Milk Makeup is a direct-to-consumer makeup brand Milk Makeup
- Advertisers are clamoring for business from a growing number of direct-to-consumer brands that are increasingly serving ads precisely with data and analyzing each dollar of marketing spend.
- At the same time, marketing clouds like Oracle, Adobe, and Salesforce are itching to handle more of brands’ tech stacks.
- Business Insider spoke with a dozen direct-to-consumer brands, marketing clouds, consultants, bankers, and agencies and found that brands are taking different approaches with their marketing technology.
- Direct-to-consumer brands say that buying into marketing clouds is expensive and limits their ability to create custom stacks.
- But brands are passing off certain parts of their data like e-commerce to tech firms.
Home decor brand Parachute makes $150 bed sheets and is backed by more than $44 million from venture capital firms. But when it comes to marketing, the startup wants to make sure that every dollar of its advertising spend is working as effectively as possible.
Parachute is one of a growing number of direct-to-consumer brands that are not only flipping the business models of big brands, but also the advertising industry. Unlike traditional marketers that love to focus on award-winning creative for TV ads, direct-to-consumer brands are laser-focused on data and use sophisticated tactics to analyze granular reams of data to figure out which ads are most effective at getting someone to either buy something, or visit a website, after seeing an ad.
That requires a new type of business model that largely centers around in-house teams tasked with creating the bulk of advertising for direct-to-consumer brands, and leaning on agencies and tech partners for project-based work.
At the same time, marketing clouds like Adobe, Salesforce, and Oracle are on a battle to either acquire or build out powerful tech stacks that help brands store and manage their data and then use it to run and measure targeted marketing campaigns.
But as direct-to-consumer brands continue to grow, the tension between building out cheaper tech and marketing expertise in-house versus working with big software companies is starting to play out, according to a dozen interviews with DTC brands, marketing clouds, agencies, and consultants.
“We abide by the philosophy that any of the touch points to interact with customers needs to be built out in house —customer service, marketing, tech is in house,” said Luke Droulez, CMO of Parachute. “Within CRM and planning, it ultimately is better to tailor make a solution that fits your business model — the issue is plugging into a Salesforce or an Oracle at this stage in our business would be quite expensive.”
Still, marketing cloud execs are salivating over direct-to-consumer brands and the opportunity to help data-minded marketers organize their stats and run targeted campaigns.
According to research from Salesforce and Deloitte Digital, the average brand uses 39 pieces of technology to handle its so-called consumer engagement.
“A lot of these new brands didn’t inherit an existing marketing organization, structure, or organizational design. Many of these teams built their marketing, advertising, loyalty, CRM data business all tightly aligned,” said Dave Helmreich, group VP of Oracle Marketing Cloud.
As a result, many DTC brands built out their technology stacks in-house. As they grow, the pitch from marketing clouds is that they need deep technology chops to help them scale in the market, which they can’t get from building their own technology in-house, Helmreich said.
That can result in a few different models: An “all-in” model where brands put all of their technology stack into a marketing cloud, or a hybrid model where brands lean on several tech companies to power different portions of their technology stack and house it within a marketing cloud.
“They realize when they’re getting to significant scale [and] large market footprint, they need an enterprise solution — many of these companies grow up from engineering and very technical backgrounds,” he said. “We see fewer and fewer companies spending their engineering time building tools that exist in the market. They tend to spend that time focused on things that they can control and that actually is of unique value to them and that’s in order management and creative.”
Dollar Shave Club, for example, recently picked Adobe’s Advertising Cloud as its “primary demand-side platform” (or DSP) and plans to use more of the marketing cloud company’s tools to handle programmatic advertising, according to Adweek.
Direct-to-consumer brands have been a hot topic recently for media M&A banker Terry Kawaja and CEO of Luma Partners. He gave a talk about the rise of direct-to-consumer brands at the Association of National Advertisers’ Masters of Marketing Conference last month about how young direct-to-consumer brands are quickly growing without a lot of capital.
“They sure as heck come to the table far more sophisticated in the martech side of things,” he said. “That’s what’s attracting the cloud guys.”
Here’s a chart that shows how big the DTC industry is, according to Luma Partners:
The landscape of direct-to-consumer brands Luma Partners
Kawaja said part of the reason why marketing clouds have their sights set on direct-to-consumer brands is because “it’s a sexy category,” meaning they can build out case studies with direct-to-consumer brands. The companies’ pitch “goes a lot further when it’s a DTC brand,” he said.
Marketers are balancing working with partners versus working in-house
Direct-to-consumer brands are notorious for handling their advertising and marketing in-house, partly because of the cost of outsourcing technology and the lack of ability to create custom tech stacks with individual pieces of technology.
Matt Prohaska, CEO and principal of Prohaska Consulting, added that it can be tough for brands to stitch all of their technology together when going all-in on one marketing cloud. Such deals look “smart on paper but it’s always hard to get the integration down,” he said.
Dollar Shave Club competitor and grooming brand Harry’s does not use a single marketing cloud, said Pete Christman, head of acquisition marketing.
