Customer acquisition and recruitment remain primary concerns for D2C companies as the UK opens back

Last year, we brought together a group of direct-to-consumer (D2C) entrepreneurs to discuss the challenges and opportunities facing the sector. Back then, building a strong community around your brand was a focal point as competition was fierce amongst D2C brands looking to capture market share.

However, recognising things have moved quickly over the past year, we wanted to revisit the conversation to identify new challenges; including whether businesses were thriving as the economy starts to rebound following COVID-19 restrictions and consumers spending habits shift once more.

Customer acquisition costs boom while some return to traditional marketing

“It can be difficult to accurately understand whether paid social or paid search is really doing the job, since the iOS update and since the price rise in CPAs, this is more important for us than ever.” Thomas Robson-Kanu, The Turmeric Co.

Since a recent iOS update which changed the way platforms (such as Facebook and Instagram) are able to track and serve ads, businesses are finding it difficult to gain value out of paid search and paid social. The cost per acquisition (CPA), on average, for e-commerce marketers rose 200% for tracked users and 155% for non-tracked users during the beginning of 2021.

Our D2C companies are no different and are trying various methods to navigate this. Some are using a platform called Fospha which breaks down attribution on an ad level and is improving the tracking of referrals.

Many brands are taking the opportunity to better understand their user journey, leveraging post purchase surveys to identify the lead source.

However, many are shifting their efforts and returning to traditional marketing methods in order to rely less on digital ads. For some, digital ads have been cut and redirected towards out of home marketing on buses and tube stations - generating positive results.

Offline partnerships are also an area where some are focussing on to get a bigger chunk of the pie, for one business this has resulted in 10x increase in impressions while CPA is virtually zero. Some examples of this are insert swaps, adding in printed material to other trusted brands deliveries, or rewards platforms.

Shifting spending habits and partnership potential

“We have a B2B arm to our business which went to zero (revenue) during COVID-19 so we leaned on D2C, we are shifting back to 20/80 (B2B/B2C) now that businesses are back. This flexibility has been key for us to maintain growth.” Whitney Bromberg-Hawkings, FLOWERBX

In 2021, D2C businesses recognised that Government-imposed lockdowns had provided them with a captive audience who needed products straight to their door, but that this wasn’t going to last forever. A concern was retention, particularly once the high street and hospitality venues reopened.

The ability to pivot and adapt in these circumstances is key, but when is the right time to have conversations with bigger companies wanting to partner up?

D2C businesses will often be approached by larger brands to understand where they can collaborate, but many D2C brands we spoke to felt it’s too early to be having those discussions. They still have a growing, unique brand that they want to hone and evolve.

It’s important to consider both the pros and cons of strategic partnerships - including whether their partner has the resources to invest, or if there are ethical and quality considerations of producing the same products on such a large scale.

The road you choose may depend on your exit strategy too - so those considerations must be factored in.

Digital skills and recruitment

“Don't haggle too hard on recruitment fees. Recruiters know who the best candidates are and they will first send them to the companies paying the highest fees. You might negotiate a low fee but that will simply mean you won't see the best people first. You might save a bit of money, but you'll miss out on the best talent” strong>Rob Fink, Big Drop Brewing

A market force impacting all businesses, not just D2C brands, is the war for talent. In a candidate driven market it can be difficult to find, attract and retain good people. We spoke about this in depth with Ryan Adams, CEO of Signify Technology at the end of 2021.

The consensus seems to be that LinkedIn can work extremely well for finding good candidates, however significantly more effort is required. In this type of job market, it’s important to offer your candidate not just a job, but an experience that they can’t get elsewhere.

In fact, some entrepreneurs note that employees have been willing to give up their share options to go somewhere that pays them a higher salary. So, having a share option or staff incentive scheme in place is no longer a unique proposition in itself - but potentially now a must have. The UK has a great reputation for building market-leading brands, so there are a lot of opportunities out there for people who want to be a part of something exciting.