Mahabis, the upmarket slipper maker and one time DTC (direct-to-consumer) poster child is in administration, but, says David Carr of Digitas, the brand began with a business model rather than a product – and other DTC brands are also feeling the pinch.

“It didn’t care about slippers at all,” he says. “Instead, it looked for heavily searched keywords on Google that were cheap to buy because there was little competition or bidding for them. Slippers came up as one of the best candidates, so they made high-end slippers because they knew they could get cheap traffic.”

The focus of this month’s Admap is the evolution of DTC brands, more often regarded as being driven by entrepreneurs discovering niches of unmet-consumer needs and then setting out to exploit them via digital technology, owning the consumer relationship and rethinking product, marketing and sales models along the way.

For a decade or so, Carr argues in his article, The evolving dynamics of the direct-to-consumer market, e-commerce made DTC brands possible but digital advertising made them work as performance marketing enabled start-ups to find market and customer fit and then scale traction.

Cheap customer acquisition and an “anti-marketing aura” has meant DTC brands “changed what is expected of marketers by proclaiming a path to growth by word of mouth that can achieve 60% product margins and four to five-times higher contribution margins”.

The economics of this approach, however, are unsustainable in the long term for start-ups dependent on investment money. “They needed to create demand and extend up the funnel,” says Carr.

And for some time they could do this via social media platforms, especially Facebook and Instagram, but as the average price of a Facebook ad has climbed so the economics have changed again.

“The DTC model was built on the principle of higher contribution margins and no intermediaries,” Carr points out. “Facebook became the ultimate middleman for DTC brands with a firm grasp on their variable cost structure.

“The vital acquisition process for DTC brands is now ruthless, expensive and mediated.”

Now Facebook is less cost effective, DTC brands need to scale their way past early-adopter, “digital native” audiences, with many turning to traditional media at the same time as experimenting with more traditional retail and distribution approaches.

DTC has also stratified into Products, Brands and Personalities, Carr observes, with interesting implications for both ‘Big Traditional Brands’ and the nature of DTC itself.

While there is a lot of hype around DTC, one thing it has done, he states, is to establish a blueprint for effective digital channel marketing excellence, and in so doing raise the consumer expectations that all brands must meet.

This issue of Admap features seven articles by thought leaders from across the globe. WARC subscribers can access a deck which summarises the key thinking and advice from all the authors.

Sourced from Admap