‘The food chain has changed’: Responding to DTC boom, specialized ad agencies are cropping up

It was a departure from Gin Lane’s typical clients, which then counted tech platforms like AOL and fashion brands like Stella McCartney. Harry’s was a unique challenge: Ling and Shine were met with a blank slate to take the brand vision formed in the founders’ heads and turn it into a full digital brand platform.

“Founders come to us with a pitch deck, not a brand, and our job is to extract the brand from there,” said Ling. “We help founders codify their DNA. We’re holding a mirror up against their ideas.”

Gin Lane has boiled branding down to an eight-week process that every new client goes through, and it’s formed the creative identities now archetypal for DTC brands, including Hims, Ayr and Rockets of Awesome. It now works exclusively with startup brands.

In the past 10 years, other agencies have positioned themselves similarly around the budding digitally native brand industry, pitching their media buying, performance marketing, strategic planning and communications services to cater to these startups’ needs. They require a closer relationship and a different touch than established brands, meaning the partners they work with had to understand the nuances of the businesses.

These brands span categories — CPG, apparel, beauty — but they have several common threads. They own first-party customer data, they don’t have legacy agency relationships to manage, and they rely heavily on branding, storytelling and performance marketing on digital channels to boost business, which is primarily online. They’re also adverse to middlemen, which means in-house operations are prioritized over outsourcing business, and the same old transactional brand-agency relationship no longer appeals.

But they can’t do everything themselves, and the agencies that have positioned themselves as allies in this age of direct-to-consumer retail have managed to become crucial partners as the industry scales.

Fewer cooks in the kitchen
While some of these brands have decided not to work with agencies altogether, not all direct-to-consumer brands set out to cut agency relationships. It’s that the traditional model doesn’t appeal to them.

“The food chain has changed a lot, and there are a lot fewer hands touching product and brand between inception and consumption,” said Maggie Winter, the founder of apparel brand AYR. “Like everybody else in the ecosystem, the good agencies learned to adapt and evolve. These are less traditional agencies. They’re boutique; they’re smaller. It doesn’t feel like a nameless, faceless agency, where you might get polish but it feels like you’re being processed by a big machine. And you’re also expected to pay a ton.”

Smaller businesses have smaller budgets, which makes it harder for these companies to even land on the radars of bigger, holding company-owned agencies.

“With how these big entity agencies operate, they’re not the right fit for these brands. They’re too big; they’re too institutionalized. They’re too agency-like,” said Mike Cassidy, partner at August Spark, a private equity firm that funds small business. “When you look at the disruptor brands, big agencies don’t always have the right skill sets, like Shopify knowledge. And these brands’ budgets also aren’t big enough to be attractive.”

Investing in small business can pay off, though. Ben Crudo, the CEO of e-commerce agency Diff, specializes in helping companies scale on Shopify. The platform has made it incredibly easy for any company to get up and running. But once you’ve hit the first $10 million in sales, things get more complicated.

“Shopify has commoditized access to technology, making it possible for people to access their platform and leverage it, but once a merchant reaches a certain size, their business gets a little more complicated,” said Crudo. “So that’s where we really shine and start to become a good fit — when they have a myriad of different organization systems, we help them be as efficient as possible and take their business to the next level.”

Crudo said that when these companies don’t have the budgets for a $50,000 per month retainer, it offers alternatives: An expert consultancy, for example, to solve a shipping problem. By proving out its utility early on, Crudo said, brands are more likely to grow business with the agency. Since Shopify is a fast-evolving and nuanced platform to navigate, it may make more sense to rely on a team that’s in the weeds day in and day out than hire a full in-house team.

Agencies like Gin Lane, Derris, YellowHammer and Azione that work with digitally native brands bend typical business structures, like retainers and consultancy fees, to be more flexible, in alignment with what these brands need and how that changes over time. For apparel startup Aday, it’s constantly testing new agency relationships as it figures out where to invest in-house and what to outsource. Right now, its tech team is outsourced on a long-term retainer, while it recently brought PR in-house. Paid marketing is on a project-by-project basis. Organic marketing is in-house. Aday co-founder Nina Fulhauber said traditional agencies aren’t open to such unpredictability, but younger, more nimble agencies are.

“You can still build long-term relationships with brands while offering some flexibility,” she said.

They also see value in scaling alongside a young brand. For the PR firm Azione, which counts clients like the luggage brand Away, AYR, and outerwear brand The Arrivals, being more nimble to account for startup clients helped foster an ongoing relationship. When you have a seat at the table and more stake in the game, the results are more tailored to each client.

“Our idea was to create an agency that acted as an extension of the in-house marketing and creative teams. These brands are nimble, so we can actually execute,” said Leland Drummond, the co-founder and president of Azione. “With traditional brands, it’s a reactive business. You’re brought in after decisions are made. Your hands are tied, and you’re seen as more disposable, which changes how you work.”

‘The crown jewel’
By specializing in digitally native startups, these agencies have cut their teeth on the frontlines of data-driven, performance marketing strategies.

“First-party data is the crown jewel of the entire [brand’s] business,” said Sam Appelbaum, the general manager at the digital agency YellowHammer that specializes in performance marketing. That inherently changes the performance standards that agencies are held to. When brands can see in real time how campaigns perform, and anywhere between 50 and 75 percent of sales are touched by paid marketing, there’s no hiding behind vague terms like “impressions” or “engagement.”

“The level of service, reporting and transparency that we give them needs to be up to the standards of the way that the brand is operating. Traditional agency-brand relationships were a function of relationship building and pricing efficiency,” said Appelbaum. “That’s still important but for the DTC brands, it’s much more quantifiable. So we need to be prepared to be held accountable for those types of goals. There’s no fancy Powerpoint presentation or New York City dinner that explains away us not driving the business outcome that they want us to.”

For agencies specializing in brand strategy and storytelling, there are similar standards. Brand marketing can’t exist in a separate bubble.

“We don’t think that something like ‘impressions’ means anything. Since these brands are selling direct-to-consumer, we’re able to understand how certain stories work, and how placement and communications work, and then replicate the things that work,” said Jesse Derris, the founder of the integrated communications agency Derris. “I don’t think that transparency has existed in our industry before.”

Laying groundwork
Working alongside nascent brands as they scale can be a more rewarding process for agencies, too. Both Appelbaum and Derris said it’s more fulfilling to invest in agencies early on and watch them rise. Ling turns away big brands who come knocking.

“The urge to work with [startup] brands was born out of frustration from the confines of working with existing brands. But if you do one thing well people get excited by it. Harry’s was a big splash, followed by Everlane was shortly after and now we live and breathe taking these brands to market,” said Ling. “Traditional brands, they’re built for a Baby Boomer consumer and they’re driven by the confines of speaking to that generation’s values and thinking.”

Other companies, like Derris, Azione and YellowHammer, see this trend as a promising revenue stream. If too many of these direct-to-consumer brands every yank the rug out and pull all paid marketing in-house, for instance, there will be the business of helping big brands navigate new marketing strategies.

“More of the traditional brands who see store sales going down in whatever category, they see this happening and they want to develop that DTC muscle,” said Appelbaum. “And they don’t believe their traditional agency is best positioned to help them in this new paradigm, so we get more of those folks coming up. They want to market like DTC brands and capture that magic so we can do that for these brands. We’re making a big bet for our business that this is where the industry is headed.”

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