Much attention has been paid to direct-to-consumer (DTC) brands, their disruptive impact on established brands and their seemingly unstoppable growth model. However, there are now signs that several new DTC brands are going back to basics.
According to news portal Built In, it seems that the next generation of successful DTC brands is “eager to throw out the old playbook”, avoiding the urge to grow at all costs in favour of sustainable scalability.
Until recently, the standard approach from DTCs was to develop an attractively-packaged product and then splash large sums of their venture capital on social media exposure and digital advertising to build up a customer base, even if that wasn’t profitable.
As the cost of digital advertising has risen over the past five years, some industry experts believe the old model is no longer either sustainable or sensible.
“Everybody was blowing cash on acquiring customers in hopes that [customers] would come back and retain the lifetime value that [the company] somehow came up with on an Excel spreadsheet,” Nik Sharma, an investor and adviser to several commerce brands, told Built In.
“There’s been a complete shift, from what I’m seeing,” he said. “Acquiring a customer that is not break-even or profitable is almost as stupid as driving your car backwards on a highway. You just don’t do it anymore.”
Another problem for some DTC brands is that they struggled to square their high production and shipping costs with the average order size of their customers, who often only made a purchase because of generous discounts or the promise of a free-returns policy: an increasingly expensive proposition, especially for those brands already spending large sums on marketing and other costs.
According to the Built in report, several emergent DTC brands have decided instead to adopt a long-term strategy of owning and controlling their own production and supply chains, making sure their operations are efficient, and slashing their social media marketing budgets.
One such brand is Haus, a California-based, bottled alcohol delivery firm, which was founded by a husband and wife team, Woody and Helena Hambrecht.
“We own all of our infrastructure. We own the tanks, we own the production equipment and we make everything ourselves,” explained Helena Hambrecht.
She added that the company spent nothing on paid social advertising in its first six months of business and, now that it does, it still ensures its adspend is balanced with its pricing so that it turns a profit every time a customer makes a first purchase. “And we want to keep it that way,” said Hambrecht.
Sourced from Built In