Insights from 4A’s Research | Direct-to-Consumer: A Revolutionary New Concept?

By Marsha Appel, SVP, 4A’s Research, marsha@4As.org.

 

 

Really? The initials ‘DTC’ have begun to pop up all over the marketing literature. Until recently, they meant one thing and one thing only: Direct-to-consumer advertising by prescription drug brands. And that really was a new concept when the FDA eased the longstanding requirement to list all side effects in an ad. That effectively enabled pharma companies to do TV advertising for the first time in 1997, thus ushering in the era of Viagra’s ‘little blue pill’ commercials, Cialis couples in adjoining bathtubs ads, etc. But I digress.

So now this DTC term refers to products marketed and delivered direct-to-consumers. A new concept? What about the heyday of direct mail advertising and mail order buying that predates, not just digital, but radio and television as well? Back then, some of the most successful ads contained coupons you could clip and mail in to order, for example, piano lessons. You may have seen The Music Man, where the entire Iowa town waited for the Wells Fargo wagon to bring them goods ordered from the iconic Sears Roebuck catalog, goods that were delivered “direct-to-consumer.” Not to mention the door-to-door Fuller Brush man and in-home Tupperware parties.

No, this new idea has to do with brands that were born digital, designed to be marketed online, bypass retailers, and be sold DTC. A revolutionary concept? Does a certain Pets.com sock puppet ring a bell? The dot-com boom and bust of the early 21st century was largely about…wait for it…native digital brands designed to be marketed online, bypass retailers, and be sold DTC.

Now that I’ve (I hope) made my point that there is nothing new under the sun, there really is something different going on, and agencies need to be aware of the challenges and opportunities here.

What DTC Brands Are All About

While there are some similarities to the Internet companies of 2000-2002, there are striking differences in this new generation of DTC brands.

What’s different now is that data, technology, and an unrelenting focus on customer experience have been thrown into the mix:

  • The new direct-to-consumer brands generally start digital and offer a seamless buying experience with speedy delivery.
  • Engagement and sharing are baked into the core product strategy. Users share with friends, and the ensuing social conversations turn into user-generated content, which can then be leveraged by the brand’s own social channels to spread positive publicity.
  • Customer feedback and reviews left on the brand’s website enable one-to-one interaction with users.
  • The real kicker is the quantity and quality of first-party customer data created. The brand can use this to great advantage in making decisions across the company, such as input for tweaking product design.
  • They also end up with a deep and invaluable understanding of the path to purchase for the brand, which can inform subsequent communications choices.

There is also an intrinsic hipness to these disruptive brands. They ‘get it’–millennials sense that these products were developed for and by their generation.

The new DTC brands include such successes as Casper, Everlane, Harry’s, and Warby Parker, and there are myriad startups eager to emulate them.

What This Means for Agencies

There is one other rather pertinent feature that characterizes these startups. That same aversion to utilizing traditional distribution channels and middlemen also signifies a preference for prioritizing in-house operations over outsourcing, and therein lies a problem for the traditional client-agency relationship model. The good news is that many of these startups recognize that they cannot do everything themselves. There is an opportunity, but possibly just a small window to act. Agencies that can figure out how to align with these startups and their business needs can become critical partners to DTC brands as they grow.

Traditional agencies excel at building mass reach for giant national brands. However, the new digital native startups require different skill sets.

According to creative agency Gin Lane CEO Nick Lane, who helped to launch Hims and Everlane, working with startups is different from working with large established brands, and an agency cannot easily do both well. “But we’d rather be a sushi knife than a Swiss Army knife and be really good at one thing versus average at everything.”

For an agency, it’s necessary to be iterative and as responsive as possible, because these new companies often morph into something else between the time they bring the concept to an agency and the actual launch. A brand voice must be developed, scaled, and content created to apply that voice consistently.

New types of agencies are emerging that specialize in the different services required by the new direct-to-consumer brands. We’ve seen most of these ideas before in isolated instances, but not at this level. The new models incorporate one or more of the following activities:

  • Becoming an extension of the client’s business and getting paid on the basis of a brand’s growth: outcome-based marketing. (For clients like hot sauce subscription brand Fuego Box and linen company Boll & Branch, Yellow Hammer does not work on traditional retainer. The agency is paid based on the clients’ growth. The more sales it drives, the more money it gets.)
  • Filling holes in the client’s business and solving for various problems faced, depending on the stage of the brand’s growth–from developing a website to consulting on back-end shipping problems. (Diff agency created a PopSockets solution from the factory floor up, using UX design to develop an internal operations program that doubled manufacturing efficiency.)
  • Sharing in risks and rewards of startups by taking a stake in client companies as a significant part of the agency’s compensation (Derris and Gin Lane take small ownership stakes in DTC clients in order to justify working with startups; this helps to offset the risks) (Note: Some agencies did the same thing in 2000 and most got burned; perhaps they’ve learned from that and will be smarter this time around.)
  • Creating their own DTC brand to understand the startup experience and thus be able to claim expertise in it. (Hot brand 42 Birds was created by the founders of independent agency Decoded, so they could learn what it takes to run a DTC brand and build their cred among entrepreneurial clients)
  • Developing versatility in bridging traditional and DTC clients. (Digital agency Work works with iconic traditional brands like Nike and Disney, but has now also had success with DTC brands. They engage from the get-go with startups as they figure out how to go to market, develop the product, employ a tech stack, and ultimately craft a marketing strategy.)
What’s Next for These DTC Brands and the Agency Business?

For traditional agencies finding it difficult to transform quickly into the nimble operations demanded by DTC brands, there is an optimistic note here, too. As the DTC digital natives grow, they are starting to find that mastering social is not enough in the long term—there is evidence that they are starting to turn to agencies for help with traditional media communications. BarkBox, the dog-treat subscription service, handles creative in-house, but it turned to an agency holding company’s performance marketing arm for TV buying and planning. According to Bark CMO, Jay Livingston, “You’ll see a rush toward agencies. To put an integrated campaign out there and buy across media, it’s complex and expensive. Most DTC companies cannot do that internally. Agencies help you with that.” But that’s not justification for sitting by complacently to wait for them. The landscape has definitely changed permanently, and the sooner agencies adapt and embrace this new type of client, the better.

The agencies specializing in servicing this new breed of client have recognized that down the road, these companies may eventually build or internalize the marketing services they need and dispense with any external assistance. If that comes to pass, instead of becoming obsolete, these agencies are assuming that the expertise they’ve developed will serve them well in aiding large legacy brands scrambling to compete in this new environment.

While that sounds like additional competition encroaching on their turf, traditional agencies may have a leg up here. As legacy brand clients struggle to develop an online footprint and adapt their positioning and brand image to a new marketing and distribution platform, they’ll need help. Who better than an agency that intimately knows their history, their operations, and their vertical industry, and also knows where they need to go and how to get there? The more an agency can guide them through that process and bring the necessary tools, particularly in digital, data, and analytics, the more valued they will be.

 

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