DTC brands. CEO of San Francisco-based creative agency Traction gives his insight into building direct-to-consumer (DTC) brands, an impending “cookie apocalypse,” and the role of data in this new retail world.
Direct-to-consumer (DTC) brands are a hot topic. It seems every brand marketer these days is trying to figure out their DTC strategy. In a recent AdAge article, Adam Kleinberg, CEO of Traction, laid out his POV and gave marketers some great advice. We wanted to further the conversation and sat down with Adam to dig a little deeper.
Five Questions With Traction’s Adam Kleinberg on the Emergence of DTC Brands
1. How would you define DTC brands?
There are two ways of looking at it. There’s the trend we’ve seen of startups that are foregoing retailers to create direct relationships with consumers by selling products online—usually with a pretty narrow product offering. Think of Casper. They sell a mattress.
Then there’s the broader definition: anyone doing ecommerce, including established retail brands. Every brand is trying to figure out how to have a one-to-one relationship with the customer.
2. In your AdAge post, you wrote “Every brand that sells a product in a store has been tripping over themselves to figure out their DTC strategy before they get Dollar-Shave-Clubbed upside the head.” What did you mean by that?
Dollar Shave Club is the hero of DTC brands. They started with this amazing video that went viral and they built a business from that. And they wound up making a real dent in the market. They saw an opportunity to go up against established brands chugging along with a formulaic approach. Meanwhile, their CEO is dropping F-bombs in that video while telling how they are innovating on price and distribution. That gets attention. They were acquired by Unilever for north of a billion dollars.
This is why you see every major CPG out there placing small bets trying to replicate this success. People now order mattresses in a box, and big brands have to rethink their entire business model because of the disruption that DTC brands have caused. The general belief now is that new brands should go to market directly to consumers. Then, when it’s time to scale you can look at building physical stores or going into existing retail.
Dollar Shave Club is the direct-to-consumer poster child
3. You also mentioned the upcoming “cookie apocalypse.” How will it impact digital advertising, and why might that be good for Facebook?
The “cookie apocalypse” “ is a term related to web browsers rolling out tighter controls. For many browsers, the default setting will have cookies expire every seven days. There is a trend toward cookies going away, so as a brand you’re not going to be able to track your consumers around the web. Think about that.
But with Facebook, Instagram, and Amazon the user is logged in, so no cookies needed. They know exactly who I am. Those platforms have better targeting capabilities within the confines of their huge ecosystems.
4. It’s one thing for a DTC company to initially acquire a customer, but how does a retail company build those brand experiences and relationships to truly grow?
Unlike DTC brands, retailers have the best relationship you can possibly have with a customer—they actually walk into your store. You can shake their hand. Give them a high five. A hug. Or most importantly, get them to give you their email address.
There is a body of research that questions the historic value of loyalty programs, arguing that growth comes from new customers, not by marketing to your existing ones who are inherently promiscuous and likely would have repurchased your product anyway. That body of research, however, doesn’t take into account the value of getting customers’ permission to send them an email. That channel is the most under-rated in all of marketing.
So, to answer your question, retail companies start to build brand experiences by establishing the conduit for a direct relationship to happen. From there, it’s about designing an experience that people actually care about.
5. Brand marketers must prove that they’re driving business using data. How do DTC brands balance the need to truly build the brand with the need to quantify the results?
How do they or how should they? They should balance that need by looking at long-term measures of brand health—awareness, purchase intent, share-of-voice, sentiment, even organic search traffic—quantifiable things that don’t necessarily translate into short-term dollars in sales but are of great importance in the long-term. If a traditional CPG marketer was only focused on short-term sales, they would pour all of their money into promotion, but they don’t because they know that the second they stop sales would fall off a cliff.
The industry is doing exactly that when it comes to digital—pouring a disproportionate amount of their effort into direct response because it’s provable in short-term dollars. We’ve gone from “half my advertising spend is a waste of money, I just don’t know which half” all the way to “all of my advertising spend is driving sales, I’m just not doing half the things I should be doing to drive far more.”