Can OOH rescue faltering direct-to-consumer brands?

Direct-to-consumer (DTC) online retail was in the right place at the right time when the pandemic hit. With consumers forced to shop from home, popularity of these digitally native brands exploded.

The business model is simple. An online-only presence eliminates traditional brick-and-mortar costs, and using affordable paid social media ads avoids having to sell through a third party such as Amazon or another brand's physical store.

Now, however, rising digital costs, increasing audience de-sensitivity and irritation with online advertising and data privacy changes have converged to turn the once-golden DTC landscape into a scary place with an iffy future.

Can out-of-home advertising, of all things, be their salvation?

What went wrong for DTCs?

So here we are, more than half way through 2022. AdWeek says that Facebook advertising, once the mainstay for DTCs, isn't cutting it any more. "Attribution metrics are increasingly unreliable," they say. Results metrics aren't pretty either, when you compare the second quarter of 2022 to April 2021:

• Median cost per purchase — $68.20 now, $45 then
• Return on ad spend (ROAS) — $1.25 now, closer to $2 then
• CPMs are up 25% so far this year

Advertisers complain that declining impressions make it increasingly difficult to acquire new customers via Meta. Furthermore, increased data privacy makes it harder to target customers in the first place.

But high marketing costs and floundering returns aren't the only problem facing DTCs.

• Consumer enthusiasm has dimmed.
• And soaring shipping and distribution costs are driving down ROI. During the pandemic, the cost to import just one container from China exploded from $2,000 to $15,000.

DTC companies are taking action on multiple fronts.

They're taking steps to retain customers to preserve revenue

• Going mainstream by opening branded brick-and-mortar locations
• Partnering with big-name retailers such as Walmart and Nordstrom to carry their products in-store
• Selling via social platforms such as Instagram Shoppable Posts and TikTok Shopping

Some high-end brands such as Revolve have responded by raising prices. But that doesn't work for most brands, especially in the current economy. Now that overall inflation is at record levels, consumers are dialing back spending.

Instead, many DTCs are offering subscription pricing or flexible payment programs.

They're selling stock to raise capital

Allbirds, Warby Parker and a number of others have gone public to raise money and visibility. But that brings new challenges and potentially competing goals: increasing profits demanded by investors while remaining true to the business vision.

Financial transparency has illuminated the fact that many DTCs are not, in fact, profitable. Rising costs have only exacerbated the losses.

Kate Ryan, managing director at Diffusion, says "the best DTC brands who want to convince customers of their value again will continue to evolve, bringing a fun, fresh twist to the omnichannel experience that we haven’t seen from traditional brands."

Did someone say "out-of-home"?

An unexpected partner, OOH comes to the rescue

It's do-or-die for DTC companies:

• They're losing money in the millions
• They lack basic brand identity (when Warby Parker went public, their brand recognition was a mere 13%)
• Online-only advertising isn't working, thanks to increased costs, poor targeting and overwhelming consumer digital fatigue
• Subscriptions and payment plans may help retain some customers, but they won't bring in critical new customers
• Social-based shops can boost exposure and revenue, but there's a fee for that — a percentage of sales!

To survive, they must find offline ways to attract customers online to shop.

Consumers still love physical stores because they can see, feel, try on (or test out) and compare merchandise. Partnering with a traditional retailer also provides those opportunities, though in an atmosphere that waters down branding.

Either way, adding a physical location boosts costs and erases DTC cachet.

Out-of-home solves these problems. It benefits both consumers and brands by making connections out in the real world that drive shoppers online to browse and buy.

• OOH builds brand awareness that doesn't depend on online discovery
• OOH draws shoppers into physical stores to check out the goods and make purchases
• Digital OOH helps reduce costly returns with a better, more personalized shopping experience (according to Forrester, fear of returns "outright discourages" some consumers from shopping online)
• OOH invites and facilitates direct engagement that automatically serves as permission to communicate with prospects
• OOH dramatically boosts Facebook advertising reach and results
• OOH delivers an exceptional customer experience

And then there's mobile OOH.

Wrapped vehicles and LED trucks take your brand and products directly to consumers in an entirely different way. It's like having a store on wheels. Mobile OOH ads convey 100% branded content, anywhere your target audience can be found once they leave home.

• Mobile OOH units can travel major routes, core area streets, individual neighborhoods, etc.
• They can also stop to provide in-person customer experiences from sampling and coupon giveaways to product demonstrations

Mobile or static, out-of-home advertising is the offline option that offers flexibility, versatility and unique customer experiences that strengthen brand recognition, drive engagement and generate sales.

The real world offers a real future for DTC

"An entire industry of DTC consumer goods has been built on a house of cards that's on the verge of collapsing," warns OneScreen.ai co-founded and CEO Sam Mallikarjunan. "The disappearance of cheap internet advertising is an existential threat to entire industries, even without the supply chain disruptions wrecking their margins further."

Out-of-home, he says, is the best hope to restart and rev up DTC engines so they can take off again instead of crashing into the ground.