Emerging digital brands that utilize a D2C business model have brought disruption and change to the world of traditional retail. Their business practices move products and services into the hands of consumers more quickly and efficiently than traditional business models do. These companies are more adept at navigating an omnichannel approach to their marketing. They own their customer data and use it to their competitive advantage. The digital D2C industry looks to continue growing and expanding in the foreseeable future, but that doesn’t mean there aren’t issues with its approach. As more brands battle for consumer attention, there is an escalating problem with the cost of acquisition for new customers.

What are D2C and Customer Acquisition Costs?

D2C is a digital business model that stands for “Direct to consumer.” D2C is a lean and efficient operational method that cuts out the middleman. Traditional sales models rely on a 3rd party retailer to sell the vendor’s products. While this has been the dominant operating standard for decades, moving products through a retailer adds significant overhead to the sales process.
A direct to consumer model handles all the essential tasks, such as maintaining inventory, marketing, and shipping, that are usually distributed between vendor and retailer in a traditional business model. Freedom from these constraints allows the D2C channel more leeway and creativity in their marketing methods and more control over their process, all while operating at a lower cost than traditional retailers. Some examples of successful D2C brands include Dollar Shave Club, Bonobos, Tivoli, and Casper Mattress.

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.

Direct to consumer requires less overhead, but in exchange, its marketing needs a longer reach and wider potential customer base. Social media is the perfect fit for D2C brands. Traditional barriers to entry are removed with the internet, giving direct brands a vastly superior marketing reach. Given a savvy customer acquisition strategy, social media provides direct businesses with a near infinite supply of prospective customers.

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

With competition and customer acquisition costs rising, direct to consumer marketing is facing a new set of challenges. The market has become saturated, and growth, which once seemed unlimited, is set to level off soon. With the right customer acquisition strategies in place, direct to consumer remains a wide and lucrative marketplace.

In a 2019 Yotpo survey, 54% of respondents identified customer acquisition as a key metric. Luckily there are a few simple strategies that your direct to consumer business can put into place to drive customer acquisitions and lower your acquisition costs.

Focus on Customer Experience

Customer experience is key. Your marketing efforts and digital persona are your storefront. That’s why it is crucial to find ways to augment the virtual customer experience.
One key method is to foster a personalized sales approach via social media platforms. Your marketing solution should have the agility to suggest products to your customers that will delight them, as well as offering alternate items and capitalizing on add-on purchase opportunities. Seek out social media tools that connect with your audience directly and allow you to respond quickly to customers and their preferences.

Use Technology to Your Advantage

Social media moves fast. Quicker than a human can respond. It is to your benefit to employ AI and machine learning to help your marketing practices adapt and maintain pace with the platforms on which you advertise. AI can help off-load time-consuming sales processes, freeing up your staff to develop new marketing approaches and operations. The majority of customer messages on social are pre-purchase. Using conversational AI to identify your customer’s intent and responding immediately can give you an edge over the competition.

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

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.

A powerful tool like conversational marketing helps you capitalize on your customers’ intent, scale personalized interactions with your customers, and gain valuable data directly from your consumers without purchasing it from a third party. If nothing else, D2C provides you with a virtual treasure trove of actionable information that your company owns.

Are you ready to take your company from a traditional B2C approach to a more agile direct approach? We’d love to help you get started! Reach out to us to get a free demo today.

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