What is Performance Marketing in DTC? How to get the best out of it?

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Oct 10, 2023

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15 min read

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Investments are soaring to new heights, and a star is on the rise – DTC performance marketing. In 2021, worldwide digital advertising spending skyrocketed to a staggering $455.3 billion, and the forecast is even more promising. By 2024, that figure is expected to reach an astonishing $646 billion, reflecting a booming industry ready for innovation.

Shift To Performance Marketing, the dynamic fusion of paid advertising and brand promotion, is at the forefront of this marketing revolution. Unlike traditional marketing models, performance marketing operates on a simple yet powerful principle: results matter. With this approach, advertisers and affiliates only pay when a specific, desired action is achieved – whether it’s a lead generated, a sale completed, a booking made, or a download initiated.

Within this landscape, the structure is supported by various factors. Cost forms the foundation, balancing investments for optimal returns. Risks are the core, encompassing potential overspending and market saturation. KPIs in the center guide campaigns with precision. Specialization offers expertise in digital marketing nuances. Efficiency on the table’s surface drives success, with resource allocation and optimization as key pillars. Understanding this structure is vital as investments in DTC Performance marketing continue to surge, shaping the future of marketing.

This collaboration allows both parties to target campaigns effectively, ensuring a high return on investment (ROI) driven by measurable outcomes. For merchants, it’s a calculated investment, as they engage with an audience that’s already converting, making every dollar count. This approach offers substantial advantages, making it a game-changer for ecommerce businesses. Read on to delve deeper into the topic.

What is Performance Marketing?

Performance marketing is a term that encompasses a wide array of practices, and its definition can vary significantly depending on who you ask within the realm of marketing professionals. In practical terms, performance marketing serves as an overarching concept that encompasses all online marketing and advertising endeavors where advertisers compensate marketing platforms exclusively upon the completion of specific, quantifiable actions carried out on their platforms.

What sets performance marketing apart from traditional marketing methods is the fundamental shift in payment structure. In conventional marketing, advertisers commit upfront payments to advertising providers, often expecting to achieve certain outcomes. In stark contrast, performance marketing dictates that advertisers only bear costs when precise conditions are met, such as the successful purchase of a product.

This age is marked by the rapid acceleration of Direct-to-Consumer sales, thus creating more growth avenues for DTC SEO marketing. Fueled by the global shift towards a digital marketplace, D2C enterprises are presented with a compelling imperative. They must harness the full spectrum of available tools at their disposal, among which performance marketing stands out prominently. Failing to leverage such tools may result in being left in the wake of competitors who have embraced the transformative potential of performance marketing.

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What is DTC with Performance Marketing?

Direct-to-consumer (DTC) models and Performance Marketing are reshaping modern business. Their alignment centers on a shared customer focus. DTC builds direct connections with consumers, while Performance Marketing efficiently targets and engages them.

When combined, these two approaches create a synergy where Performance Marketing becomes the driving force behind DTC success. Performance Marketing strategies, such as search engine marketing, social media advertising, and email campaigns, are tailored to target the DTC audience precisely. This alignment ensures that marketing efforts are not only reaching potential customers but also resonating with them on a personal level.

DTC Paid Marketing are inherently data-driven. They rely on consumer insights, purchase history, and behavioral data to tailor products, marketing messages, and the overall customer experience. This approach aligns seamlessly with the precision and accountability of Performance Marketing.

Performance Marketing thrives on data analytics and measurement. It allows businesses to track the performance of every marketing dollar spent, from click-through rates to Conversion rates. When integrated into DTC models, this data-driven approach ensures that marketing strategies are effective and adaptable in real time.

For example, if data analysis indicates that a particular demographic is responding positively to a DTC campaign, Performance Marketing allows for the immediate allocation of resources to capitalize on this trend. Conversely, if a campaign is underperforming, adjustments can be made promptly, minimizing wastage of resources.

Performance Marketing Strategy vs. Traditional Marketing Strategy

Performance and traditional marketing represent two distinct approaches to promoting products and services, each with its characteristics and advantages. Performance marketing primarily relies on digital channels and encompasses SEO, SEM, PPC, email marketing, and social media advertising strategies. It’s known for its cost-effectiveness and precision in reaching target audiences. In contrast, traditional marketing encompasses older methods like TV, radio, banners, and print ads, often relying on mass exposure.

One of the key differences between the two lies in their cost-effectiveness. Performance marketing excels in optimizing return on investment (ROI) by allowing marketers to allocate resources more efficiently, whereas traditional marketing can be costlier, especially for small businesses with limited budgets.

Moreover, performance marketing is highly measurable, thanks to analytics tools that provide real-time insights into campaign performance. On the other hand, traditional marketing often struggles to provide accurate and timely measurements of its effectiveness.

Another distinguishing factor is the ability to adjust campaigns after launch. Performance marketing campaigns can be altered and optimized even after they’ve gone live based on real-time data. In contrast, traditional marketing materials, once distributed, remain static.

