AllBirds, Quip, Casper, Glossier, Slack, Robinhood: what’s the common denominator?
It can’t be the industry; each of these products occupy their own role in a single person’s day. It’s not company type, as some are consumer product goods and others are software or apps. They solve completely different problems with different approaches, from dental hygiene to office communication to stock investing. You may get the sense that they all have a newness to them; they were all conceived after 2010. Their branding, language, and colors might suggest they’re built for millennials.
If you haven’t guessed, they are each “digitally-native” companies, famous for their disruption of institutional industries dominated by legacy, 30+ year old companies. Most importantly, they grew by selling to customers directly online from day one. Casper, for example, whose recent funding round valued them at $1.1 billion, completely uprooted the domination brands like Sleepy’s and Sealy’s had on mattresses; Quip did the same to dental brands, once dominated by Colgate, Crest, and Oral-B.
Commonly known as digital-to-consumer (D2C) brands, there are several characteristics each one fundamentally shares when it comes to digital marketing strategy, by nature of having an exclusively online customer base. Nailing effective marketing techniques to gain online customers is the first step for any disruptor brand (perhaps even more than building an effective product, as demonstrated by the Fyre Festival).
From our platform and research, we’ve gathered key ways these disruptors grow multi-million dollar businesses with sophisticated digital advertising, and how non-digitally native brands can catch up.
1.Beware of Vanity Metrics
The Interactive Advertising Bureau (IAB) published an incredibly resourceful deck last week, which outlines the larger trends in D2C advertising this year. Jesse Derris, founder of brand consultancy Derris, shares a blatant, unambiguous truth: “We don’t think something like “impressions” means anything.”
For a young consumer brand, a high number of impressions or website clicks, which BrandTotal CEO Alon Leibovich calls “vanity metrics,” which can be a misleading mirage of success.
This is particularly true in cases where the bounce rate is extremely high (above 75%).
The logic is simple: if your brand is paying for every click or view generated from a given ad, but your audience doesn’t demonstrate interest by clicking through other pages on the site, contacting, buying, or downloading (marked as a “conversion”), the views/clicks are a waste of money. It’s like paying people to hand out flyers on the street to get people to walk into your restaurant, only for them to come in, not order anything, and leave.
This is why so many D2C brands stick to a direct response, or a direct conversion ad campaign. Ads in this type of campaign features a product coupled with a call to action, whether it’s “Shop Now,” “Learn More,” or “Visit Us”, particularly on Facebook. As a result, when someone clicks on it, it means they’ve responded back to the “call”, qualifying them as a good lead and increasing the chance of a conversion. High engagement in this type of ad is a confirmation you’re targeting the right people and that your product resonates with them. As the IAB states, a two-way relationship is better than a one-way impression.
We know from BrandTotal’s platform that AllBirds uses this strategy; 99% of their ads are on facebook and 95% of those ads are direct conversion Facebook ads. Of all of both Sephora and H&M’s Facebook ads, 95% are also direct conversion, while 62% of Harry’s Razors are, too.
Allbirds dashboard which shows 99% of their ads are on facebook and 95% of those ads are direct conversion Facebook ads
H&M dashboard which shows 95% of their facebook ads are direct conversion ads
Sephora dashboard which shows 95% of their facebook ads are direct conversion ads
Harry's dashboard which shows 87% of their facebook ads are direct conversion ads.
What’s more, Instagram recently released a new in-app shopping feature where users can checkout without being directed to another browser, presumably because they understand the need to avoid vanity metrics. This shifts Instagram as a tool for brand consideration to one that can be optimized for conversions, too. Creative ads should follow, perhaps by including a call to action on posts featuring product. For now, brands like Glossier, Kylie Cosmetics, and Nike are testing the feature, and it will continue to roll out over the next few weeks.
Currently, as our platform has shown in regard to direct conversion ads, big brands are investing heavily in conversion ads on Facebook, while using Instagram for awareness and consideration. The same companies we cited earlier as examples--Sephora, Harry's, and H&M--also ran heavily brand consideration ads on Instagram. With this new feature, we’ll expect to see the proportion of direct conversion ads equalizing between Facebook and Instagram.
Insight on a Harry's Instagram ad, using the BrandTotal platform
Marketing Tip: if you’re setting up ads in the Facebook family (Facebook, Instagram, Messenger, WhatsApp), ensure your campaign objectives are “direct response,” such as conversions, lead generation, message response, or app installs. Run brand awareness, website clicks, and reach campaigns in strict moderation only after you’ve hit a certain level of growth.
2.Be Mindful of Customer Acquisition Cost
While D2C brands build their ads to convert users to consumers, loads of conversions aren’t useful either if each one costs more money than they generate for the company.
Many argue Customer Acquisition Cost (CAC) is the single most important determinant of growth. Neil Patel, a prominent digital strategist, boldly calls it “the one metric that can determine your company’s fate.” In the IAB report, Daniel Gulati of Comcast Ventures astutely says,
“Customer Acquisition Cost is the new rent.”
Whereas paying rent was once the cost brands paid to bring customers into a store, paying for ads is now the cost brands pay to bring customers onto the site; it’s the most effective way of assessing the sustainability of a brand’s acquisition strategy.
CAC serves as a proxy to understand how much an ad is successfully reaching the right person (the person whose problem the brand’s product solves). If a brand has hit the right audience with their ads, then the cost of customer acquisition should decrease with time. The more customers you have, the less it costs to gain one (due to organic growth via word of mouth, increased social following, high clicks, etc.). So, unlike rent, CAC can be dynamically optimized. And, if a brand isn’t experiencing this trend in CAC over time and hitting profitability from their ads, it’s time to reassess their ad strategy to ensure sustainable growth.
What’s Next in the D2C Playbook?
Stay tuned for The D2C Playbook: Part Two of How Top Disruptor Brands Strategize Their Digital Ads, where we will show more insights on how to D2C brands are marketing, and what you can do to learn from them.
If you want to learn more, we’ll continue to cover patterns that make D2C brands so successful, insight we pull regularly from BrandTotal’s platform.
For more insight on how D2C brands are optimizing their ads, check out our blog or contact to learn more.