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Direct-to-consumer (DTC) brands have experienced meteoric rises over the past decade. Many have rapidly scaled from fledgling startups to household names worth billions. However, the breakneck growth of DTC companies often comes with a sobering reality check down the line.
In 2022, the average year-over-year revenue growth for DTC brands dropped to just 16.9%, compared to over 45% in prior years1. For brands accustomed to hockey stick growth trajectories, this sudden stagnation sends leadership teams scrambling for answers.
While external factors like supply chain bottlenecks and rising digital advertising costs contribute, many DTC brands overlook internal issues choking their growth from within.
Here are five hidden culprits commonly sabotaging DTC growth:
The Challenge:
For fast-scaling DTC brands, paid advertising provides rocket fuel during the early blitzscaling phase. However, an overreliance on paid ads sows the seeds of stagnation over time. There comes a point with all brands where sustained growth can’t be achieved with ads alone… especially, at an affordable cost per new customer.
Signs:
Warning signs of an unhealthy reliance on paid advertising include a sense that the market is “tapped out.” Your team may be struggling to spend all of the ad budget while achieving the same results as before—the cost of acquiring a customer (CAC) keeps rising and conversions decrease. Another sign is that your team’s ability to iterate on new creative or ad hooks targeted at the same audience doesn’t improve results.
There’s a simple test to estimate your dependence on paid ads… turn them off and measure the drop to your revenue.
Solution:
Brands who rely primarily on ads face a disadvantage in todays’ performance plus brand-building (“brandformance”) environment. In order to continue to scale, your brand must cultivate a community of engaged buyers. They will extend your brand’s reach far beyond paid media into organic and influencer marketing.
Here are a few approaches to consider:
With the right balance of long-term brand building and short-term direct response marketing, DTC brands can support sustainable growth fueled by an omnichannel strategy.
The Challenge:
The second growth challenge is a lack of a holistic approach to marketing. Many DTC brands operate in marketing silos, with different teams managing individual channels like email, social, and paid ads—some even have separate teams for each ad platform. This fractured approach fails to consider the entire journey a customer goes on. This leads to a disjointed and confusing customer experience.
Signs:
One sign of this challenge is that departments sometimes “surprise” each other—and not in a good way!—with new products, campaigns, or ideas without collaborating with other departments. Here are some other signs.
Solution:
To drive growth, DTC brands need to align marketing around the end-to-end customer journey with:
With a truly customer-centric approach, marketing becomes a powerful growth driver instead of a fragmented set of disconnected teams.
The Challenge:
Every DTC brand starts out with an avatar assumption: who they think is a good avatar for their products. But over time, the perceived avatar and the actual customer avatar begin to diverge, and if your team doesn’t pivot when your audience does, you risk missing out on sales and facing stalled growth.
Signs:
Solution:
To sustain growth, DTC brands need to continuously update their actual avatar to reflect reality:
By consistently aligning your avatar with actual buyers, DTC brands can craft relevant experiences that fuel sustainable growth.
The Challenge:
Another growth challenge we see is DTC brands that hold onto an outdated creative strategy long past its usefulness. Relying on the same creative styles and formats year after year leads to fatigue, even if they were once wildly successful. Creative stagnation causes rising CAC (Customer Acquisition Costs) and slowing growth. If your team isn’t staying up-to-date, then you are likely missing out on well-earned growth.
Signs:
One early sign that this is or will be a growth challenge for your DTC brand is the presence of resistance to new ad creative types. For example, we’ve seen resistance to trying short, 15-second videos (or videos at all!) or to use a less “polished” style.
Other signs include…
Solution:
Above everything else, your team has to stay up-to-date with what’s working now, and incorporate that into your strategy.
The Challenge:
A final and critical challenge that hinders DTC growth is having misaligned or inaccurate data—it prevents ad campaigns from reaching their full potential. Without a complete picture of customer interactions and responses, targeting algorithms are shooting in the dark.
Signs:
Solution:
To unlock the full potential of ad campaigns, DTC brands need to align first-party data across platforms for accuracy:
With a data foundation that captures a true single-source-of-truth customer view, DTC brands can realize the full potential of their ad campaigns over time.
Other than the solutions mentioned above, here’s how you can ensure your team’s marketing efforts continue to drive short-term and long-term growth.
In this article, we mentioned five common growth challenges which keep DTC brands from growing like they should. Knowing the pitfalls is one of the best ways to build a strategy so your team can overcome them when they creep into the business.
As mentioned earlier, it’s absolutely critical that your team stays on top of broader industry trends. Here’s what you can suggest they do:
Also, actively talk with your team about what they see in the marketplace. If they’re doing their job correctly, they will be following your competitors, attending training on their own, and bringing ideas to the table.
As your DTC brand grows, so does your customer base. Make evolving your customer avatar a priority to ensure messaging always resonates. Analyze your data for emerging niches. Survey customers directly for feedback. And test new personas beyond your original targets.
Don’t rely on assumptions or past wins when making decisions. Champion a culture of rigorous testing and optimization across your marketing. Test new formats, platforms, creatives, audiences and campaigns continuously. Let data guide your evolution, not opinions.
While performance marketing drives essential sales, over-optimizing for conversions can starve brand building. Maintain a balanced 60/40 budget between brand and direct response. Build an audience that sustains growth through changes in the market.
Permanently slowed growth isn’t inevitable IF you know the signs to watch for. And when you’re ready for an expert perspective on your DTC marketing strategy, then check out how we’ve helped others.