The direct to consumer (DTC) business model has been disrupting traditional retail for years. Yeti, manufacturer of high-end coolers and portable drinkware, pulled its products from Lowes in favor of a DTC model. But new challenges, including social media as the new go-between, are increasing customer acquisition costs, and previously attractive DTC margins are decreasing. How can DTC and subscription-based brands stay engaged with their existing customers and reengage with those who have canceled their subscriptions?
DTC in decline?
Amazon has emerged as the biggest competition for DTC companies. The online retail giant typically offers faster and cheaper shipping, and most products are available at lower prices on Amazon. It’s also become the default for customers searching for products online. It’s hard for any online retailer to beat Amazon on any of these fronts — and most simply don’t. Even with an established online store, if your products, or a suitable stand-in, can also be found on Amazon, then that’s likely where consumers will make their purchase. Amazon is not the only online marketplace out there, but it’s the one causing the most problems for DTC brands.
Along with competition from the world’s biggest retailer, the costs of advertising directly to consumers is rising. Facebook is a primary advertising platform for DTC companies, and a sharp increase in the price of Facebook advertising is hurting DTC brands. Without Facebook, DTC advertising options are severely limited.
The loss of cookies is another kicker. Data from third-party cookies enabled targeted ads — a tool critical to the success of DTC businesses. The decline of third-party cookies makes it harder for DTC brands to get their ads in front of potential customers.
With supply chain disruptions and a chaotic economy dissuading investors and customers alike, the DTC field is increasingly complicated, but the primary challenges come down to two things: imbalanced competition with retail giants, like Amazon, and barriers to advertising directly to interested consumers.
The current landscape
Without third-party cookies and easy social media advertising, many DTC companies are struggling to find new customers, retain existing ones, and in the case of subscription services, reengage with canceled customers. Smaller and more niche DTC companies are finding it more difficult to establish brand recognition. Hello Fresh, with its widespread brand awareness, can survive on YouTube sponsorships and word of mouth, but newer and smaller brands are having a hard time gaining a foothold in the public arena. DTC companies, which typically operate and advertise entirely online, aren’t going to have the same opportunities for brand recognition as companies that partner with large retailers.
This turns a once navigable landscape into easy pickings for larger, more well-known brands. Hello Fresh, and others with established name recognition, will continue to outperform smaller competitors without a large following or the means to create one.
Diversify and let your data drive
So, what can DTC brands and subscription services do to overcome these obstacles?
Hello Fresh and other big name DTC companies — including Dollar Shave Club, Mint Mobile, Squarespace, and others — have gained recognition with a diversified social media advertising approach. Build a brand presence on Twitter where you can interact directly with existing customers and target markets. Sponsor YouTube programming to reach a broader audience and create relevance with younger consumers. Podcasts are another opportunity for reaching new consumers, and with the enormous range of subject matter they cover, you can choose to sponsor the programs most likely to appeal to your target market.
And it can’t hurt to collaborate with other retailers. Quip, for instance, partnered with Target to feature their oral hygiene products in stores. Customers can purchase starter kits at Target, and sign up for a subscription to manage brush and battery replacements.
Finally, and most importantly, use your customer data to drive your engagement efforts. DTC and subscription services have mountains of first-party data on current and former customers. Use your email newsletter and direct mail postcards to offer special discounts for returning customers and keep current, former, and potential customers informed about your products. As useful as cookies are, you already have tons of pertinent information about your target market — data that can drive smart marketing decisions.
Don’t underestimate the value of the data you have on hand. Use it to get to know your customers, so you can identify where and how to reach the demographics relevant to your business and which partnerships will prove most beneficial to your future success.
[cta]Quality data is invaluable to DTC and subscription-based businesses. If you need help managing the quality of your DTC data, reach out to pam.lang@xcelerated.com, call (877) 236-9155, or visit xcelerated.com to learn more about custom data quality management solutions for your DTC subscription business.[/cta]