Retail briefing: DTC brands chart the way forward for the industry

DTC brands are doing more than disrupting physical retail. They’re changing the way advertisers think by leading by example.

One place the effect is being felt in how brands work with agencies. Many direct-to-consumer brands are eschewing agencies. While some of them continue to work with them for the odd television campaign, most are doing their marketing entirely in-house. For example, Nectar Sleep has armies of freelancers who can be brought on and cycled through whenever big projects are needed. Others are using external vendors like Contently to find content creators. And some, like luggage brand Away, have giant in-house marketing teams that do everything for them, from social posts to even television commercials.

One reason is a need for control. Emma Grede, CEO at Good American, said recently that the brand now has one person managing marketing in-house with plans to add more in the future. “We can’t let much of our marketing go to agencies.”

Cost savings are another factor. Direct to consumer brands also much more aware of those costs, and often have to deal with higher customer acquisition costs, which means they’re cognizant of what they pay external partners. “We need to control our budgets and we need to control our insights,” said Grede.

Another impact DTC brands are having is in how brands spend on social media. For a recent story on Digiday, reporter Ilyse Liffreing spoke to 10 DTC brands who all said one thing: Marketing mixes is de-emphasizing Facebook for other alternatives online. Facebook ads are becoming incredibly expensive, and cutting through the noise in a crowded online marketplace is getting really hard. Because DTC brands are essentially direct marketing companies, Facebook used to be the obvious place, but effectiveness is going down, multiple DTC brands have said to me.

Meanwhile, in other industries that have no physical presences, like online-only banks, companies are trying to figure out how to create experiences online the way DTC brands have done.

These companies have been ahead of the curve when it comes to how marketing online is changing, and bigger retailers are taking note. One head of marketing at a major retailer with hundreds of stores and a huge e-commerce business told me recently that instead of watching competitors, her team watches how DTC brands operate — where they spend money, who they spend it with, and how they’re even organized internally. “These guys have a much better sense of what’s working in this space.”

What We’ve Covered
Le Pain Quotidien is embarking on a digital makeover with a refurbished loyalty program featuring personalized rewards based on customer data, pre-ordering à la Starbucks and in-app payments. The upgrades will go live at the company’s 96 U.S. stores by the end of the year, scaling to its global branches in 2019.

Direct-to-consumer retailers and digital banking startups face a common hurdle — how to get to the consumer with no physical presence. Varo, like other digital-only finance institutions like Chime, Simple and SoFi Money, is focusing on simple, mobile-centric user experiences much in the same way Amazon does, with the goal to become platforms to cross-sell a range of other services.

When luggage maker Away launched, the marketing plan never included a retail store. But then they opened a pop-up store as a test. Due to the success they saw, Away opened stores in New York, San Francisco, Los Angeles and Austin, with more locations to come. In the latest episode of Digiday Live, Away’s vp of brand marketing, Selena Kalvaria, said the customer interaction in store led to better marketing.

By the Numbers
Goldman Sachs and Condé Nast’s annual Love List includes the Brand Affinity Index, that talked to almost 1,500 millennial and Gen Z consumers. Here’s what you need to know:

  • Nordstrom is the top of the favorite retail list
  • Sephora wins when it comes to favorite brands in the beauty industry
  • Amazon is now used more frequently by Snapchat

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