In a story in The Atlantic on the challenges D2C brands face to sustain high rates of growth, I ran across this fascinating couple of sentences: “If you wake up on a Casper mattress, work out with a Peloton before breakfast, Uber to your desk at a WeWork, order DoorDash for lunch, take a Lyft home, and get dinner through Postmates, you’ve interacted with seven companies that will collectively lose nearly $14 billion this year. If you use Lime scooters to bop around the city, download Wag to walk your dog, and sign up for Blue Apron to make a meal, that’s three more brands that have never recorded a dime in earnings, or have seen their valuations fall by more than 50 percent.”
The short take on the story is that it can cost a lot for D2C companies to acquire new customers who may cancel the service before they return enough lifetime value to cover their acquisition cost. That’s poor “unit economics,” for you financial types.
It’s no secret that D2C companies inevitably hit a wall in terms of customer scale and reach via Facebook (or other social media) and search.
More and more of them are turning to TV to drive new and faster growth. (In many cases, they know that Wall Street is looking over their shoulders wondering how they will sustain their early torrid growth.)
Buying TV can be frustrating, especially for D2Cs accustomed to the speed and precision of digital, because absent the right technology for planning and buying, the result can be chronic under-performance.
That's because traditional methods result in plans that either don't include enough networks and spots that are needed to maximize the reach of today's highly fragmented audience, or couldn't be bought even if the plan prescribed it, due to a shortage of buyers. In addition, buying without automation is often less precise. For example, buyers are often forced to purchase rotators, rather than at the network-hour level.
Finally, measurement is often limited to media metrics, as opposed to business outcomes, and can take weeks if not months to complete. That makes optimizing a real challenge.
The result: campaigns planned and bought without modern technology don't reach enough prospects and therefore don't create enough customers.
The linear networks have established a number of initiatives, including OpenAP and Xandr, to try and make buying TV more like buying digital. They’ve made important progress, though it hasn’t all been smooth sailing.
For instance, if a major advertiser wants to go beyond the typical Nielsen demographics and reach a particular audience — say, new mothers — each broadcaster has a different definition of that target demographic, according to Adweek. One, for example, might define it as women with children under two years old, while another might lower that age to younger than six months.
Making all the tech work is another challenge: “There just hasn’t been a great way for all of the underlying ad tech to communicate,” Ross Benes told Adweek. “If someone’s running a particular campaign, they might be buying on YouTube, Hulu and Roku, each with their own ad servers. When you add in the targeting vendors and the different APIs, it just gets compounded into this massive logistical headache.”
Other companies have positioned themselves as intermediaries between the brands (or agencies) and the networks to enable audience targeting across scores of networks at scale. They use the brands’ own first-party data (and often outside third-party data sources) to target potential buyers, then report on costs per conversion (or download or customer acquisition) much like digital platforms. Moreover, they can optimize to the best performing audiences, driving customer acquisition up while decreasing acquisition costs dramatically.
Interestingly, The Atlantic’s “bad unit economics” story used a podcast sponsorship as an example of high customer acquisition costs. Maybe they should have looked at TV a little more closely.