The anti-tracking headaches!
Startups in specific are bound to fail if they don’t rework the customer acquisition models.
The rising cost of customer acquisition, non existing offline modes are making D2C brands replan their budgets, strategies with uncertainties hanging over their heads.
Following Apple, Google is also planning to deploy its privacy initiatives, including the phase-out of third-party cookies, in 2023.
“I think it’s a scramble,” said Alex Song, CEO of growth acceleration platform DojoMojo. “We’re approximately four or five months into the thrash, and I think everyone’s trying to figure out where to allocate their capital most effectively.”
Historically, DTC brands have deployed a large part of the marketing budgets on third-party channels like Facebook, Google to build brands and drive traffic. With new regulations (like iOS updates, Government policies, etc.), DTC brands and specifically start-ups are having severe troubles informing future merchandising decisions without data on the effectiveness of their ads. Moreover, without efficient ad targeting, the cost of customer acquisition is bound to go up.
Consumer privacy updates & policies come at a hefty cost for DTC brands
In its recent IPO, Allbirds revealed that it spent $55.3 million in marketing-related expenses in 2020. That’s 25% of its net revenue and up from $44.4 million in 2019. Casper spent $156.8 million on advertising expenses in 2020, about 32% of its net revenue, and $155 million in 2019. Wayfair spent $1.4 billion in 2020, roughly 10% of its net revenue, and $1.1 billion in 2019.
“If your advertising becomes less efficient, then that certainly has an impact. It means that there are more ways that your cost per acquisition goes up,” said Andrew Frank, research vice president at Gartner. “There’s a lot of friction, I would say, that this adds to the whole process of building brand relationships with customers.”
The high cost of growing their customer base certainly hasn’t stopped new DTC brands from emerging in different categories. In response, DTC brands have been trying to one-up each other by allocating a significant portion of their budgets toward advertising, constantly pushing their marketing tactics, and using humor and various creative ways to set their brand apart.
On top of that, traditional brick-and-mortar retailers are also trying to break into the DTC space — and they bring with them a trove of loyal customers that digitally native brands may not have. Nike and Under Armour have expressed a desire to grow substantially in the channel, while Adidas outlined plans for DTC sales to make up 50% of its revenue by 2025.
Large-scale traditional brands, who have a loyal customer base and bandwidth will be able to collect data directly (first-party data), but these factors will work negatively for D2C brands.
How can you (still) win?
Work on new channels. Basis the phase of buyers’ journey, improvise on channels.
Evolve content engines! It was a long due for the industry and will be an essential business-saving skill/strategy without quick methods like ads.
Make a bond with the customer! They are the ones who will make you survive and thrive—no one else.
Credit: Retail Dive, Maria Monteros