This is the latest installment of the DTC Briefing, a weekly Modern Retail column about the biggest challenges and trends facing the volatile direct-to-consumer startup world. To receive it in your inbox every week, sign up here.
With Black Friday less than two months away, direct-to-consumer brands are now starting to finalize their holiday marketing strategies.
Last year, many direct-to-consumer dealt brands with their most challenging holiday season to date: all brands struggled to meet the huge uptick in e-commerce demand, and shipping delays meant some customers didn’t receive their gifts by Christmas.
This year, while some dynamics will be different — stay-at-home orders likely won’t be in effect given the availability of the vaccine, for example — brands have a whole new set of challenges to deal with. Namely, some brands are rethinking their marketing budgets in light of the iOS14 updates. Meanwhile, companies are spending more money upfront on inventory and logistics due to supply chain delays. To deal with all these issues, brands are spending less money on the increasingly expensive Facebook and Instagram this year, and reallocating marketing spend to other — hopefully cheaper — marketing channels like affiliate marketing and YouTube.
Connie Lo, co-founder of natural skincare brand Three Ships Beauty, told me, for example, that her company now plans to spend half of what they had initially budgeted at the beginning of the year for Facebook and Instagram ads in November and December. She said that’s largely due to the activity Three Ships has seen on Facebook following the iOS14 update, which allowed users to opt-out of allowing apps like Facebook to track their browsing history for advertising purposes.
Lo said that, like many DTC brands, Three Ships has seen a drop in site sessions from Facebook ads since the iOS14 rollout, as fewer people are viewing their ads.
She added that Three Ships is taking some steps to try and improve its Facebook performance, such as hiring a designer to more quickly roll out a greater variety of ad creative to tests. But ultimately, she said, “until we figure out our paid media strategy and start seeing an improvement in our metrics, we just don’t see a point in competing with the massive brands when we aren’t seeing quality traffic coming from paid spend.”
What’s more, Three Ships doesn’t have much room for wasted ad spending this holiday season. Lo said the cost of shipping her company’s products has increased “anywhere from 2x to 6x,” and also had to place production orders for Three Ships’ holiday kits further in advance this year, due to manufacturing and supply chain delays.
Three Ships isn’t alone — as brands have to spend more money upfront on inventory and logistics this year, there’s a greater emphasis on making their marketing dollars stretch further. Here are three marketing tactics that I expect will take on a greater role in November and December, after speaking with other brands;
Affiliate marketing will become more popular: Lo said that Three Ships plans to redirect some of the money they initially planned to spend on Facebook and Instagram advertising over the holidays to spend more on affiliate marketing, as well as influencer marketing. Historically, Lo said that Three Ships — which was founded in 2017 — hasn’t invested much in affiliate marketing. But this year, the company plans to invest more resources into pitching editors that manage holiday gift guides and listicles. The company also recently rolled out an ambassador program, called The Fleet. Customers apply to join the program and if they are approved, they get a custom affiliate link to share with friends and family, and earn a commission on all sales made through that link.
Brands will invest more in Facebook alternatives, but there’s no clear winner: Many DTC brands are divesting media spend away from Facebook and into other digital advertising channels, but as to whether they are investing more in TikTok or Pinterest — that will vary depending on which brand you ask, and who their target audience is — a brand with a younger audience might spend more on TikTok ads in the lead up to Black Friday for example.
Casey Hart, director of paid social at holding company Win Brands Group, said in an email that the company has reallocated its marketing spend in different ways amongst its three brands following the iOS14 rollout. For example, with its candle brand Homesick, “we’ve seen prospecting CPMs on Pinterest about 20% lower than [what we see on] Facebook, so she said that for Homesick, “we’ll definitely be increasing our investment in Pinterest to support our overall holiday strategy.” She also said that Win Brands Group will be investing more in YouTube and TikTok ads for “lower CPM traffic sources during this highly competitive time.”
“While Facebook will still receive the bulk of our budget for all of our brands, our goal is to create more diversity within our advertising strategy for holiday and as we look ahead to next year,” she said.
Product collaborations will pick up: When I spoke with Kathrin Hamm, CEO of weighted blanket brand Bearaby, a couple of months ago, she said that following the iOS14 update, her chief growth officer was started to receive more outreach than she ever had previously from other DTC brands looking to partner with Bearaby. Those partnerships could range from doing product giveaways with one another, to partnering on co-branded product.
Particularly during the holidays, it’s likely that there will be an uptick with brands partnering with one another on small, co-branded products that they hope customers will add on as a stocking stuffer, though we won’t see these efforts come to fruition for another couple months. Aishwarya Iyer, founder of olive oil startup Brightland, for example previously told me that her company is “working on a number of co-branded partnerships with beloved brands that will debut this holiday season.”
In other iOS14 news…
Last week, Facebook shared a blog post written to advertisers, detailing how it is continuing to help them navigate the post iOS14 landscape. Though it didn’t address the update by name, instead referring to the fact that advertisers are “navigating a sea of platform and privacy changes across the entire online advertising industry,” right now.
“We’ve heard from many of you that the impact on your advertising investment has been greater than you expected,” the post, attributed to the company’s VP of product marketing Graham Mudd, read in part.
Some key points from the blog post:
- Facebook said it estimates that, “in aggregate we are underreporting iOS web conversions by approximately 15%; however there is a broad range for individual advertisers.”
- The company encourages advertisers to take a variety of steps to improve their advertising performance right now, including waiting a minimum of 72 hours before evaluating the performance of a conversion optimized-campaign (rather than trying to evaluate performance within a day), as well as using Facebook’s conversions API.
My read on the post: Facebook is trying to encourage e-commerce brands to not decrease their advertising spend in the lead up to the holiday season (indeed, the blog post kicks off with acknowledging “we understand that the last quarter of the year is a busy and important time for you and your business”) and is trying to reassure brands of all the ways Facebook is trying to help them navigate the iOS14 changes.
What I’m reading
- Business Insider looks at what’s been going on with at-home fitness brand Mirror, after being acquired by Lululemon. Current and former Lululemon and Mirror employees say the product is still “buggy,” as Lululemon seeks to roll out Mirror displays to more stores.
- Livestream shopping platform NTWRK has raised a fresh $50 million round of funding. The company plans to use the new round of funding to invest more in content, among other areas, after launching three new weekly shopping shows in June.
- One of the co-founders of grocery delivery startup Hungryroot has launched an oatmilk-based pudding brand called Noops, which just raised $2 million in funding.
What we’ve covered
- Nordstrom is expanding its home goods department with the help of DTC startups like Bearaby.
- Startups like Cooler Screen and Vengo are trying to digitize in-store advertising, by installing smart screens in places with high foot traffic where there are numerous product options for customers to choose from — places like refrigerators and freezer aisles.
- Firstleaf is taking a data-driven approach to building a wine club — the company has built what it says is a proprietary AI model to decide what wine to recommend to subscribers based on their taste profiles.
This story has been updated to remove a line that coronavirus case rates were down in the U.S. compared to the same time last year — case rates are up.