The Evolving Strategy of Direct-to-Consumer Disruptors

Direct-to-consumer (D2C) brands have experienced a near-meteoric rise. In the past two years, these digitally native companies have doubled their web traffic, and, according to one study, a third of Americans will make 40% of their purchases from D2C brands in the next five years. The reason? Convenience.

Unlike many traditional retailers, D2C brands are nimble and data-driven. They remove the middleman — and excessive markups — from retail by building, marketing, selling, and shipping their own products. Customers can easily find what they want (D2C brands are highly specialized and often offer a more personalized experience than big-box retailers) and then quickly get products shipped to their door. The success of this approach has captured the attention of legacy brands: In 2017, Nike announced it would be launching a direct-to-consumer division; a year later, global revenue from that division had grown to $10.4 billion.

When it comes to advertising, D2C brands are all about digital channels, especially social. Dollar Shave Club, which is arguably the most recognizable D2C brand, gained 12,000 new customers in 48 hours when it posted a humorous YouTube video starring its CEO and Co-Founder Michael Dubin back in 2012. While the company has come a long way since then — it was acquired for $1 billion by Unilever in 2016 — it continues to pour ad dollars into social, as do most other D2C companies.

The Rise of Digitally Native Disruptors

Social media advertising lends itself perfectly to the D2C model; it’s both cost-effective and highly targeted. In fact, 56% of Facebook advertisers report a customer acquisition cost of $10 or less from Facebook ads. Accordingly, 90% of D2C companies launch with a Facebook-dominant marketing strategy.

Pathmatics data shows that year-to-date, with the exception of Harry’s, today’s top five most recognizable D2C brands have allocated their digital advertising budgets largely to social channels, including Dollar Shave Club, The Honest Co., Casper, and Warby Parker. 

Aside from a major push on social media, a recent report from the Interactive Advertising Bureau (IAB), shows many D2C companies also turning to over-the-top (OTT) services and addressable television, a technology in which personalized advertising is delivered via digital television based on the viewing behavior of a household.  Both of these channels have the potential to disrupt the way advertisers reach television viewers, making them the ideal starting point for nimble D2C companies.

Head to Head with Legacy Brands

In addition to embracing advanced TV ads, D2C brands are going head to head with legacy brands where they live: the brick-and-mortar store. In February 2018, Casper opened its first permanent mattress store in New York City and announced plans to open 200 more across the country.

Even so, Casper remains considerably more invested in digital ad spend than its traditional brick-and-mortar counterparts. According to Pathmatics data, year to date, the mattress-in-a-box startup outspends Sealy, Serta, and Ortho on a massive scale. It also produces almost three times the number of digital creatives as those companies combined.

Interestingly, in the year since it opened its first physical store, Casper has only increased its digital spend. It even doubled its social spend compared to the year prior.

Embracing the Omnichannel Reality

Casper is not alone in its mixed approach. D2C brands may live and breathe digital, but their move to physical storefronts reflects the reality of shopping today: Shoppers who buy via e-commerce as well as in store are both more prevalent and more valuable. A study conducted by IDC Retail Insights suggests that these “omnichannel shoppers” have a 30% higher lifetime value, meaning they will spend 30% more over their entire relationship with a business.

Thanks to their direct relationship with customers, D2C brands understand customer behavior in a way traditional retailers do not. Consequently, they have a leg up when it comes to providing consumers with their preferred shopping experience. And for 73% of today’s consumers, that experience is both online and in-store.