When it comes to audience reach, performance marketing offers a global reach through online platforms, allowing for precise targeting of specific demographics. Traditional marketing typically has a more localized or regional reach and often employs standardized methods to target audiences.

Furthermore, performance marketing emphasizes two-way communication, which fosters higher customer engagement and satisfaction. Traditional marketing tends to rely on one-way communication, where the message is broadcasted to the audience without direct interaction.

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Social Media Giants: Facebook and Instagram

The symbiotic relationship between social media and DTC brands is undeniable. Social media isn’t just a place for personal connections anymore; it’s a dynamic force influencing consumer choices. Meta’s research reveals that over 80% of Instagram users use the platform for product discovery, and 37% of TikTok users make immediate purchases, spending 14% more. Getting SEO Help for DTC brands can harness this power for targeted campaigns effectively.

  • Attracting the Right Audience: Social media marketing is a cost-effective pillar of multichannel strategies, enabling DTC brands to build brand awareness and connect with potential buyers. Offering value and showcasing brand personality fosters loyalty, attracting the right audience.
  • Personalized Experiences: Social media isn’t one-way communication; it’s about building communities. It connects loyal customers and gathers data for product development and branding.
  • Customer Support and Engagement: Social media offers direct customer support and boosts engagement. Platforms like TikTok and YouTube see users spending around 45 minutes daily.
  • Driving Conversions: Higher engagement leads to more conversions. Meta reports that 86% of consumers would purchase or recommend products discovered on Instagram. The cost-per-mile (CPM) and cost-per-click (CPC) for Instagram ads in 2021 were $7.91 and $3.56, respectively. Worldwide, the average social media advertising click-through rate (CTR) is 1%.

These platforms offer potent ad formats and precise targeting options. Glossier and Allbirds have excelled by harnessing Instagram and Facebook to engage and target consumers effectively. DTC brands can propel growth and engagement by strategically leveraging social media’s vast user base, utilizing engaging ad formats, robust targeting, and success stories as guiding lights.

Winning at E-Commerce

Marketplaces, in general, provide DTC brands with a fertile ground to thrive in the e-commerce landscape. Their endless win-win benefits make them an attractive channel for businesses looking to excel in online commerce. Amazon, in particular, exemplifies these advantages, standing out as a prominent player in the e-commerce marketplace arena.

Amazon PPC (Pay-Per-Click) is a crucial advertising model for DTC brands on Amazon. It involves advertisers bidding for ad placements. The highest bidder gets the top spot, and payment is only required when a shopper clicks on the ad. These ads, known as Sponsored Products, help DTC brands increase visibility and sales. Bids are dynamic, and sellers can adjust them to control when and where their ads appear. The cost is incurred per click, making it an investment in driving product sales for DTC brands.

Joining Amazon as a Direct-to-Consumer (DTC) brand isn’t just about offering an easy shopping experience; it’s a strategic move loaded with benefits:

  • Effortless Customer Reach: Amazon stands as one of the most efficient ways to connect with customers, especially in the U.S. Why? A whopping 66% of new product searches now begin on Amazon, surpassing search engines (20%) and brand websites (4%). Amazon has become the go-to for finding products.
  • Amplifying Brand Impact: Positive Amazon product reviews wield significant influence beyond the platform. These reviews can boost a brand’s sales across all channels, even their standalone website. Consumers often consult Amazon reviews, shaping their purchase decisions, even if they intend to buy from a physical store.
  • Revenue Powerhouse: Amazon can be a substantial contributor to a brand’s revenue, even if they are primarily internet-based. It’s not uncommon for Amazon to account for 10-40% of a DTC brand’s total retail sales. Some brands even rake in $150,000 to $200,000 per month on Amazon alone.
  • Cost-Effective Advertising: Amazon’s advertising costs can be up to 10% lower than DTC’s. Brands on Amazon often experience a surge in traffic and organic search for DTC, thanks to Amazon’s status as the first stop for product searches. This shift can lead to healthier profit margins for DTC businesses.
  • Lower Customer Acquisition Costs: Amazon sits closer to the bottom of the purchasing funnel, with a high intent to buy. Customers actively searching for specific products or brands are primed for purchase, translating to higher conversion rates. In contrast, advertising on platforms like Google and Facebook targets users further up the funnel, resulting in higher customer acquisition costs.

Amazon presents an alluring avenue for DTC brands to thrive in e-commerce. Its advantages make it a powerful platform for those seeking e-commerce excellence.

Google Ads

Google Ads emerges as a versatile and indispensable tool for Direct-to-Consumer (DTC) brands aiming to excel in performance marketing. With its wide array of ad formats and unparalleled reach, Google Ads provides DTC brands with ample opportunities to optimize their online presence. Here’s how:

  • Search Ads: Google’s search ads are perfect for DTC brands seeking visibility among actively searching customers. Precise keyword targeting ensures prominence in relevant search results, aligning with search’s intent-driven nature.
  • Display Ads: DTC brands enhance visibility and engage potential customers across the web using Google’s display ads. Appealing visuals can be placed on an extensive network of websites, reaching a broad audience. Audience targeting tailors ads to customer profiles.
  • YouTube Ads: Utilise YouTube’s vast user base with compelling video content. YouTube ads, in various formats, captivate audiences effectively. Engage your audience on this video-sharing platform.

