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. More from the series →
After a number of missed deadlines and years of chatter, it’s time for DTC brands to finally say goodbye to third-party cookies.
As part of Google’s new Tracking Protection feature rollout, the plan is to phase out all third-party cookies by the end of the year — that is, if no additional delays occur. Given that Google’s browser accounts for over half of the web browser market, billions of Chrome and eventually Android users are set to go cookieless. The update follows in the steps of Apple’s Safari privacy changes that went into effect in 2021, which allows iOS users to opt out of being tracked by blocking their IDFA identifier.
One of the biggest challenges in preparing for the cookie deprecation has been the often-delayed timeline by Google. Since brands began to arrange for a cookie-free e-commerce operation in 2020, a series of other marketing challenges have risen — namely the iOS changes that impacted advertising costs. Coupled with a drop in demand for discretionary goods, a number of DTC brands reported that revenue has been down compared to the accelerated growth during the early pandemic days.
Essentially, the depreciation of the third-party cookie makes an already-tough marketing environment even more challenging for DTC brands, even if startups knew it has been coming for years.
“I feel like I’ve been having this conversation, on and off, for five to six years,” Rose Mayo, vice president of marketing at Very Great said, in regards to the talk around third-party cookies.
How the cookie crumbled
A quick primer on how the great cookie debate has manifested over the past few years: Taking away third-party cookies limits the way brands can track what websites customers visit — identifying data that, up until now, has been critical in brands’ ad retargeting efforts. The companies, like Google and Apple, that have taken aim at the third-party cookie said they were doing so to protect users’ privacy.
Still, for e-commerce brands, the death of third-party cookies has prompted concern over how they can acquire prospective customers if not through internet tracking.
Because of this backlash, Google has been giving brands and tech companies plenty of time to prepare for the change. Since Google first announced in 2020 that it was doing away with third-party cookies, brands have been investing in alternative data capturing tools, such as loyalty programs, programmatic advertising and contextual marketing. Some companies even diversified away from digital marketing, and started testing more traditional advertising routes like OOH, CTV and direct mail.
Google also rolled out its Privacy Sandbox suite as a replacement for advertisers, which features a number of first-party API and insight tools. The new tools groups and assigns users to groups according to their interests, that’s based on their recent browsing – which advertisers can then use to target the users with relevant ads.
But while many brands and marketers say that they have been preparing for the death of the third-party cookie, they haven’t truly been tested on how successful their preparation has been — until now.
Rishabh Jain, founder of distributed commerce company Fermàt, which builds landing experience automation for paid campaigns, said not enough people are talking in-depth about the cookie phaseout. Jain predicts the changes are likely to have even more of an effect on customer acquisition than Apple’s iOS 14 changes did. Most customer acquisition is done through display, such as search or paid social ads — which will be greatly impacted. Additionally, Jain said, the number of people who have access to the new Privacy Sandbox tools are limited at this time.
“I don’t see much preparedness in place,” he said, adding that many brands are thinking about investing in first-party data, but that’s only one piece of the puzzle.
As a result of the upcoming changes, Jain said he wouldn’t be surprised if brands start to see customer acquisition drop as more online shoppers start to see cookies disappear from their browsers.
With iOS 14, Meta advertising was one of the worst hit by Apple’s IDFA update. However, third-party cookies impact not just web traffic and targeting capabilities, Jain explained, but also advertising on open ad platforms and DSPs. The trickle-down effect of that is yet to be seen, and it’s unclear whether brands can fully brace for that fallout. Whether DTC brands are prepared for the full outcome of a cookie-less operation, Jain said, “I ask brands this question all the time,” he said. “For example, how can we advertise with open web advertisers going forward?” For the most part, Jain said, the DTC companies he’s spoken to are taking a wait-and-see approach.
Hans Fischmann, vp of product at marketing solutions provider Vericast, said the Privacy Sandbox talks are a great start. There are already solutions like contextual targeting and first-party data collection that can help online retailers with alternatives to cookies. However, Fischmann said, “attribution is where most people are going to have a problem” without having cookies to track conversions.
The vast majority of shoppers are going to be unknown audiences going forward, so the main way to keep them is to consensually collect their data — like emails and phone numbers — that can then be used for retargeting. “The key challenge is that when you collect data in an ethical fashion, it’s typically very limited to what you can do with it,” he said. And to be able to effectively communicate with that customer who provided their info, the customer would have to have enough brand affinity that they are willing to provide their email or phone number in the first place. But that’s not going to be the case for every e-commerce brand right now, Fischmann said.
