Direct brands are shaking up the supply-chain and turning the purchase funnel on its head. These digital-native brands are busy shaking up programmatic advertising, too.
“What the disruptor brands by nature do, these digitally native brands, is they are running their own programmatic stacks,” Interactive Advertising Bureau (IAB) chief executive officer Randall Rothenberg told The Drum. “They're small companies, mostly. The running of the programmatic stack can literally be a 23-year-old sitting in a basement arbitraging Facebook impressions in real-time.”
Rothenberg said, though at a relatively small scale, that direct brands are programmatic natives because they specialize in the acquisition of individual consumers as they favor direct relationships with individual customers across media channels.
That direct relationship with consumers has flipped the traditional purchase funnel on its head. The 2019 IAB Direct Brand Economy report finds that today’s model starts at customer acquisition cost and ends at lifetime value.
What it means for legacy brands
Big brands are beginning to follow the in-house programmatic model that disruptor brands leverage given their direct consumer insights.
According to the IAB, 65% of programmatic advertisers have either completely or partially in-housed their programmatic buying functions.
What started as a means of cost-efficiency, Rothenberg said the need to drive low customer acquisition costs is now motivating the trend.
“The advanced companies, they now see this as tying directly into their ability to acquire customer relationships at a low customer acquisition cost, and to manage those relationships through a lifecycle to manage to a high lifetime value… Programmatic is becoming not just a financial resource, but a strategic resource in the big companies.”
Remy Merckx, vice-president of digital at Radisson Hotel Group, said the company is using intelligent programmatic analytics to redesign its digital and marketing strategies to own direct relationships with guests.
What it means for agencies
As disruptor brands lead the in-housing revolution, agencies are forced to adapt as part of their business model goes out the door.
Rothenberg called the old-school agency model an “eat what you kill” approach, where each individual unit operates independently. He said that’s a frustrating approach for clients today.
“The disruptor brands are at their root looking to acquire and grow individual human relationships at scale. In working with agency partners, they're looking for agencies that can help them manage that entire playbook, that entire lifecycle.
“It's moving from a fragmented, frustrating, function-by-function, agency-by-agency relationship to something within the smaller disruptor brands that's much more of a holistic, consultative, end-to-end...relationship,” said Rothenberg.
Sam Appelbaum, general manager of Yellowhammer, called traditional agency-brand relationships “a function of relationship building and pricing efficiency,” something that’s much more quantifiable for direct brands.
Agencies seem to be adapting slowly. The IAB found that US agency revenue grew by 1.8% in 2017, the lowest growth total since 2010. WPP, which recently announced a turnaround plan, had its worst year since the financial crisis and projects to see flat organic growth this year.
What it means for publishers
Publishers today need to find where they fit in this new purchase funnel.
Rothenberg emphasized publishers must prove financially that they add to lifetime customer value, as brands no longer have to go through them to reach consumers.
Publishers can also create a better buying experience by offering self-serve and automated tools throughout the entire media journey, a technique Facebook used, for example, to drive small businesses to advertise on its platform.
But Rothenberg said it’s not all doom and gloom for publishers facing the encroaching reach of giants like Facebook and Google.
An IAB survey found that while 50% of marketing spend from direct brands is allocated toward Facebook's family of services, brands test around three other marketing channels.
To emphasize storytelling, Bombas advertises on podcasts. In a given week, the sock company could attribute between 50% to 60% of new customers to paid channels, with podcasts accounting for between 15% to 40% of that customer acquisition.
“[Direct brands] used and continue to use lots of channels because they're trying to drive actual acquisitions. They don't particularly care where those acquisitions come from… If you can deliver acquisitions fitting in with the cost model, or if you can deliver back-end value, you've got a role to play that can be as powerful as, but different than, the role you played in the 1950s,” Rothenberg said.