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No. 322: On DTC and Public Relations
As digitally native brands go, high-growth DTC concepts find their way to the halls of creative engines like: Bullish, Gin Lane (now Pattern Brands), Red Antler, or King & Partners. A subset of the dozens of DTC companies that launch each week, these digital-natives have likely completed a raise or they are well on their way to closing that first $1 to $5 million in seed capital. Primed to achieve outsized success at launch, it’s not uncommon for a small selection of DTC brands to finalize cap tables before their products are finalized or go-to-market strategies are decided upon.
Before a potential customer can determine their affinity for a product, or tolerance for its price, or their appreciation for the go-to-market process, or even intensity of their brand preference – a company’s PR precedes many of these decisions. Product, price, process, and preference share two letters: PR.
Depending on the product being sold and the company’s average order value, key performance indicators vary but CPA, CAC, LTV, COCA, and ROI are considered the most important. The aforementioned measures tend to be quantitative. For PR agencies, however, the majority of the key performance indicators are qualitative in measure. Here’s a short list of those qualitative KPIs.
- quality web traffic: did the campaign reach the right audience?
- media mentions: was there buzz around the campaign? did the promotion earn media?
- content quality: a sentimental analysis (how it was received by potential consumers) and prominence (was the campaign distinguished?)
- share of voice: media performance in comparison to the brand’s competitors. Which company has the greater share of attention
- social engagement: the volume of potential consumers that interact with the story
- impressions: while extremely difficult to measure, this KPI is the number of views across all media sources and platforms
And here is a list of KPIs quantitative measures:
- lead volume: the success of the campaign as determined by contacts received via email, opt-in, or enquiry form
- advertising value equivalency (AVE): the (volume of media) x (ad cost per impression) at volume. PR firms often measure what a client would have paid for the same exposure through traditional advertising.
- revenue: did the efforts of the PR agency impact top line revenue? Sophisticated efforts include attribution monitoring across traditional media channels and social media.
Though the DTC era chatter tends to revolve around the vaunted LTV:CAC ratio, it’s time that we consider PR has potential to be an x-factor for brands looking to efficiently grow. From Member Brief collection’s Retail Media Report: “On February 15, 2010, warbyparker.com went live. Within 48 hours of GQ’s dubbing the company “the Netflix of eyewear,” the site was so flooded with orders for $95 glasses that Blumenthal temporarily suspended the home try-on program.” This is not the only example, Harry’s executed a similar approach to use a PR agency to drive pre-orders by collecting tens of thousands of email addresses. And Away launched with the help of Sunshine Sachs and then Azione PR and a clever plan to sell coffee table books before their now-famed carry-on’s were available to fulfill. From her recent interview with NPR’s “How I built this“:
So basically, you had to buy the book for $225, which was the price of the first suitcase. And we sold hundreds on the first day. And a bunch of other [news] outlets picked it up all of sudden. The people [featured] in the book were like really excited about it.
By nature, public relations is a wild card. Media efforts can launch a brand to sold out inventory. Or the launch can fail and lead to a terminated PR agency. Sometimes, both can happen – depending on the circumstances. With retainers ranging from $15,000 to $30,000 per month – founders and PR executives must be aligned on approach and expectations.
Product, price, process, and preference share two letters PR.
The direct-to-consumer (DTC) era is maturing and with that growth comes a shift in priorities. To differentiate themselves, brands have begun to emphasize efficient acquisition and improved brand equity. Digital-only has evolved into digital-first. Until recently, challenger brands maintained an insatiable appetite for a narrow scope: paid advertising. It’s not uncommon to see brands focus spend on a limited number of platforms. These platforms shouldn’t be a surprise: Instagram, Facebook, and Google. And perhaps, Pinterest, Snapchat, and Twitter – if the brand is more risk tolerant.
A Different Era: Zero to one
For top DTC PR agencies like Derris, Moxie, Azione, and Jennifer Bett Communications, the stakes are always high. DTC brands that invest in public relations retainers require an ROA that resembles what they’d otherwise earn through quantitative spend (Facebook, Instagram, Google). But to do so, it takes a mutual trust, a shared vision, a bit of risk, and a lot of luck. One macroeconomic development works in the favor of PR agencies: the DTC ecosystem has spawned countless of traditional and independent media brands who’ve modeled their growth on the coverage of breaking news and analysis of burgeoning DTC companies.
In Member Brief: Retail Media, we featured a short list of the reporters who were most-read by the 2PM audience.
[table id=46 /]
Retailers shifted to a leaner go-to-market strategy, over the last decade. In turn, a growing number of publications, consultants, reporters, and analysts expanded their coverage to feature the strategies, successes, failures, and macroeconomic effects of online retail. Just 5-7 years ago, stodgier business publications covered major retail. Coverage of DNVBs were limited to Warby Parker, Dollar Shave Club, Bonobos, and Harry’s. Capacity was limited and so were the perspectives. But over time, newer publications (and reinvented traditional outlets) began to cover developments in greater detail. This democratized coverage and gave readers a unique look into companies that were in an earlier stage; these companies are more vulnerable (and interesting) than ones who’ve raised venture in the nine figures.
