Why DTC Brands’ Reliance on Social Ads Is Unsustainable

First-party data should be the focus

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It will become increasingly important to build up relationships with existing customers while increasing lifetime value and loyalty.
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Direct-to-consumer (DTC) brands have spent huge amounts on social media ads this year to acquire customers and will assuredly continue this holiday season. Because ads on Facebook, Instagram, Amazon, Google and Snapchat are only getting more expensive, that customer growth strategy is—as Mary Meeker stated in her annual report—unsustainable.

Heading into the pivotal last two months of the year and approaching 2020, DTC sellers like Harry’s, Casper and The RealReal, which pour money into social and other channels to grow their customer base, should shift their focus to first-party data and customer relationships.

It’s not that these young brands should totally abandon advertising. But DTC marketers should acknowledge incoming headwinds for customer growth and strike a balance between acquisition and retention. As the California Consumer Protection Act (CCPA) goes live in January and other states’ privacy legislation looms, third-party data will become less actionable. Because the walled gardens have reams of data and can easily get consumers’ consent to use it, which the CCPA requires, as does GDPR, they will be emboldened to further raise ad prices. Other digital publishers will have less luck getting consent and will lack the data and scale to compete. This lack of marketplace competition will drive up the cost of acquiring customers with social ads.

It’s imperative for DTC players to accept this emerging reality, mature with the times and adopt stronger first-party data approaches. It will become increasingly important to build up relationships with existing customers while increasing lifetime value and loyalty.

It’s imperative for DTC players to accept this emerging reality, mature with the times and adopt stronger first-party data approaches.

Elevate your intelligence

To be clear, first-party data is culled from customers’ interactions with brand-owned channels such as phone calls, chatbots, email addresses, websites and mobile apps. And it is permission-based, differing from third-party data, which is collected by a separate company and increasingly hard to use. While first-party data is valuable because it allows brands to more intelligently communicate with a customer, they have to first collect that data.

There are ways to drive engagement to get permission-based data beyond the shopping cart. Brands should A/B test holidays’ call-to-actions to find out which words and images produce the greatest number of phone calls or mobile app downloads and then collect first-party data from such channels. This insight helps marketers understand where a customer wants to engage most. It’s only possible to get that data if customers use those digital and offline channels in the first place, so focus on your call-to-actions that get them there.

Today’s best marketers stitch together a comprehensive view of a customer’s preferences from various data sources, and some DTC players are starting to get into the act. Glossier is a leading example. The DTC skincare and makeup company personalizes its emails and ads with great effect, showing how first-party data powers brands: the nine-year-old company is worth $1 billion.

As another example, digital clothing marketplace Poshmark combines customers’ interest-level data from the mobile app’s granular preference center and the users and stylists they follow on the platform. The result is a personalized feed that recommends clothing to complement what they’ve purchased.

Marketers should also take a page from Poshmark’s playbook and think beyond online channels. In addition to recommending apparel, Poshmark uses first-party data to pair the sellers in its network with customers for person-to-person interactions via social and email.

Meet new expectations

It’s important to remember that younger consumers grew up with Netflix and can shop with a couple of taps on Instagram. Their expectations are different. For example, 75% of Gen Z and millennial consumers want instant, on-demand engagement with brands as opposed to only 53% of boomers. DTC founders were also born into this on-demand mindset, and their brands should, therefore, have an advantage in how to drive engagement across channels with first-party data.

Customer acquisition has for years been a tough ROI row to hoe, as it costs six times more to gain a new customer than it does to keep an existing one. As social ads pricing drives acquisition costs even higher, DTC brands need to take a close look at their strategy for growth. Going into the holidays and the decade to come, they should make first-party data a huge priority to drive sales and thrive in a new era of customer relationships.

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