As such, the death of the third-party cookie is just the latest challenge brands that sell online, and rely on digital marketing, are now facing. Until the Privacy Sandbox can provide a true replacement to third-party cookies, Fischmann said, brands will have to continue embracing a more privacy-geared approach to customer acquisition. “It’s here now, and people are going ‘oh, I forgot I had to fix that problem,’” Fischmann said.
Indeed, digitally-native brands may have to weather another storm. “I predict the same shakeup that post iOS changes had,” Jain said. “But I think this is going to be a bigger mess.”
Shifting the mindset to first-party data
After countless delays, Mayo of Very Great — which operates brands like W&P and Wild One — said the first step step brands had to take to prepare for the change was adapting to Google Analytics 4 from Universal Analytics. “Overall, I think [cookie depreciation] is a little bit of a mindset shift where you’re now looking at blended business performance,” she said, and not overly reliant on daily tracking on specific platforms like Meta and Google.
As for using the Privacy Sandbox for audience matching, Mayo said there hasn’t been enough detail on these tools, and the big retail companies are likely to be the first to test them. “But for smaller brands, it’s difficult to know how or whether it will even have an impact on our business,” she said. “Until then, it’s a bit of a black box for everybody.”
Andrew Costaris, director of CX at coffee company Partners Coffee, said that at his company, “for top-of-funnel marketing, for the longest time we’ve had to operate under the assumption that we might not be able to attribute the CAC to any specific platform.” One way for e-commerce brands to track data is using platforms like Elevar and Littledata, he said. “But those are expensive for SMBs, and it’s not the best ROI in my opinion,” he added.
That leaves first-party data as the most viable way to identify new and existing customers, he said. As for collecting the data, Costaris said one of the lowest-lift ways the company has done so is by sending out post-acquisition attribution surveys to get an idea of where people are coming from. “We see about 40% of our customers toggle that response at the end, which is probably more accurate than data we’d get from Google Analytics at this point,” he said.
Another tactic is to get new site visitors to create a Partners account, Costaris explained — which allows the company to track these clicks through Shopify as opposed to guessing who these potential customers are. Then there is the go-to tactic of collecting emails and phone numbers, but Costaris said this form of communication can quickly become irksome. “I’m looking to move away from that type of inundated communication,” he said.
At Very Great, Mayo said asking customers for more granular information is a new point of focus, as long as it is relevant information for the customer. For example, for pet accessories brand Wild One, “we’ve talked a lot about actively collecting breed or size information so we can build better retention strategies,” she said.
Partners is also exploring a mobile app launch this year to engage with customers on an owned platform. The upfront cost of developing an app and maintaining it can be costly. “When you consider we’re spending hundreds of dollars a month on SMS to send texts, I’m excited to potentially invest in a platform where we’re able to push out daily campaigns like ‘this is the last time we’re roasting this coffee, so be sure to get it today,’” he said.
The DTC CEO shuffle
The end of 2023, and the beginning of 2024 has been a busy time for C-Suite swaps.
While some of these moves were announced in splashy press releases, others could only be observed through eagle-eyed LinkedIn searches.
According to LinkedIn, the COO of home goods brand Parachute, Mehdi Ait Oufkir, became the CEO in January, replacing founder Ariel Kaye. In September, the co-founder of Public Goods, Morgan Hirsh, dropped “CEO” from his title, instead changing it to “founder, board member,” according to the social networking site. And Gabrielle Conforti, the former CEO of Outdoor Voices who joined the brand in March of 2021 following the departure of founder Ty Haney, left the athleisure brand in November.
It was a busy year for CEO departures generally. Retail Dive counted 50 CEO departures, mostly at bigger, publicly-traded companies while some of the CEO swaps at smaller, DTC startups didn’t make it into the news cycle.
The circumstances driving each of these CEO departures is going to vary depending on the internal dynamics of each company, but generally speaking, it was a tough year for DTC brands. Venture capital funding was harder to come by. Inflation drove down discretionary sales, particularly in some categories like home goods and footwear. Some DTC brands struggled to figure out the right marketing mix following the iOS 14 update, and over-invested in things like stores. And these challenges haven’t been completely solved heading into 2024.
What I’m reading
- In another attempt to attract new customers, Peloton is teaming up with TikTok on short form workout videos.
- Kourtney Kardashian Barker’s supplement brand, Lemme, is the latest celebrity brand to launch in retail by entering Target this week.
- While IPO activity is picking up, more bankruptcies and layoffs are predicted among DTC brands this year.
What we’ve covered
- After a successful holiday trial, Alo Yoga plans to double down on SMS marketing to lure in new customers and grow sales.
- The Stanley tumbler craze has taken social media by storm, and retailers like Target and Starbucks are jumping in to collaborate with the drinkware company.
- Six months into testing TikTok Shop, a number of influencer agencies report mixed experiences on the platform.