Consumer privacy preferences come at a high cost for DTC brands
Reaching customers online has only become more expensive over time. And DTC brands have had to burn through millions of dollars in order to earn consumers’ love.
Allbirds disclosed in its recent IPO that it will spend $55.3 million on marketing in 2020. That’s up from $44.4 million in 2019 and represents 25% of its net revenue. In 2020, Casper spent $156.8 million on advertising, or around 32% of company net revenue, compared to $155 million in 2019. In 2020, Wayfair spent $1.4 billion, or around 10% of its net revenue, and $1.1 billion in 2019.
All three have suffered significant losses. Wayfair finally turned a profit thanks to a pandemic-driven surge in household products, a trend that home sellers may not be able to maintain.
“If your advertising becomes less effective, it will undoubtedly have an effect. It implies that your cost per acquisition can increase in a variety of ways “Gartner’s research vice president, Andrew Frank, agreed. “I would say that this adds a lot of difficulty to the whole process of creating brand ties with customers.”
New DTC companies have emerged in a variety of industries despite the high cost of expanding their client base. DTC brands have responded by spending a major percentage of their expenditures to advertising, constantly pushing their own marketing methods, and employing comedy and other unique ways to set their brand apart.
Furthermore, established brick-and-mortar shops are attempting to enter the DTC industry, bringing with them a pool of devoted customers that digitally native firms may lack. Nike and Under Armour have both announced a goal to expand significantly via the channel, while Adidas has stated that direct-to-consumer sales will account for half of their income by 2025.
Large-scale traditional businesses, unlike DTC brands, have built a significant presence, a loyal customer base, and the capacity to collect data directly from their own customers, often known as first-party data, rather than depending on third-party sites like Facebook or Google.
“If you have large-scale or really deep consumer data, as in the case of Nike, that data won’t be harmed too much because you’re getting it directly from customers with their consent,” Frank explained. “It just becomes more difficult to obtain that data and compete with large platforms if you’re a smaller DTC brand that doesn’t have the kind of relationship that people tend to reward with that consent.”
