Direct-to-Consumer (DTC) businesses are a unique class of company, and they’re changing the way we consume products of all kinds. They’re often referred to as disruptors because they use mobile and digital channels to sell directly to the buyer. By eliminating the retail “middleman,” DTCs bypass traditional sales models and re-think otherwise staid markets.
MediaRadar recently conducted an analysis of DTC companies’ ad spending across digital, TV and print, as well as their CMOs, physical stores and funding practices. The analysis offers insights for all brand marketers.
How do they advertise?
According to our study, for the past five consecutive years, DTC ad spend has increased by seven to 20% annually and has continued to grow across almost every product category.
DTC brands typically focus their ad spend on social media in their early years. Instagram is the primary channel for these companies because the platform allows for very specific targeting and a seamless purchase feature from within the app, that few other platforms offer.
The data also shows that as DTC firms scale their businesses, they begin to shift ad spending. Many come to rely more heavily on TV to create broad, top-of-funnel awareness. For example, Casper spent over $30 million per year on TV over the last couple of years. Warby Parker started TV advertising in 2016, stopped in 2017, only to return again in 2018.
Our analysis also found that DTC companies place branded content pieces three times more frequently than traditional brands, with the top beneficiaries being Yahoo! and Buzzfeed. Buzzfeed has won a large portion of the IAB’s top 250 DTC brands, as the brand pairs well with DTC advertising due to its strong Gen Z and Millennial audience.
How did they start?
Some of the most well-known DTC brands include Uber, Casper, Brooklinen, Warby Parker, and Tesla. Outside of these well-known companies, there are thousands of DTC startups across the U.S., according to the Interactive Advertising Bureau (IAB). For example, we counted 387 DTC brands advertising in the apparel and accessory category alone.
These companies are not only numerous, but well-funded. According to data gathered from Crunchbase for the top 20 DTC advertisers, the companies raised an average of $230mm in funds, through six rounds of funding, and from over 20 unique investors.
When it comes to the leadership behind these companies, the CMOs are sophisticated, experienced marketers. Looking again at the top 20 DTC brands, their CMOs bring an average of 16 years of prior work experience to their positions. 75% have past experience with at least one “household name” company. Half (50%) of the CMOs hold an advanced degree, most commonly an MBA, while other common degrees were in either economics or finance.
How do they sell?
DTC companies are usually mission-driven, rather than solely focused on the product itself, and they often start by targeting the Millennial and Gen Z customer segments. DTC brands are typically available for sale exclusively online and usually specialize in one specific product category. About one-fourth have a subscription revenue model. For consumers, the brand’s authenticity and quality matter much more than price—and the brands know this.
As these firms mature, many begin to explore other selling routes outside of just online. Of the top 20 DTC companies, 30% had their own stores, 25% sold products in other retailers, and another 15% used both their own stores and other retailers. Interestingly, many DTC firms have partnered with only one retailer on an exclusive basis. For example, Quip is only available at Target and Leesa mattresses are only available at West Elm.
DTC firms have emerged as disruptors across multiple industries. These companies exhibit young digital-first personas, that sell their products directly to customers via social media. However, as these companies grow larger, they begin to take on characteristics of older brands; whether it’s opening retail stores of their own, employing leadership with years of experience, or pouring ad budgets into national TV.