Retail media’s analyses have expanded and resources have grown to cover the ecosystem with greater depth and a growing frequency.
Quite frankly, the DTC media industry has evolved into sport. This, especially, as the coverage has become more lucrative. Publishers like Forbes, Fortune, Fast Company, and Inc. now cover early-stage, direct-to-consumer developments en masse. And this is not just limited to traditional media. Without this new era of direct-to-consumer retail, it’s unlikely that platforms like New Consumer, Lean Luxe, or this one would exist. Digiday‘s recent decision to expand their coverage of the DTC era by launching Modern Retail, a familiar format, confirms this. The term “ecosystem” has taken on new life. In response to an early-draft of this report, Paul Munford of Lean Luxe had this to say:
Because people’s first interaction with Lean Luxe is the newsletter we publish or the reporting that we do, they tend to think of Lean Luxe as a media property. In some way it is, and that’s always been a core function (and will continue to be). But by far, pound for pound, the most powerful component of the Lean Luxe ecosystem is the private Slack channel that subscribers, for the moment, have to qualify for in order to be considered. Not only is it a place for daily connection between users around this shared interest in modern brands and business, it’s also, more importantly a place that facilitates real world connection offline.
Platforms like LL have amplified impressions and product discovery. Rather than focusing on reach, Lean Luxe chose to focus on depth, a characteristic of many of the most effective PR nodes throughout the ecosystem.
What does this mean for DTC and public relations? While it may be easier than ever to submit a quote for a major tech, lifestyle, or retail publication, market-moving coverage has never been harder to achieve. Alternative forms of PR will be considered and KPIs will continue to be developed. A press mention isn’t the validation that it used to be. But PR agencies have never been more essential to the lifespan of DTC brands. And the best agencies are finding new ways to reach primed customers, online and in real life. In some niche circles: forums, Slack chats, and direct email – product buying decisions are made and brand affinities are formed. Haus [1] cofounder Helena Price Hambrecht saw this first hand when with the successful launch of her spirits brand. She opted for personal connections over the traditional KPI: optimizing for top funnel impressions:
Influence is not follower count. Influence is years of making meaningful connections in the industries you’ve chosen to work in. It’s building a reputation for doing what you say. It’s a track record of putting out work that doesn’t cut corners. If people expect quality work from you, they’ll invest in whatever you put out next.
It’s now a matter of mass impressions (lower conversion) vs. niche influence (higher conversion). As customer acquisition continues to evolve, PR must evolve with it. One observation is abundantly clear for DTC founders: revenue is the KPI. For digital-natives looking to launch with velocity, they’re opting to set aside impressions as the primary KPI. These brands are optimizing for a genuine and deep connection.
Read the No. 322 curation here.
Report by Web Smith | About 2PM
[1] Haus is a 2PM portfolio company
No. 317: The DTC Playbook is a Trap
Harry’s delivered a sizable outcome in their recent $1.37 billion exit. The men’s grooming company should be viewed as somewhat of a wake up call to DNVB leaders. Yes, Harry’s sold a simple product but it also disrupted the DTC playbook on its way to an exit. The company wrote and followed its own playbook, why don’t more digital-natives do the same? It has been reported that just 20% of Harry’s sales volume came by way of direct to consumer revenue. Everything about Harry’s ascension opposed the presumed operating instructions of the DTC era.
Yes, Target and J. Crew accounted for nearly 80% of Harry’s overall sales. But that isn’t only what sets Harry’s apart from the tendencies of other digital-natives. By all reports, Harry’s is a well-run business: the logistics operation is flawless, the company is reportedly profitable, and they’ve essentially retooled manufacturing for the demands of the DTC era. Simply put, Andy Katz-Mayfield and Jeff Raider have been extraordinary leaders.
Harry’s accomplished a great deal in six years. The razor manufacturer was an early omni-channel pioneer: partnerships with Target and J. Crew were pivotal in their ensuing mainstream success. Collaborations with digital publishers like Uncrate reminded consumers that Harry’s was an elevated brand, something more than their competitors. Harry’s was one of the first to launch pop-up activations. Each of these decisions countered conventional wisdom at the time.
From a 2014 interview with CNBC: Warby Parker takes on Gillette
Raider and Katz-Mayfield believe the key to Harry’s growth lies in this vertical integration, or what they like to call v-commerce. Simply put, the company now owns the entire process—from R&D to manufacturing to selling direct to the consumer. “It creates this virtuous cycle that makes for really happy customers, and then they become our best advocates,” says Katz-Mayfield.
When Harry’s acquired their manufacturing partner, the company became one of the few truly vertical brands of the DTC era. This was also antithetical. But, it allowed them to iterate their core product quicker and streamline product iteration for their sourced products like skincare, soaps, and shaving additives. The result was a Target aisle that began to reflect that Harry’s was more than a product brand, they were a category leader. In this way, Harry’s began challenging Gillette in an asymmetrical fashion by becoming one of the first true DTC category brands. By designing appealing products in other product verticals, Harry’s gained an advantage. This leverage helped them to amass over 2.4% of the entire razor market. In short, Harry’s wasn’t just great at marketing and design – they disrupted their industry.
