For the vast majority of DTC brands, the iOS14 privacy updates that took a sledgehammer to the entire Facebook marketing edifice marked a seismic shift in how they do business.
Suddenly, their reliably working customer acquisition model stopped working as Facebook ROAS tanked.
And while they have been trying to fill up the gap ever since, nothing has yet replaced the scalability of Facebook ads in their prime.
And then, there is logistics and supply chain disruption, which isn’t just a 2022 problem.
Ever since March 2020 when the world shut down, logistics chains have been wrecked, some of them beyond repair. We have had port congestion in China, the whole Suez Canal kerfuffle, two back-to-back Shipaggedons during holidays, and now the Ukrainian conflict.
So DTC brands have been squeezed from both the supply and the demand side.
This will hit smaller brands with low operating margins the hardest, and hence, there is an urgent need to recalibrate expectations, change up strategies and ensure that they have built-in sufficient resiliency.
Here are 20 strategies that DTC brands need to explore in 2023 to stay afloat, survive and thrive.
20 DTC Strategies That Will Help Brands Survive (and Thrive ) In 2023:
- 1. Omnichannel, here it comes again
- 2. Embrace live commerce
- 3. Start investing in marketplaces also instead of only Shopify
- 4. Diversify ad spends to new channels
- 5. Lean into zero and first-party data
- 6. Build (or acquire) media brands for DTC growth
- 7. Explore web3, the metaverse and NFTs
- 8. Build supply chain muscle (where possible)
- 9. Invest in owned brick and mortar stores
- 10. Or, establish relationships with retailers
- 11. Innovate on partnership marketing
- 12. Refine influencer marketing
- 13. Leverage the virality of TikTok
- 14. Don’t sleep on email marketing and SMS
- 15. Build buzz with limited releases, or drops
- 16. Adjust to new trends in brand discovery
- 17. Use unboxing as a brand advantage
- 18. Make upsells, cross sells and bundlings must have
- 19. Evaluate subscriptions
- 20. Maintain product innovation and R&D
1. Omnichannel, here it comes again
Omnichannel is definitely not a new concept, but pre-Sep 2021, it was a nice to have thing on your strategy deck.
But now, depending on a single channel for customer acquisition is more fatal than ever for the health of the business, and all DTC brands need to devote time to thinking through omnichannel strategies.
Will Lovatt, VP and General Manager, @Deposco Europe, has written an excellent article for @LogisticsBizz where he discusses the past, present and future of selling Direct-to-Consumer (DTC). https://t.co/2yeUNrW7hL#DTC #DirectToConsumer #Fulfilment #ecommerce #omnichannel #wms
— Deposco (@Deposco) December 22, 2022
What would that look like? In most cases, it is a combination of online and physical retail, but the combinations vary- fully owned, shop-within-a-shop, phygital (browse at the shop, buy online), etc.
2. Embrace live commerce
Live commerce is a major trend in China, where the market size last year was $312.5bn, and popular streamers sell billions of dollars worth of merch in hours!
For those who came in late, live commerce can be considered to be QVC on steroids, where live audience participation, entertainment and interaction make for a whole new experience.
However, in the US, live commerce is still at a very premature stage and is only expected to fetch $35bn by 2024.
So this is still virgin territory, and savvy brands can team up with influencers using platforms like TikTok to get out in the front before the field gets saturated.
3. Start investing in marketplaces also instead of only Shopify
For a number of brands, having a standalone Shopify store can become a single point of failure, given that the average GMV of a Shopify merchant is only $4000 in sales per month.
For brands who don’t want to sacrifice the customer experience they have carefully built by going on Amazon, there are other marketplaces that can give them the best of both worlds- a happy combination of their own storefront that has much larger traffic than their single website can hope to pull in.
4. Diversify ad spends to new channels
As Facebook ROAS falls, a new kid is taking up space, and surprise surprise, it’s Apple.
Apple is releasing a slew of different ad products for native apps, collaboration with third-party publishers, and home/lock screen ads.
Right now, Amazon is also rapidly growing its ad business. Its ad revenue has reached $31bn in 2021 and they want to reach 13% US market share by 2023 (current share is 10.3%).
DTC brands will have to move spending to these platforms, if they haven’t already, in order to reach customers that they can no longer get through Facebook and Google.
5. Lean into zero and first-party data
DTC brands have long relied on third-party data from the likes of Google to build their audiences and drive traffic.
But post the privacy changes, third-party data is becoming less and less valuable, as attribution windows collapse to 7 days (vs 30 days) and the Facebook Pixel collects fewer clickstream data.
