What Experts Say Are the Top Challenges DTC Companies Face Today
These are interesting times for the direct to consumer (DTC) and e-commerce marketplace. The post pandemic hangover coupled with other market dynamics has created, or exacerbated, a few headwinds for some DTC brands. According to experts and leaders in the category, these are the top challenges DTCs will have to address as they continue on their growth path.
Consumers spending again at stores
“Although overall e-commerce is still above pre-pandemic levels, retailers with physical stores continue to benefit from the consumer return to brick-and-mortar…,” Sandy Sigal, President and CEO of NewMark Merrill Companies
After 2 years with the virus, consumers have developed and maintained new shopping habits but are starting to return to old habits as well. According to insights from Mckinsey in-store spending is starting to recover with purchase at brick-and-mortar stores seeing an 8% year–over-year growth.
“Ecommerce owners find themselves in a situation where competition is increasing faster than the market is expanding, forcing brands to focus on growth to maintain their market share, but they also have to fight harder for that growth, ” Mike Bugembe in a Forbes piece “Grow or Die The New Reality of eCommerce”
Stay at home policies during the pandemic accelerated the growth of ecommerce. As new customers flooded the channel, DNVBs (Digitally Native Vertically Integrated Brands – think Warby Parker) went into hyper growth mode – increasing their investments to capture these new customers. In addition, “traditional” brands, out of necessity, refocused on their sizable resources to grow the channel. According to emarketer’s D2C Brands 2022 Report, established brands grew faster than DNVB brands (22.6% in 2022, compared to 17.5% respectively) and have a marketshare that is 3x larger.
Supply Chain Shortages
“It’s harder to get stuff — there is less raw material, but consumers are also buying more because there is a lot of money out there and people haven’t been paying as much for services,” said Joel Beal, CEO of Alloy.
The supply chain has experienced significant disruption as companies had to adjust, and keep adjusting, their production strategy during and post the pandemic. Everything from factory closures, to a scarcity of shipping containers have increased the cost of producing and transporting products -making it hard to stock shelves. Peter S. Goodman’s piece in the NYtimes.com does a good job of breaking down the various layers of the supply issues.
Increased Advertising Costs
“Because it’s so easy to start online now, there are definitely rising costs of customer acquisition. Paid ads are getting really expensive…” Mel Ho, Senior Product Marketing Lead, Shopify in Shopify’s 2022 The Future of Commerce Report
As more DTC competition comes online, these new entries are trying to deploy the same marketing playbook that helped DTCs gain customers quickly and efficiently. This is causing an increase in advertising prices across some of the more popular customer acquisition channels. According to a Business Insider’s piece Meta’s (Facebook) ad prices have increased 39% year over year and the CPCs on Google are up 12% year-over-over for the first quarter of 2022.
Lost of Ad Targeting and Measurement
“…iOS 14 updates are making it very difficult to find successful return on investment like we once saw,” Alex Song, CEO DojoMojo
Digital advertising has always been an efficient channel for DTCs because of their ability to target consumers based on explicit and implied behavior and directly measure attributable sales of their ad campaigns. This is made possible through digital identifiers such as cookies or MAIDs (Mobile Ad IDs) that connect consumers to their browser and/or devices. However, the recent changes Apple has made in recent IOS releases due to privacy concerns has removed this capability. Advertisers are finding once reliable channels like Meta are now unmeasurable. This is forcing DTCs to look for other channels to drive new customer acquisition.
At Zeenk our motto is “Solve Today. Build Your Tomorrow.” Our mission is to equip our customers with a reporting, analytics and data science solution that will help them address the challenges they face in this dynamic market so they can have a brighter future. If you’re a DTC company whose business has been impacted by any of these events visit us at Zeenk.com. We’d like to hear from you.