Harry’s marketing is split between three internal teams: A direct-to-consumer team handles acquisition efforts, a retail group focuses on shopper marketing, and an omnichannel team oversees the brand’s marketing across its business. Within the direct-to-consumer team, a group of five is specifically focused solely on growth, which occasionally works with partners but tries to handle the bulk of work in-house.
“We do have a tech stack that we’ve built up over time, but we don’t work with a single partner that’s a full-service marketing cloud provider,” Christman said. “Instead, we think about the different types of tech that support the type of marketing that we’re doing [that] is going to pay for itself.”
In one example, Harry’s built an internal tool that allows the brand to test different landing pages and messaging that consumers see after clicking on an ad.
“In my experience, I found that it’s wisest for us not to sign up lots of different tech tools before we’re completely confident that adding that tool to our stack will result in improved important performance session,” he said. “There’s a lot of shiny new things out there and there is a lot of consolidation where a tool that used to just do one thing is now adding dimensions to it that try to account for more of your needs.”
Startups are scrappier with smaller resources than big brands
Christman is not alone in resisting a single marketing cloud.
Brandless, which is a direct-to-consumer grocery and home essentials company, also does not use a marketing cloud to house all of its data.
“I don’t quite believe that they work fully through,” Brandless CMO Aaron Magness told Business Insider. “My focus is on building a team and then we can worry about tools without relying on someone else’s stack.”
Part of the problem with buying into big software packages is that direct-to-consumer brands don’t have the same positions as big brands have. A Fortune 500 company, for instance, may have a team dedicated to handling enterprise deals with software companies, said Will Flaherty, VP of growth at Ro.
“It may be easier [for big brands] because there’s a big decision maker who can kind of compel the division to use it,” he said. “The truth is, in some ways it’s almost easier for an emerging company to kind of pick and choose the components of a tech stack that makes sense for that particular brand.”
Instead, Flaherty said that the crop of emerging data platforms — think mParticle or Segment — help wrangle bits of data together and route it to specific channels.
“Some of those platforms have made it easier to cobble together a bunch of different services rather than going with the marketing cloud, all-in-one approach,” he said.
Similar to how brands are wary to go all-in on one agency, marketers may not want to pour resources into one marketing cloud, particularly for new direct-to-consumer brands that are working to build a brand.
“It’s all over the place and that’s because these businesses are being built with marketing talent at various levels — it’s kind of the Wild West for the marketing clouds,” said JB Osborne, CEO and cofounder of Red Antler, an agency that specializes in working with startups and direct-to-consumer brands. “It’s very different than large companies who are mostly worried about creating standards and consistency and getting everyone to do the same thing at the right time and the right way. With startups, it’s inherently messy and scrappy regardless of the exact scale of the business.”
Brands are forking over parts of their technology to tech companies though
However, there are certain big parts of business that brands do want to outsource, like analytics, or an e-commerce platform to power their website.
The direct-to-consumer makeup brand Milk Makeup works with Salesforce’s commerce cloud to run its e-commerce site, for example. The brand treats its website similar to a real-time platform to upload and test content instead of relying on a web developer.
“We’re changing our homepages and banners on a daily basis,” said Morgan Fleming, senior director of e-commerce at Milk Makeup. “Customers are visiting more pages on our site, the sessions are longer and they’re spending more time on our product pages.”
Milk Makeup is an example of a larger trend that Salesforce is seeing where brands hand off the reins to a technology partner to free up time for longer-term priorities like making products or figuring out distribution logistics.
The pricing model for powering websites is based on the percentage of e-commerce sales for the brand using a gross merchandising value model.
“There’s so much competition and what brands are looking for is agility to stay one step ahead of the customer and two steps ahead of their competition,” said Rob Garf, VP of industry strategy and insights at Salesforce. “We have found that with a more unified approach — not just in marketing — in the entire journey, we’re finding companies enabling a lot more agility by simplifying their technology environments, consolidating consumer data, and being able to unlock that data and make it actionable.”
DTC brands are struggling to make Facebook work
For many direct-to-consumer brands, they built their business on Facebook ads that targeted specific segments of consumers.
As Facebook’s algorithm and ad prices have changed though, many are experimenting with more traditional types of advertising like print, TV, and billboards.
“Most brands now are wary of being too reliant on Facebook or are finding it harder to make Facebook work the way that it did before,” said Red Antler’s Osborne. “Most businesses are spending the majority of their money on advertising with Facebook and Google, but that’s just the landscape today — they’re actively trying to find as many alternative channels and ways to reach customers.”
That means that direct-to-consumer brands are dependent on data from the walled gardens of Facebook and Google, which are notoriously hard for third parties like marketing clouds to measure. If they continue to shift money away from Facebook and Google, DTC brands may find that they need to work more closely with a marketing cloud than they do now, said Sam Appelbaum, general manager of Yellowhammer, a specialist ad agency that primarily works with direct-to-consumer brands.
“Martech allows for horizontal insights across all of your marketing and media [but] is less effective when the integrations with those platforms are not as tight,” he said. “It could be that as direct-to-consumer brands rely less on something like Facebook to drive business, these solutions will make more sense for them.”