Rent is the new CAC: Insights from the Digiday Retail Summit

Meanwhile, those legacy companies are starting to look a lot like those DTC brands — incubating their own, rethinking their physical retail strategies to have more experiences and events, and taking cues from a customer-first mindset to own their own data.

Industry executives gathered at the Digiday Retail Summit in Austin, Texas to discuss these hot topics, as well as other challenges and opportunities faced by today’s brands. 

What we learned:
Channel diversification is important, but attribution is still a mystery
As the customer acquisition costs continue to increase on Facebook and Instagram, brands are starting to explore other digital channels, including Pinterest, TV, direct mail, out-of-home and podcasts, in the hopes that they can bet better bang for their buck. The biggest challenge brands face is not finding new channels to test, but in figuring out how to measure the effectiveness of these channels.

Many attendees said that at their companies, it’s sometimes difficult to convey the importance of brand-building to executives who are solely focused on last-click return numbers. One attendee said that when her company started running subway ads, they conducted a brand awareness survey before and after the campaign ran to try to measure how effective the ads were. But ultimately, many marketing teams are just throwing a variety of attribution methods at the wall, trying to see what sticks. Two big challenges stand in their way:

• There’s no uniform way to measure long-term attribution across channels.
• It’s hard to keep up with best practices on digital platforms, with the algorithms on platforms like Facebook and Instagram constantly changing.

Bottom line: Retail executives need to recognize that different marketing channels have different purposes. Companies need to come up with multiple criteria to evaluate the effectiveness of all the different digital and out-of-home marketing channels they use.

What makes an influencer — and how to keep them engaged — is evolving
The most effective influencers aren’t the ones with the largest social-media followings. Rather, they are the ones with more modest social media followings, but who are devoted fans of the product. At the summit, a few retailers discussed how they are looking to get their fans more deeply involved in product development and testing, instead of just asking them to promote a product that’s already been developed. Doing so increases the likelihood that they will organically spread the word about the company to their family and friends. Community-building is a marathon, not a spring — brands have to consistently find ways to keep influencers engaged.

• Use social platforms, like Facebook Groups, to create a channel where influencers and super fans can talk amongst one another.
• Companies that work with influencers need to come up with ways to measure both short-term and long-term attribution.

Bottom line: Working with influencers won’t entirely fall out of fashion, but the ways that brands work with them will continue to evolve and deepen.

Stores are expected to do more than ever before
To drive more in-store traffic, retailers are reimagining what their stores need to be. One is to think of them as more than places where inventory is moved, and more for community gatherings and events.

They’re also giving stores new roles as fulfillment centers, to keep up with the growing demands of online delivery and buy online, pick-up in store. And the success of a store is no longer measured by counting foot traffic — it’s also dependent upon how many of those shoppers can also be convinced to buy something online.

There are more demands being placed on physical stores than ever before, and in many cases, retailers can’t possibly fulfill all of them. The challenge, said retailers at the event, is picking those priorities. If a store is located in a mall that still has decent foot traffic, it’s probably better suited as an event space. If it’s a smaller format store in an urban area, it could be a good space to fulfill same-day deliveries. But the challenges don’t end there:

• Retailers also have to ensure that their physical retail and digital teams don’t cannibalize each other’s sales.
• One of the most oft-cited challenges retailers still haven’t figured out how to solve is “turning a brick to a click.” Some customers might visit a store, decide they’d rather purchase an item online, place that item in their shopping cart, but fail to go through with the purchase. How can retailers follow up with an in-store shopper who still has an online order waiting to be checked out?

Bottom line: The store of the future is looking more and more like a showroom for a retailers’ website and omnichannel features.

