There’s been a great deal of hand-wringing around the advertising industry lately as brands deal with rising marketing costs. Marketing budgets are 9.5% of total company revenue so far this year. Direct-to-consumer brands in particular have been hit hard, with many reporting huge increases in marketing spend in Q1.
There are many explanations. Apple’s ad policy changes have disrupted titans like Facebook and increased cost-per-acquisition through app-based advertising. Meanwhile, some DTC brands have hit the saturation point on digital channels like social media and display, further driving up CPA. Factor in inflation, world conflict and ongoing supply chain issues, and brands are spending more to drive revenue.
The big question for brands, especially digitally native DTC brands, is where to spend those dollars amid rising CPA. As social becomes cost-prohibitive, options like TV and direct mail become more attractive. Still, these channels carry significant costs — the kind that can make even an experienced marketer do a double take. Fortunately for most brands, increased costs associated with building audiences in new channels may result in the kind of long-term customers and revenue that they need to survive whatever comes next.
Investing in New Channels
Conversations around the DTC revolution of the past decade often focused on how challenger brands utilized digital — specifically social media — to identify new customers. A great many of these brands are digitally native and may not have experience buying into other channels.
More-established channels like TV and direct mail may seem like anathema to digitally native brands, but there is a massive opportunity if these brands apply the same data-driven approach they have employed for years. In TV, new addressable and connected TV offerings enable marketers to more precisely reach viewers according to specific targeting parameters, as opposed to the infamous “spray and pray” tactics of decades past.
Then there’s direct mail — the unsung hero of many brands’ multichannel marketing strategies. A full two-thirds of marketers in a 2022 survey reported that direct mail was consistently delivering the best ROI of any channel they used. At the same time, modern direct mail takes advantage of the same custom audience modelling that brands are used to in digital and social. On social, many of these models are built around basic KPIs like conversions or clicks. Direct mail makes use of a richer data set, often built on purchase history, which means brands can adjust to deeper data signals, such as customer lifetime value.
Direct mail carries heavy costs tied to creative, audience development, printing and postage. But direct mail’s lifetime value component is a major differentiator, enabling brands to reach stickier customers. Rather than simply churning through social media users looking for new, one-time buyers, direct mail can unlock lifetime customers who continue to spend with a brand.
Guaranteeing success in a new channel is impossible, but partnering with experts may increase your chances of killer test results and rollout. In this regard, agencies with channel expertise in direct mail or TV can help with support, from creative to audience to measurement.
Invest in First-Party Data
Apple’s ad policy changes are already impacting spend on social media and mobile. Unfortunately, this is merely a prelude to what will happen should Chrome move forward with its plans to stop supporting third-party cookies next year. While new identifiers are entering the scene, they will only cover a small percentage of the overall market. These addressable impressions will create intense competition and even higher prices.
Regardless of their exploration of channels like direct mail, brands need to prepare for this inevitability and modernize their marketing operations. This is best accomplished by investing heavily in first-party data.
Brands need to assess what kinds of customer data they have access to, what kinds of data might be missing, and what needs to happen to unite data sources across the enterprise. In all likelihood, brands will have to invest in technology or identify a partner to unite and activate their first-party data. Again, that takes an upfront investment, but it’s one that will likely pay for itself as the ad landscape evolves.
A timely benefit of improved first-party data management is the ability to better engage with existing customers. As the economy teeters on the edge of a recession, marketers should be prepared to focus spend on existing customers. A strong first-party foundation will provide organized insight into customer behaviors and support business goals during a downturn.
Long-Term Cost Savings
While increased marketing costs are shocking, especially for shareholders, it’s important to understand where the spend is going. A brand that pays higher and higher costs on the same channels, without deviation in strategy or improved results, is not set up for long-term success.
Furthermore, boards today want to hear more around topics like lifetime value and data activation. This deeper interest from stakeholders should serve as good reason for CMOs to take on new expenses on the path to delivering long-term benefit to the business. Investments in new channels or modernization efforts (or both) are a sign of a brand doing the right work to drive retention and acquisition in a more cohesive omnichannel approach.
New channels and improved first-party data strategies will also set brands up for longer-term ROI, demonstrating marketing’s growing role in keeping the larger business healthy. Particularly as companies face economic challenges, marketers can prove value by diversifying efforts in a way that helps engage current customers more deeply, control rising acquisition costs — and ultimately grow the business in a sustainable way.
Rene Hamill is VP, Client Engagement at Alliant. With over 20 years of marketing and service experience, Hamill inspires her team’s consultative approach to data strategy and custom solutions for every client’s unique needs. Her deep data and marketing acumen stem from positions with Reader’s Digest and Direct Media, where she delivered “out-of-the-box” strategies that increased the marketing performance and profitability of her subscription commerce clients.