I’m bearish. It’s hard, only the disruptors will survive.
Anonymous Founder
Skepticism of the direct to consumer era of online retail isn’t new. General Partner of Great Oaks Ventures, Henry McNamara recently tweeted:
Henry McNamara on Twitter
DNVBs Valued @ $1B+ & Funding 👓Warby $1.75B- $290M raised (6x) 👟Allbirds $1.4B- $77M raised (18x) 🪒Harry’s $1.37B- $461M raised (3x)* 💄Glossier $1.2B- $187M raised (6.5x) 🛏️Casper $1.1B- $339M raised (3.5x) 🪒Dollar Shave $1B- $163M raised (6x)* 🧔Hims $1B- $197M raised (5x)
He later corrected his figure on Harry’s ($375 million in equity sold) but the point stands. Is investing in digital-natives worth it? Yes. But only if the brand is capable of disrupting prior growth tactics and brand positioning. Dollar Shave Club and Harry’s represent two of the most notable exits of the DTC era, both found ways to acquire customers and sell a growing catalogue of products to them. Both were valued between 4-6x the capital raised. These companies found innovative ways to market, distribute, and grow. In turn, they innovated their way to earned market share, at the expense of incumbents and other challengers.
THE DTC PLAYBOOK IS A TRAP
It goes without saying that I’m bearish on DNVBs as a whole. As a whole, the industry tends to rely upon left-brain operators with systems and definite plans. But, I’m bullish on the challenger brands who’ve figured out that winning is often a result of rewriting the playbook. For the brands looking to grow to (efficient) critical mass or even an exit, the DTC playbook is a trap. The journey from zero to one is not one backed by b-school theory. Brands won’t be able to project tomorrow’s viability by analyzing yesterday’s LTV:CAC ratio, alone. But DNVB growth isn’t an art, either. Digital-natives will have to be more than beautiful design and savvy copywriting. The proverbial DTC playbook must be rewritten each time. If the DTC playbook were to be written, it could be boiled down to this:
There is no playbook. DNVB growth must be a malleable and agile operation. Brands must find opportunities where there were none. They must seek to do what hasn’t yet been done.
So yes, I am bearish on many of today’s DNVBs. Brands are merely following the paths of the brands before them and I believe that it hinders more than helps. Their paths to their early-stage milestones are often unproven anecdotes written by investors who’ve likely never sold a physical product.
In a recent thread by Ryan Caldbeck on this same topic, the founder and CEO of Circle Up expressed his similar skepticisms with the following points:
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- I’m not that convinced that DTC is going to kill a lot of incumbents. If we look at share loss for Pepsi, Unilever, etc- much of that is not DTC, it is products/brands that meet unique needs of today’s fragmenting consumers.
- I’m deeply skeptical that the DTC startups have nailed online marketing. Almost all of them are burning cash at levels unprecedented in CPG (most of $ for marketing). Does that mean they are good at marketing, or just that they have convinced venture capitalist to to give them money?
- A question might be: can they sustain the innovation? I haven’t seen a lot of startups come out with more than a small handful of products. Most of the DTC companies are not using DTC for what I think it’s great at – which is iterating on product development.
YOU SHOULD BE BEARISH
In a recent Member Brief, I wrote on the asymmetrical warfare that Caldbeck summarizes so eloquently, “A dynamic brand enables more than product success, it enables category success. As brands known for one thing enter the categories of other competitors, the companies with the most brand equity and marketing sophistication seem to be best positioned to make the leap from product company to category brand.”[1] But brand equity is just one component; Harry’s operational superiority and omnichannel sophistication has been on display over its six years as an independent company. It should be a message to younger companies that achieving an exit will take more than a beautifully-crafted facade that hides operational chaos (as is often the case).
As long as DTC brands attempt to follow what’s been done before them, you too should be skeptical of the industry. Many investors seem to look for a DTC Playbook to hand their portfolio companies. As if to say, “Here is how it’s done. Now execute the game plan!” But it’s likely that it will never be that way. As digital-natives begin competing in traditional retail’s territory, heritage brands should serve as a reminder. They had unique paths to critical mass, very few encountered the predictability that the DTC era seeks.
Rather than determining speculative best practices with few data points, DNVBs should review the small number of successes from the DTC era. There have been but a few unicorns minted and even fewer exits earned. Those that do exit are often quiet, EBITDA-driven brands that represent “scalable profit.” Great examples of this are Schmidt’s Naturals or Native Deodorant. These retailers earned a place atop the market by responding to forces, maintaining agility, promoting executive autonomy, and thinking a few steps ahead of the curve. That should be the only guidance that earlier-stage founders need.
Read the No. 317 curation here.
By Web Smith | About 2PM
Editor’s Note: Edgewell backed out of the Harry’s acquisition in February 2020, some eight months after breaking the news.