Speaker highlights: 
Megan Kohout, vp of e-commerce and customer analytics for Kendra Scott, spoke about how the jewelry brand is using data to better serve the brand’s customers, who now enter through a greater variety of channels than ever before. Some key takeaways from her talk:

• Kendra Scott’s sales are now 75% wholesale, 25% DTC, but DTC is where Kendra Scott thinks it will see the most growth in the coming years. Kendra Scott works closely with its wholesale partners to ensure that its displays are heavily branded, to still make it feel like they are buying a necklace from Kendra Scott, rather than any one of a number of necklaces from Bloomingdales. 
• Kohout’s team uses platforms like Monetate, Salesforce, Custora, and Google trend reports to follow customer behavior online and build distinct customer segments and profiles. Google search trends, in particular, are the primary means through which Kendra Scott tries to measure national brand awareness, to see if more people are searching for the brand this month compared to last month.
• “It’s not about being anywhere the customer is at any time, but being in the right place at the right time,” Kohout said in regards to a question about how Kendra Scott measures attribution.

Matt Zisow, head of product at Wayfair, spoke about how the online furniture retailer thinks about building new tech features. Some key takeaways from his talk:

• Zisow’s team starts by identifying a customer problem — for example, if customers are struggling to visualize how a piece of furniture they are considering buying might look in their home — and then consider the various tech that they might be able to use to solve that problem (computer vision, augmented reality).
• Computer vision is most often thought of as the tech that powers visual search. While Wayfair does have a visual search feature, Zisow said that for Wayfair, computer vision has proven most important in helping the company power personalized product recommendations. Wayfair can now more easily recommend light fixtures, rugs, couches, etc. that look visually similar to one another.
• Zisow said that retail tech teams should not wait until a new website feature is completely finalized to start testing it. For example, when Wayfair wanted to build a 3D room planning feature, Wayfair first released a 2D version, to better understand how customers might interact with the feature before the company rolled out the finished product.

Noah Palmer, general manager of Gap’s new DTC men’s performance wear brand Hill City, spoke about how the legacy clothing retailer incubated a digitally-native brand within the company. Some key takeaways from his talk:

• The Hill City team has stayed lean, in order to establish a greater sense of focus. Hill City, now six months old, started with a group of less than 10 employees, and now has just under 20.
• To create a closer feedback loop with its customers, Hill City decided to create a wear tester program almost as soon as it launched. They set up an application program, where men could apply to receive free product, in exchange for giving feedback. Hill City had 30,000 people apply, which proved to the team how great the customer demand is for a brand that works closely with potential customers.
• Now, Hill City is working to develop what it calls version 2.0 of its wear tester program — where it’s not just asking participants for their feedback on an existing product, but is starting to co-create and co-design products with its wear testers.

Overheard
“Community is more often than not contrived. But if you have a strong brand that people are really passionate about, people build their own community around it,” Noah Palmer, general manager at Hill City.

“The rent you would pay for a store is the new CAC,” Jameson Valone, vp of digital marketing at BrandBox

“The pinnacle of personalization is really thinking of each client as their own segment,” Brad Klingenberg, VP of data science at StitchFix.

“With Facebook, we have a stable acquisition cost for maybe 90 days, and then we’ll see an algorithm switch. We can go from a $14 stable acquisition cost over two weeks; the next month it will be $40 to $70.

“We recently rolled off of [selling on another major retailer’s site] and with that we over-invested in affiliate and paid social to try to ramp up the traffic that we were going to see on the loss. Obviously, conversion on social platforms wasn’t as high, and it was driving down the conversion we’re seeing overall. It’s just hard to tell that story up the funnel to executives who are just looking at spend numbers and last click return numbers and not being able to see the whole picture.”

“The biggest hurdle for us is competing priorities among the store operations team and the digital commerce team. We’re one company, but they’re always butting heads.”

Challenge board confessions

Here are the biggest challenges some attendees said their companies faced today: 

• Marrying legacy systems with newer platforms
• Channel mix — which channels at which spend levels to reach business and sales goals?
• Justifying the cost of branding and acquisition in a last-click revenue world
• Creating a global brand that maintains local relevance across many markets
• Lack of confidence in data