Direct-to-consumer brands have become such a hot commodity that agencies are not only vying to work for them, but creating new agencies specialized for DTC needs.
And as they grow up, more DTC or digitally native brands are starting to go beyond in-house teams to work with agencies.
But that transition from in-house to agencies isn’t as simple as it may seem, as DTC founders tend to prefer to do things themselves — and more traditional agencies are finding working with them can be one big headache.
“Some startup founders literally have their website’s Google Analytics pulled up on their iPhones and refresh it every 15 minutes,” wrote Rebecca Rosoff, co-founder of The Kimba Group, which has worked with DTC clients in categories like food and beverage, health and wellness and men’s apparel, in an email. “Then they blame their agency partners when they don’t see immediate day-to-day growth in traffic.”
Keeping a close eye on analytics isn’t too surprising. DTC brands are used to doing performance marketing above all else and that ability to attribute dollars spent on marketing to sales can make it hard for them to see the use of spending on brand-building. That puts more traditional agencies, especially those who aren’t specialized DTC agencies, in a tough spot, as not only are DTC brands used to running that marketing themselves but may be thinking more about Facebook and Instagram rather than long-term plays, say agencies.
Agency execs interviewed for this piece said they are not only finding that DTC brands don’t see the value of traditional marketing, are used to doing things themselves, think short-term, require different payment methods, and will claim to do everything in-house, but they’re trying to prove the value of working with agencies at a time when a number of performance marketing agencies have burned DTC brands. Some performance marketing agencies have cropped up and priced themselves low to win DTC contracts only as a short-term cash grab, making it harder to earn the trust of DTC brands.
“There’s too many shitty salespeople promising things they can’t deliver on, which leads to an erosion of trust from brand to agency side in general,” said a performance marketing exec who declined to be named, who added that DTC brands need to “get better at hiring agencies and finding referrals.”
Agencies out to win short-term contracts hurt other agencies
Some DTC brands are wary of working with traditional agencies because they’ve been burned by performance marketing shops out to make a quick buck at their expense, according to agency and DTC expert sources. According to DTC strategist Marco Marandiz, who said he’s seen clients deal with agencies who were only in it for the short-term and that’s made them less likely to trust agencies. “They aren’t focused on providing value but doing short-term engagements where they can get in, get out and get a bunch of cash,” said Marandiz. “It has a cascading effect on other agencies … and makes it harder to recommend other agencies.”
That’s come with the rise of performance agencies that have entered the space to capture DTC dollars in recent years. Some of those agencies, according to DTC sources, will price their services lower than the market average to win contracts with DTC brands.
“There are definitely agencies pricing super low and with a willingness to contract month to month,” said Rosoff. “Month-to-month should be a warning sign to begin with because there is no way to get on-board with a brand, download on their business needs and marketing objectives and then execute within a month’s time.”
Lack of due diligence
The existence of that dynamic in the marketplace makes it that much harder for agencies, especially traditional agencies who need time to prove the worth of their capabilities, to DTC brands, who typically don’t vet agencies the same way that big brands do.
As DTC brands and agencies are focused on the short-term, there can be a lack of due diligence when it comes to hiring agencies or putting together contracts, and that can have repercussions. While big brands have procurement departments to keep agencies in check, that’s something that doesn’t exist for DTC brands, according to an agency source who doesn’t believe the solve is to add that department but for DTC brands to use referrals of good shops to know who’s who.
“People aren’t really doing reference checks,” said Marandiz. “It’s making life harder for promising businesses to trust other agencies.”
Short-term thinking hurts in the long term
With the DTC brands, that short-term thinking and lack of due diligence can show up in their unwillingness to work with agencies for the length of time that they may need to really test out if their services work, according to agency sources. DTC brands are typically more sales-driven than more established brands, as they need to grow exponentially and quickly to truly disrupt whatever market they’re aiming to, and when they don’t see immediate results from agencies, they can get antsy about spending cash on their services.
“If you’ve gone from an environment of acquisition and repeat purchase, and now someone is saying that for the long-term health of the company we have to look beyond the short-term-ism [that can cause issues],” said Matt Kasindorf, svp of agency management services for the 4A’s, adding that the organization has heard from agencies about problems they’ve had with DTC clients.
It’s not just about immediate results. Some DTC brands are so focused on sales and used to doing sales-driven marketing that they don’t see the value in the more traditional brand-building marketing. “Every dollar spent building the brand is kind of dollars taken away from what could be spent on sales-driven marketing,” said the search consultant.
But, generally speaking, purely focusing on customer acquisition doesn’t work long-term for DTC brands and traditional agencies have to convince them to expand their marketing— like adding TV and OTT to the marketing mix. “DTC startups invariably hit creativity ceilings and can’t innovate marketing objectively when they are drinking their own Kool-Aid all day,” wrote Rosoff. “These brands also don’t have the internal resources to stay current on marketing trends, social media platforms, ad tech, etc. It isn’t their core business or area of expertise.”
The in-housing of it all
That being said, some DTC brands will build out those capabilities in-house to maintain control. Myriad DTC brands have been able to build their brands on sales-driven marketing in-house, which makes them believe they can run all of their marketing in-house and makes it harder for agencies to prove their worth, according to agency sources.
That said, there are also DTC brands who already work with agencies but claim to run those capabilities in-house, according to a performance marketing agency exec who works with DTC clients that claim to run everything in-house. The DTC brands that claim everything is run in-house do so because of the potential to be acquired or sold to Procter & Gamble, Unilever and the like for those capabilities.
“There’s a huge theme of DTC brands saying they don’t work with agencies when they do,” said the performance marketing agency exec. “There’s a good reason for it. DTC brands are often acquired for their capabilities, which are agency capabilities, by bigger brands and holding companies so they can share their knowledge of what that capability is with the holding company or acquirer.”
It’s not just about whether agencies get credit for their work. DTC brands just have a different mindset, and mixing the two can prove difficult.
“They’re on a very different track, and I think there’s just a cultural mismatch,” said a search consultant who has heard from agencies about their difficulties with DTC brands.