This makes it critical for brands to collect as much zero and first-party data directly from customers using email, quizzes, SMS, etc, and use tools like customer data platforms to make sense of it all.
6. Build (or acquire) media brands for DTC growth
A century ago, Michelin got into the restaurant review business because they wanted to highlight good restaurants that people would want to drive to, on their tires.
Many modern DTC brands have actually built themselves around owned media- think Barstool Sports or Glossier (Into the Gloss). Then there are the likes of Peloton whose entire business model is based around high-quality content.
However, it's also true that there have been spectacular failures and owned media missteps too, and DTC companies will have to figure out how to get their content game right (check this post for examples and detailed strategy).
7. Explore web3, the metaverse and NFTs
The metaverse and the web 3 is no longer a niche experiment as far as eCommerce is concerned.
Almost all major big brands have virtual stores in the metaverse, and from Disney to Adidas to Nike and NBA, everyone has some kind of NFT project, as this updated list published by AdAge shows.
NBA Top Shot, one of the first mainstream NFT projects to draw mainstream attention
However, we are just scratching the surface of what could be possible when the physical world interacts with the blockchain and innovative DTC brands will be able to establish themselves with a whole different, and passionate segment of the population.
8. Build supply chain muscle (where possible)
Major DTC brands will live or die based on how well they have been able to reduce supply chain disruptions.
They might do this by moving production to onshore factories, working with local suppliers, building warehouses and containers, or building redundancy into their supply chain.
If they have teething supply chain and logistics issues, they will also need to evaluate their 3PL arrangements, pick a better partner or bring fulfillment in-house.
9. Invest in owned brick and mortar stores
This strategy isn’t just for big brands who are going back to brick and mortar retail as pandemic lockdowns ease and cities open up.
Smaller brands like Savage X Fenty, Aurtate, Knix etc have dusted off their 2020 retail plans that were waylaid thanks to the pandemic.
Rihanna just announced the upcoming opening of Savage X Fenty "brick-and-mortar" retail stores ! Launching in 5 cities : Las Vegas, Los Angeles, Houston, Philadelphia and Washington DC. 🔥😍 pic.twitter.com/VrW5Gnu7CG
— Fenty Headlines (@FentyHeadlines) January 7, 2022
When executed well, brick-and-mortar isn’t just a new customer acquisition channel.
Its brand building, retention boosting and experiential marketing plays all rolled into one that can yield a significant chunk of revenue.
Lots of great customer data in the @WarbyParker S-1. A few interesting tidbits:
--Blended CAC of $25 is pretty low, but then again, 2/3rds of their sales came through physical stores pre-COVID (=> lower CAC but more store-related overhead).https://t.co/yXFWlT9zEk pic.twitter.com/3US7J0kJZm
— Daniel McCarthy (@d_mccar) August 24, 2021
10. Or, establish relationships with retailers
If digital native brands don’t have the financial resources to set up their own store, there are other options. They can tie up with existing wholesalers and retailers.
According to research by BMO Capital Markets, wholesalers who have been branded as profit-sucking middlemen for brands were actually contributing to business growth in ways that a digital channel could not just do.
So, as soon as DTC brands reach a growth plateau, they can pay to invest in relationships with retailers.
11. Innovate on partnership marketing
The idea of partnership marketing is simple: two non-competing brands with the same customer base pooling together their resources to offer an improved shopping experience.
For instance, Petco, a pet products company tied up with Lowe, a home improvement company. Feather, an outdoor furniture rental brand tied up with subscription meal startup Daily Harvest. Brightland, which sells olive oils have run joint offers with Lettuce Grow, an indoor garden supplies startup.
There are scores of such cases, and as acquisition costs increase, more brands will need to think through how their product can pair up with another brand.
12. Refine influencer marketing
Influencer marketing is not a new strategy, but traditional, pay-to-play influencer marketing has plenty of issues.
Brands can no longer recruit scores of influencers through an agency, ask them to do promoted posts, and expect sales to flow in automatically.
Instead, brands need to do the extra legwork of building relationships with nano and micro-influencers who are passionate about the product, and who will talk about it just because they truly enjoy it.
This Twitter thread has more details.
Did you know that it’s possible to generate $10M in revenue with Influencer Marketing
Without paying thousands of dollars per post?
We did this recently, and I’ll show you how.
Click this tweet to learn in under 3 minutes.
— Taylor Lagace (@TaylorLagace) February 14, 2022
13. Leverage the virality of TikTok
TikTok might be that one platform that could somewhat fill the Facebook-sized hole in customer acquisition playbooks: in 2023 it is expected to reach $18.04bn in revenue with 1 bn monthly active users.
