’t going to be as sustainable as it was in the “easy money” era. Basically, DTC now needs to get smarter and more creative about how to reach customers. One solution, at least for some, is to use influencers on channels like TikTok – this needs to be done in a very natural, non-prescriptive way. Another is to push into retail more via partnerships. All of this is about finding different ways to reach potential customers.
Online-only brands will need to have a physical presence in order to acquire and retain customers in a profitable manner, given the skyrocketing CAC.