If you’re nodding your head, you’ve participated in the market’s direct-to-consumer (DTC) segment.
Warby Parker, the unicorn among unicorns for digitally native brands, ushered in DTC nearly a decade ago. Established brands like Nike have been catching up ever since, putting the customer experience in the spotlight and playing with their online stores to make buying as easy as possible.
The reverberations of shifting customer expectations continue to be felt among digital natives and major retail brands alike—and the model’s growth across industries and markets is stratospheric.
In 2022, approximately 64% of consumers worldwide made regular purchases directly from brands. The DTC model is here to stay, and ad platforms will need to learn to keep up.
But how have DTC disruptors changed advertising, and what’s most important for advertising in the DTC model?
This article dives into how DTC advertising differs from traditional advertising and which factors remain the same.
What’s a DTC Brand and What Do They Mean for Traditional Advertising?
A DTC brand is any company that sells its products to consumers rather than going through a distribution channel or retail store. With that definition, DTC can take on many different forms.
Digitally native brands like Allbirds, Away, Casper, and Dollar Shave Club are examples of B2B brands in their purest form.
By definition, Uber is also DTC since consumers can simply press a button and their ride shows up. No intermediaries are involved.
Sometimes, it’s new efforts put forward by industry giants, like Nike or Asics, trying to keep up with the times. Since 2011, Nike has grown DTC sales from 16% of revenue to 35%.
Other traditional brick-and-mortar retailers are also trying to break into DTC. Under Armour has expressed a desire to grow substantially in the channel, while Adidas outlined plans for DTC sales to make up 50% of its revenue by 2025.
Overall, DTC sales by established brands (like Nike) in the U.S. are expected to exceed $160b by 2024. Meanwhile, sales from digitally native DTC brands (like Allbirds) are expected to be near $62b.
In any case, brands bypass traditional sales models, and many are rethinking otherwise staid marketing strategies.
Much of this shift is due to the customer expectations that DTC brands, in turn, exhibit.
In the Amazon age, brands expect direct connection, fast communication and clear expectations. At the same time, marketing and sales have become more experiential than transactional. DTC brands want to reach consumers directly rather than through publishers, retailers or advertising agencies.
The response from major advertising platforms has been telling. Instagram, Facebook, and other major social platforms have become popular among DTC brands for their ease of use and reach.
That said, times are changing.
Since Apple began asking users whether they’d allow their online activity to be tracked, only a small percentage have agreed, making it difficult for DTC brands historically thrived within social’s walls.
According to Polly Wong, president of Belardi Wong, an agency whose client base is ~90% DTC brands, return on ad spend (ROAS) for its brands on Meta platforms (Instagram and Facebook) was down by 23% year over year in January 2022.
For DTC brands that rely on advertising, this doesn’t bode well. In its recent IPO, Allbirds said it spent more than $55mm in marketing-related expenses in 2020.
Meanwhile, the same year, Casper spent more than $156.8mm on advertising. Finally, Wayfair spent nearly $1.5b.
Other platforms are evolving as well. For example, NBC Universal has tried to reach DTC advertisers by pulling them into their online channels.
“NBCU is offering DTC brands complete campaign consultation, from audience connections and content creation to cross-platform measurement and placement optimization,” writes Jeanine Poggi at AdAge.
Brands will also have access to in-house data and creative teams. The move makes it clear that DTC brands are cut from a different cloth regarding advertising.
What’s Important for DTC Ad Sales?
Just like DTC brands are using new advertising strategies and platforms are evolving to meet them, ad sales to these brands will have to take on a new form.
Sales are no longer just sales; it’s the customer journey. Support is no longer just support; it’s the customer experience. Or so go the main tenets of the DTC model. Ad sales reps will do well to play into the DTC hand.
According to research from the MediaRadar, you can expect to find some (or all) of the following attributes in DTC brands:
- Mission-driven. Many DTC brands believe in the value they are offering their customers. Their message is not about the product only; it’s often just as focused on connection or experience. For example, Allbirds’ mission is to prove that comfort, good design, and sustainability don’t have to be mutually exclusive. As more consumers prioritize missions in their purchase decision, these companies will come to the forefront.
- Younger customer segments. Since most DTC brands are digital natives, they focus on Millennials & Gen Z customer segments. For example, a DTC brand is likelier to advertise via Instagram or TikTok than HGTV. Young consumers will continue to drive DTC brands in 2023 and beyond.
- Brand authenticity. Customers tend to be invested in a DTC brand, meaning emotional marketing works better than other models. Spending for a customer support program may not top ad spend for DTC brands, but it could come close. In fact, 90% of Americans use customer service as a factor in deciding whether or not to do business with a company.
- Quality over price. Many DTC brands take the conversation surrounding benefits vs. features marketing seriously – and product price rarely factors into their marketing strategies.
- Product specialization. In contrast to major retailers or apparel brands, DTC brands tend to specialize in a single product – or highly defined set of products. The Casper catalog – which started as a mattress and now includes just a handful of sleepytime accouterment – is a good example of this focus.
- eCommerce sales. Most DTC brands are digital natives, with sales available only online – from platforms like Amazon to their own self-hosted stores. The same goes for most marketing efforts, focusing on digital channels like social and paid search. The rise of OTT, especially among younger generations, will push ad dollars to these new ecosystems.
- It’s all about the data. DTC brands tend to be highly analytical – they rely on metrics to appeal to their customers, make their sales, and follow up with great messaging. Most of their sales and marketing efforts are aimed at making tweaks to optimize the funnel rather than to make a big splash. That said, the downfall of third-party cookies will put them in a pickle. They’ll need to quickly find advertising alternatives to drive a return.
These are the highlights, but they’re not the only elements that make a DTC brand unique for advertising opportunities.
Check out our follow-up to this piece and our comprehensive guide for more specific tips on selling advertising to a DTC brand.
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