Because the platform still is in its early stages, it's relatively easier to rack up organic views on videos, and many brands have reported respectable ROAS numbers for TikTok ads.
Also, because TikTok works so well with influencer content, having a good TikTok strategy will automatically support a brand’s influencer marketing efforts.
Awesome journey for a DTC brand started last year using $FB ads, $SHOP and TikTok.
Influencers were key addition to the process.
Good questions on LTV. https://t.co/jSm1Tfgnxp
— David Eborall (@davideborall) August 10, 2021
14. Don’t sleep on email marketing and SMS
Old is gold, and email marketing is still as impactful now as it was in the late 1990s.
DTC brands with good email marketing will drive up to 20-30% of their revenue through the channel, and at a much higher ROI ($38 revenue for $1 spend) than paid channels like Facebook ads.
How can brands improve these numbers? Simple, by pairing up email with SMS and building out funnels that will inform, educate and build an emotional connection with their audience.
15. Build buzz with limited releases, or drops
When done well, limited releases have always whipped up excitement, created a FOMO reaction, and drove extra sales, because it combines scarcity with a deadline.
MSCHF, for instance, grew virally just because they executed this strategy over and over again. Other brands like Supreme,Sporty and Rich, and Outer have made their name by creating hype with drops.
In 2022, with looming logistics issues, the limited release might actually make even more sense for DTC brands, especially if they can deliver on the uniqueness of the products on offer.
16. Adjust to new trends in brand discovery
Today’s consumers rarely discover new brands through ads, especially in the post iOS14 scenario where targeting is way out of whack.
DTC brands have to be savvy about platforms like vertical marketplaces, podcasts and influencer YouTubers (90% of consumers said they learned about new brands on YouTube) where consumers congregate, and figure out how to drive traffic from them.
This might be a challenge for smaller DTC brands that don’t have the resources to figure out and manage multiple channels.
17. Use unboxing as a brand advantage
Unboxing has a 100% open rate, and DTC brands should strive to create unique and innovative unboxing experiences for their customers.
When done well, it can create an indelible impression in the minds of consumers.
I'm a sucker for 2 things.
- great unboxing experiences
- great sleep
And @HushBlankets nails them both.
Sensational product!#review #ecommerce #unboxing pic.twitter.com/Ghc36DUJiB
— Juliana Jackson (@theclvlady) February 15, 2021
And when brands combine uniqueness with sustainability practices, they get an even higher boost from eco-conscious consumers, since 61% of consumers consider packaging recyclability when they make buying decisions.
18. Make upsells, cross sells and bundlings must have
Many DTC brands are content to just get a single sale off a single customer visit when they could have gotten two or more through upsells, cross sells or bundles.
Example of a product bundle
To pull this off, DTC brands need to have enough complementary SKUs in their inventory, and data on which products pair well together.
When offering upsells or one-time offers, DTC brands should think more about customer requirements and less about maximizing their average order value numbers.
19. Evaluate subscriptions
For DTC brands in the consumables space, subscriptions might seem to be a no-brainer- according to projections, 75% of DTC brands will offer subscriptions by 2023.
However, in the past year or so, there has been significant subscription fatigue, and consumers might not always see subscriptions as must-haves, even when it's combined with loyalty programs or discounts.
DTC brands chasing sustainable subscription revenue need to ensure high consumer loyalty as measured by repeat purchases, and innovative products that the competition can’t copy or undercut with cheap prices.
20. Maintain product innovation and R&D
Last but not least, DTC brands need to spend heavily on product innovation if they want to stay competitive.
And the timelines have to be short.
For instance, DTC fashion brands like Shein will need just 20-30 hours to spin up completely new apparel designs, often taking advantage of social media trends, to launch 2000 SKUs every day!
Ideally, brands need to be thinking about supporting top-selling SKUs, like how Dollar Shave Club started selling personal grooming products after making it big with razors.
2022 was the big breakout year for many DTC brands as they experienced a jump in sales and replaced closed brick and mortar stores.
However, sales volumes have continued to drop since then across the board, and 2023 is going to see plenty of consolidation and bankruptcies, especially as high fuel prices and logistics issues cause income contraction and increase inflation.
To beat these headwinds, DTC brands need to be proficient in about 10 core areas.
The top 10 most valuable functions at a DTC Brand in 2023:
3/ Product Development
4/ Supply Chain + Logistics
5/ Planning and Analytics
— Digitally Native (@digitallynativ) January 8, 2022
Brands that can own all these functions will survive and grow, even in the middle of pandemics and wars and once in a century global turmoil.