DTC brands, fueled by Facebook ads, are shifting focus elsewhere

“It’s something we think about a lot: If you don’t want to be disintermediated by a retailer, why would you want to be disintermediated by a platform further up the funnel?” said Henry Davis, Glossier’s president and COO. “The dominant model that we associate with DTC is dominant because of social media. It allowed brands to cut the retailer out, while still reaching a huge amount of people very quickly. But the limitations of those platforms are becoming evident.”

Facebook, the platform that gave brands a way to scale without retail partners, has become the new middleman.

What started as an organic channel where brands could build audiences on their own — and cut out the retailers as a result — quickly became pay-to-play, and since then, Facebook has only taken more control over customer data: As of Oct. 1, the third-party data pipes are closed. Without third-party targeting data, brands have to either come to Facebook with their own customer profiles or use Facebook’s campaign modeling tools.

With new limitations on customer insight, and costs rising, Facebook is falling out of DTC favor. One brand founder estimates that for a $100 million business to get a return on Facebook, it would have to spend a minimum of $50,000 a month advertising on the platform. That’s not an unmanageable percentage of revenue to spend, but it’s a slippery slope: To move the needle at that scale, said the founder, spend has to incrementally increase by at least 10 percent to get more reach.

With platforms as the new formidable facilitator between brand and audience, direct-to-consumer brands are diversifying their strategies by building new technologies themselves, lessening their spend on Facebook, diversifying their media mix and relying on traditional components of retail and retail media — wholesale partnerships, stores, even direct mail — to build sustainable brands.

The new media model
Consider it a resistance to the duopoly. One VC investor said that up until about a year ago, no one batted an eye at brands whose media mix leveled out at 50 percent Facebook, 50 percent Google. The logic: When something’s working, increase spend.

“Facebook is still powerful in terms of lift and reach; that hasn’t gone away. But what these brands should be focusing on is direct engagement. So what we’re seeing is brands are taking a step back to think about how they should allocate their budgets in a way so that they have a differentiated mix that’s well-rounded,” said John Povey, svp of marketing and analytics at the agency A4 Media.

For brands, Facebook promotions can take a 100-person customer data pool and blow it out to 2 million people who fit a similar profile, according to Scott Tannen, the founder of Boll & Branch. But as it turns out, scaling a brand past a quick $10 million in revenue takes more patience than a paid Facebook promotion.

For Ryan Babenzien, the founder and CEO of the sneaker brand Greats, a “well-oiled diversified marketing mix that involves Facebook, Instagram and Google” is the answer to long-term sustainability for his brand. In that mix, he points to out-of-home advertising, Greats’ two retail stores, the brand’s retail partnership with Nordstrom, mailers, email and SMS messages as touch points that all fit into to the brand’s paid and direct marketing strategy.

“We’re finding return on snail mail. That’s how crowded digital has become,” said Babenzien. “It’s so noisy it doesn’t have the efficacy that it used to. It’s never about one channel; it’s about doing all of them well.”

Other brands interviewed for this story, including bedding company Boll & Branch, women’s apparel brand AYR, personal care company Ritual and essential oils brand Vitruvi, all said that Facebook now accounts for no more than 25 percent of marketing spend, down from between 50 and 60 percent of spend.

“If you’re optimizing for e-commerce and increasing sales, then you’ll want to spend more on Facebook,” said Oz Etzioni, the CEO and co-founder of Clinch, a creative optimization platform. “If it’s a relationship with consumers that’s important to the brand, then you have to be more cautious about what you spend on Facebook.”

Platform limitations
To Jake Bailey, the head of the emerging disruptor brands industry at Facebook, these brands are still able to “build from scratch” on the platform, from launch to hundreds of thousands of dollars in revenue per year. “We let them be discovered, whereas in search, people need to know what they’re looking for. You can’t search for a brand that doesn’t exist.”

Bailey said that Facebook’s and Instagram’s algorithms are designed to put brand creative in front of customers that would be most likely to buy so that marketers can focus instead on higher-level strategy. He said that the company measures that success rate and provides analytics on campaign performance. If it doesn’t perform, it wasn’t compelling creative, he said.

The problem is that brands propped up on the idea that customers rule their decision-making don’t get a clear picture on who the customer brought in from Facebook actually is.

“The data is not as granular as it was even a year ago,” said Dan King, vp of marketing and growth at Ritual. He said about 50 percent of Ritual’s marketing spend in total is split between Facebook and Google, and that it’s trending down. “You can see the broad strokes about what a target audience might look like, but it can be a bit of a black box.”

For Glossier, which is one of the few DTC brands to continue to swear off wholesale relationships, the stakes are high. With its still-to-come in-house platform, it wants to own not just the conversation, but the context around it. Davis said that YouTube is the perfect platform for makeup tutorials, but a place to discuss the best acne skincare isn’t out there.

“Facebook has the reach, but it’s a monolithic platform that’s designed to engage the customer in certain behavior that isn’t always right for the conversation we want to have,” said Davis.

In some cases, it’s come full circle. By using restraint on Facebook spend early on, focusing on a diverse mix of media channels and building up customer data capabilities on their own, some brands are only now pulling Facebook’s paid levers. Babenzien said that Great is now spending more than it did on Facebook, since it’s in a place, thanks to its direct channels, to spend more efficiently. For Boll & Branch and AYR, founders shared the same plan.

“Facebook is like a building on fire, and everyone’s running out of it. But we’re running in,” he said. “We’re spending more on it than we had because the quality of the result is improving. If a brand is walking back, they were probably disproportionately spending on Facebook.”

There’s still some hope to be found on Instagram. Because of the way Facebook’s algorithms are set up, money put toward Facebook is distributed between all of its apps, according to Bailey. But Instagram ad products like promoted posts are cheaper areas to play: According to Maggie Winter, the co-founder of AYR, Instagram and email are the brand’s most important marketing channels, and Instagram spend is still insignificant: She’ll put around $50 behind a post that’s performing well to get more reach.

Tannen said that going forward, it may look like the DTC brand space is shrinking. It’s normalizing.

“Facebook became a shortcut for people so you could buy an audience. That’s becoming more difficult again, and so you have to build a real company and business that people can grab onto and decide if you align with them and around a belief system,” said Tannen. “It’s getting back to good old brand building.”