Big brands are wrestling with how to build direct relationships with consumers, and how to do so in spite of data ownership and data privacy challenges. It’s true there’s simply no better way to learn about consumers’ preferences and how to most efficiently serve them than by selling products or services directly.
Collecting first party data about sales is the distinct benefit of selling to consumers without a middleman, and that’s why big businesses see so much promise in the startups dedicated to the model.
So far this year, investors have spent $1.2bn on young, little-known direct-to-consumer businesses, that’s up from $810m in all of 2017, according to CB Insights. These startups are also ripe for acquisition. In recent years, Unilever bought Dollar Shave Club for $1bn, Walmart purchased Bonobos for $310m, and Kellogg bought RXBar for $600m.
My company, Hubble, sells contact lenses direct to consumers via subscription. Neither I nor my partner have a background in optical, sales or marketing. Rather, we’re numbers folks with backgrounds in finance, consulting, and programming. Within a year, we logged $20m in revenues.
I credit a lot of our success, and the success of other D2Cs, with knowing how to access data and build relationships using this data (plus knowing how to help the customers gain from the data, because otherwise they won’t share it – consumers are whip smart).
For D2C companies, marketing looks more like sales. D2C businesses don’t launch one message at every consumer, but rather vary their approach and their offers to each individual, using data analysis to optimize it, and technology to ramp it up to a mass scale. This individualized direct marketing interaction allows the business to hone its sales pitch to a razor’s edge.
To achieve this, it’s imperative to prioritize the right data – and that’s often not the traditional marketing metrics you might be thinking of. Focus on the data that allows you to sync up consumer behavior and your operations. For example, when it comes to measuring costs, forget the ones that pervade e-commerce, such as cost per click. What really matters is cost per acquisition.
Another important figure is your customer’s lifetime value, because that will tell you how much you can spend acquiring them. You also can’t run your business without understanding how much your customers are ordering, and what profits those orders deliver. That, in turn, means understanding your margins inside and out.
With these metrics available, D2Cs can learn the right message to send, at the right cost, to the right person—information that brands working through retailers can only approximate. This is the holy grail of marketing, and just moving brand spend to digital doesn’t get you there.
All this said, there is a competing reality. While a D2C-style sales strategy have obvious benefits, it can’t take away all the pain. On the manufacturing side, scale effects still hold and manufacturing more product leads to lower cost. And, nothing is more efficient (sorry, Amazon) than driving product in trucks to Big Box stores for sale to the consumer.
D2Cs, in consumer-packaged goods especially, don’t enjoy these advantages.
I like to imagine what business would be like if you could bring the strengths of these two worlds together: large scale manufacturing, big box stores, and digital direct marketing. It would be revolutionary, and even better it would benefit all parties: retailers, brands, and most of all consumers.
So far, however, the conversation has been framed as either/or, as David vs Goliath. The next step is finding the “and.”
The IAB’s Randall Rothenberg spoke to this when the bureau released a direct brands study earlier in the year. To brand marketers, he said: “You must watch [D2C brands]. You must know them. You must partner with them.”
It’s time we learn from each other and create solutions that we can all stand behind.
Jesse Horwitz is the co-chief executive and co-founder of Hubble Contacts. He is co-chairing IAB’s first Direct Brand Summit next week (October 30-31) in New York City.