What are D2C and Customer Acquisition Costs?
While the D2C channel currently maintains a distinct advantage over its competition, not everything is perfect. The D2C channel has its own Achilles Heel: the cost of acquiring customers, or customer acquisition cost (CAC).
CAC is just what it sounds like. It’s the cost of your company’s marketing divided by the number of customers that your marketing efforts attract. In the beginning, direct to consumer was a new frontier. Competition was relatively low, meaning that D2C brands with strong value props made considerable returns from each marketing campaign. As the marketplace has become more crowded with direct competition, the customer’s lifetime value (LTV) decreased. That means that customers are spending less on each order, and companies stand to lose money if better strategies aren’t put into place. Rising CAC spells trouble for the industry as a whole. According to Marketingland.com, it can be more than five times as costly to sign a new customer as it is to maintain your relationship with an existing customer. That’s why direct to consumer marketing must find new sales avenues in order to stay profitable.
D2C: A Social Media Invention
The D2C channel may be entering the final days of its honeymoon period, but how did it get started in the first place? Direct to consumer sales has its origins in social media.
In fact, D2C grew up alongside online retailers such as BigCommerce, Shopify, and of course Amazon. Their message and products spread to a much larger audience through paid social and by organic word of mouth marketing via avenues like Facebook, Twitter, and Instagram. Sometimes direct to consumer marketing is a hybrid of paid social and organic marketing. The rise of influencers has given direct brands the perfect vehicle in which to drive product sales. Small brands pay influencers to publicly endorse their products on a Facebook page or YouTube channel, making paid social seem like organic marketing. It’s the perfect combination for social-first D2C brands that thrive off of being top of mind for their target audience.
Strategies for Increasing Customer Acquisition
Focus on Customer Experience
Use Technology to Your Advantage
Leverage Social Media
In order to continue widening the reach of your marketing efforts, it is essential to focus on customer acquisition through social media. Nearly 61% of respondents on the previously-cited Yotpo survey said that social media was one of their most important acquisition channels, with more than 52% planning on increasing their social media advertising budget. That’s why it’s so vital to take the correct marketing approach through your social media presence.
Conversational marketing is one of the most powerful tools at direct to consumer marketing’s disposal. Conversational marketing allows you to personally connect with potential customers at the point of their highest purchasing intent. You are building a deeper relationship with them right at the moment you have their attention. You can cultivate that relationship and instantly add value for them by personalizing their buyer journey based on their tastes, interests, and habits.
Conversational marketing uses messaging services, such as Facebook Messenger, on on-site chatbots, or conversational display ads, to have one to one conversations with customers who are interested in your products and services. Spectrm’s conversational marketing tools allow you to tailor highly engaging and authentic conversations that adapt based on your customer’s needs and preferences. For direct to consumer brands that use better customer experiences and ownership of customer data as a competitive advantage vs traditional retailers, it’s a natural extension of the prototypical D2C marketing strategy.