Competing with digital-native, direct-to-consumer brands such as Casper and Dollar Shave Club can be a challenge for legacy brands. But D2C start-ups also have lessons to teach legacy organizations, including being wary of vanity metrics, being mindful of customer acquisition costs, and targeting carefully on social media.
There are now more than 400 D2C businesses selling products and services ranging from mattresses and shoes to razors and groceries. According to Forrester, online ad spending with D2C brands will increase at a robust compound annual rate of 18% between 2018 and 2022.
As digital native businesses, D2C organizations are particularly successful at leveraging social media and driving consumer interest through a sense of community, building trust through transparency and a clear brand story, and providing novelty though a consumer culture of experimentation. D2C companies are able to take advantage of social media advertising—mostly on Facebook and Instagram—with relatively low costs and pay-per-click pricing.
The precision targeting available with social media advertising also meansD2C brands can find and build audiences with niche interests. Instagram even recently released its Checkout feature, streamlining the buyer journey, which should lead to increased conversions that will make those ad units even more appealing for brands.
One example is how a D2C brand and a legacy brand take different approaches to online advertising. Zappos is a well-known and established digital-native shoe company, now owned by Amazon. Aldo is a global, high-end shoe retailer that was founded in 1970, years before there was a World Wide Web and online ads. Analyzing the prices each brand posted in recent online ads saw Zappos vastly outperforming its legacy competition.
Although Aldo is positioned as a higher-end brand, the majority of its online ads were focused on people buying at the low price point of $30 to $50. More than 50% of its ads were for shoes priced $50 or less, and the overall average price for Aldo’s online advertised shoes was less than $60. In comparison, Zappos’ ads include shoes selling for an average price of almost $200. The difference is that Zappos understands that people who are shopping online are not just seeking bargains but are also looking for quality shoes and are willing to pay for them.
So, what can legacy brands learn from their D2C competitors? There are some basic approaches to social media and digital channels that D2C businesses tend to understand on a more fundamental level than more established, non-digital native legacy brands.
Beware of vanity metrics:
One KPI that is often tracked is the nebulous term, “impressions.” Impressions can happen on the website or on social media platforms, but as a vanity metric, impressions can also be a misleading mirage of success.
This is especially true when the bounce rate is very high, such as over 75%. The Interactive Advertising Bureau recently published a guide outlining trends in D2C advertising and Jesse Derris, founder of brand consultancy Derris, shared a blatant, unambiguous truth: “We don’t think something like ‘impressions’ means anything.”
The logic behind being wary of vanity metrics is if a brand is paying for each click or view generated by an online ad, but the audience doesn’t demonstrate interest by clicking or otherwise engaging, the impression is just a waste of money.
Be mindful of customer acquisition costs:
Online ads are a great way to convert users to consumers, but those conversions aren’t useful if they cost more than the new consumer generates for the company. D2C strategists argue the point that customer acquisition cost (CAC) is the single most important determinant of growth. For digital companies, CAC is the new “rent”—the cost brands pay to get customers onto the website.
Careful social media targeting:
D2C brands do a great job of understanding where their audience is on social media and on which platforms they are engaging. This allows for social media advertising strategies that maximize the spend while keeping CAC down and promote brand engagement by encouraging followers to share stories, photos and videos while increasing the brand’s reach through influencer campaigns.
Perhaps the greatest inherent advantage that D2C startups have over their incumbent competitors is a better grasp of the basic dynamics of the digital landscape. That means everything from how the power of SEO compounds over time to how to create an organic, viral-ready infographic.
For legacy brands, the D2C phenomena may have felt like an invasion from businesses that are rewriting the rulebook. As digital natives, D2C brands understand online marketing and advertising, and they have lessons to offer to their legacy competitors.
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