Last week, hundreds of retail professionals came to Palm Springs, California to attend the Modern Retail Summit and discuss the biggest issues facing the industry. Attendees included leaders from legacy retailers, large DTC brands and smaller startups too. While the scope of their businesses may be different, their outlooks were certainly similar. Customer acquisition is rising for everyone, wariness of tech giants is at an all-time high and finding and retaining talent is an increasingly difficult challenge. The events were conducted under Chatham House Rule, except for on-stage discussions. Here’s what we learned.
The duopoly is no longer your friend
The online retail adage of 2019 has certainly become “CAC is rising.” It’s more expensive now to run ads on Facebook, Instagram and Google than in recent memory. Meanwhile, a bunch of businesses rely on these channels for growth.
- A number of businesses — many in the DTC space — have begun experimenting with new channels. Platforms like Pinterest, TikTok and Snapchat were all mentioned as possible diversifiers.
- Older methods too are back in vogue; Some digitally native businesses are looking toward direct mail as a possible way to bring in new customers. TV and podcasts too; anything to widen the net and not be platform dependent.
Bottom Line: Online businesses looking for consistent and affordable growth must think beyond the duopoly — there’s no clear alternative just yet.
Diversify channels, but also attribute correctly
While online businesses look for business beyond Facebook and Google, figuring out whether or not these campaigns work is another headache. Tracking a customer’s journey — from the point they first learned about the product until the actual purchase — requires many tools, and there’s no surefire way to understand what caused them to pull the trigger. Traditional attribution models are being thrown out the window for more data-heavy strategies that look at things more holistically.
- Last-click attribution was the go-to model for brands relying predominately on Facebook. Now, these companies are looking for ways to better understand if offline models are working. Brands are looking for ways to track campaigns like subway ads, TV commercials and podcast spots.
- Increasingly, these companies are looking toward multi-touch attribution. It takes into account many variables to track customers in all parts of the funnel. It isn’t a perfect system — and there are many other models available — but it’s a popular way for businesses (especially those in the DTC space) trying to understand customer behavior.
Bottom Line: Attributing sales to simply a customer’s last click doesn’t tell the full story, but other models don’t provide a panacea.
Amazon is not your friend, not quite your enemy
Some online companies intentionally avoid the 800-pound gorilla, and for obvious reasons. The e-commerce giant takes in fees wherever it can, and is inching closer and closer to an online shopping monopoly. Some businesses, however, realize they can’t ignore Amazon — even if they want to.
- More DTC brands are becoming more amenable to using Amazon as a retail channel. The company is providing certain tools, like brand pages, in an attempt to woo smaller players. For some, it’s a defensive tactic as more copycats and counterfeits swarm the platform.
- Some brands are even using Amazon to their own advantage. One online company, for example, slightly upcharges its products on the site compared to prices on its own page. This way it’s not being dinged for the platform’s fees, but it still sees Amazon sales; “If the customer wants to shop on Amazon, then go for it.”
Bottom Line: Brands have historically been wary of Amazon, but there are ways to use it strategically.
Iris Nova founder and CEO Zak Normandin took the stage to discuss the ins and outs of launching a DTC business that uses non-traditional channels. His company started as a standalone beverage sold predominately via mobile text messages. It’s now expanded to both invest in third-party brands, as well as launch new beverages — all of which use Iris Nova’s SMS-based platform to keep customers engaged.
- Normandin saw text as a unique way to retain customers. It’s more personal than email and his platform is able to create much more dialogic interactions. Chinese app WeChat, he said, was one of his biggest inspirations.
- Iris Nova is now investing in other third-party beverage brands. The strategy, he said, is to be around like-minded companies building new products; he’s not necessarily trying to create a large DTC holding company.
- His company just moved out of its Hudson Yards location and is instead focusing on its vending machines in high trafficked areas. The plan is to be available in locations where his potential customers already are, which is why Iris Nova just set one of its machines up in Manhattan’s new Nordstrom store.
Lerer Hippeau principal Caitlin Stranderg discussed what makes her excited about a new company, as well as the VC’s overall view on how to approach the younger generations. She also spoke about new investments and overall trends in the DTC space she’s been witnessing.
- Strandberg sees one big problem plaguing DTC companies — namely, a revenue wall: “We see DTCs plateauing around $20 million to $50 million,” she said. While this isn’t necessarily bad, venture capitalists are always looking to make 10 times on their investment.
- One of the big mindset shifts she sees is in digitally native companies opening locations sooner. Older brands like Warby Parker, she said, likely regret being late to brick and mortar.
- The two questions she asks potential retail portfolio companies are: “What is your Amazon strategy?” and “How do you get on the shelves on Walmart?” Older companies used growth hacking tools for customer acquisition, which no longer cuts it; “You can’t rely on paid marketing,” Strandberg said.
“[Pop-ups are] a beautiful billboard for the company” – Lively founder and CEO Michelle Cordeiro Grant
“We treat every role like a manager role, we don’t have enough time to be micro-managing people … Our minimum years of experience is now six to eight.”
“[Pinterest] users want to be inspired, so it takes them longer to convert,” – Karalyn Zamora, Gravity Products’s director of digital marketing and growth
“[TikTok is] just figuring it out — they’re getting their account structure down.”
“Mobile customer service worked better than any channel.”
“[SMS] is tapping into a new revenue stream we didn’t know existed.”
“[Shopify Plus] breaks about once a month, in small ways — or releases changes to the API with little notice.”
Challenge board confessions
“Compiling and acting on data from many sources”
“The right location”
“Finding and retaining strong talent”
“Competing with VC-backed brands”
“Monitoring our prices against competitors”
“Personalizing each customer’s experience”
“More engaging brick and mortar retail”
“Acquiring new customers in new markets at a reasonable cost”