To thrive on Google Ads, DTC brands should focus on a few key strategies:

  • Keyword Research: In search ads, the choice of keywords is critical. Conduct thorough keyword research to identify the terms that resonate with your audience. Tailor your ad campaigns around these keywords to enhance visibility.
  • Audience Segmentation: Employ Google’s audience targeting capabilities to segment your audience effectively. You can enhance engagement and conversion rates by delivering tailored messages to specific segments.
  • Compelling Creatives: Invest in creating compelling ad creatives. Whether it’s text for search ads, visuals for display ads, or videos for YouTube, captivating creatives are the heart of successful campaigns.
  • Continuous Optimization: The digital landscape evolves rapidly. Regularly monitor and optimize your ad campaigns to adapt to changing trends and customer behaviors.

Key Metrics for Success

  • Cost per Acquisition (CPA): CAC in the context of DTC brands and performance marketing refers to the cost incurred to acquire a new customer. It encompasses advertising, marketing, and sales expenses, providing insights into the efficiency of customer acquisition strategies.
  • Return on Ad Spend (ROAS): ROAS is a crucial metric for DTC brands engaging in performance marketing. It measures the revenue generated from advertising campaigns relative to the ad costs. High ROAS indicates effective campaigns that generate substantial returns.
  • Customer Lifetime Value (CLV): CLV is the predicted revenue a DTC brand can expect from a customer throughout their entire relationship. It aids in determining how much to invest in customer acquisition and Retention Marketing, ensuring sustainable profitability.
  • Conversion Rate: Conversion rate signifies the percentage of website visitors or potential customers who take a desired action, such as making a purchase. In the DTC context, a high conversion rate is indicative of effective performance marketing campaigns.
  • Customer Acquisition Cost (CAC): CAC quantifies the expenses associated with acquiring new customers through performance marketing efforts. It assists DTC brands in evaluating the cost-effectiveness of their acquisition strategies.
  • Cost per click (CPC): CPC represents the amount an advertiser pays each time a user clicks on their online ad. It measures in pay-per-click (PPC) advertising campaigns, reflecting the cost of driving traffic to a website or landing page.
  • Clickthrough rate (CTR): Clickthrough Rate (CTR) measures the percentage of users who click on a specific link or ad, relative to the total number of users who view it. A higher CTR typically indicates a more effective and engaging marketing campaign.

How to Create a Performance Marketing Campaign?

Performance marketing campaigns are unique to each product and brand. The intent also plays a great role in the trajectory. However, there are a few steps that everyone must tweak and follow as per their requirements. Let’s break them down;

Certainly, here’s a more concise version of the steps to build a performance marketing strategy:

  • Step 1: Define Clear Objectives: Establish your campaign goals, whether it’s brand awareness, website traffic, engagement, lead generation, or sales. These goals shape your ad placement and targeting.
  • tep 2: Select Diverse Digital Channels: S Diversify your approach rather than relying on one channel. Explore options like affiliate marketing, native advertising, or social media, depending on your audience and conversion goals.
  • Step 3: Create and Launch: Craft compelling campaigns by understanding your audience’s needs and preferences. Develop engaging ad creatives and messaging tailored to each channel’s technical requirements.
  • Step 4: Measure and Optimize: Post-launch, monitor campaign data and optimize for performance. Analyze key DTC metrics, track traffic sources, and allocate ad budgets effectively to improve ROI.
  • Step 5: Address Potential Challenges: Be aware of challenges like brand safety, compliance, privacy regulations, click fraud, and publisher issues. Mitigate risks by partnering with reputable advertising platforms.

This streamlined approach ensures a strategic foundation for performance marketing campaigns and effective post-launch optimization.

Overcoming Challenges and Sustaining Growth

The DTC landscape has witnessed a transformative journey from its inception in the early 2010s to the present day. Initially, it was a golden age for DTC businesses as they leveraged the power of e-commerce and digital marketing to create a win-win scenario for brands and consumers. The adoption of smartphones, online shopping, and the cost-effective reach of social media propelled this trend to new heights. However, this era also saw investors overreacting, with many DTC companies lacking a viable business model and receiving substantial funding.

Today, successful DTC brands stand out with either loyal customer bases or unique approaches that circumvent the skyrocketing costs of social media marketing. For other DTC companies, the question looming large is, “What do we do now?”

Adapting to Algorithmic Changes

Frank Berman, EVP and Chief Marketing Officer at Bloomingdale’s, aptly notes that the future of DTC was never what it initially seemed. It’s not about disproving DTC; it’s about recognizing that being where the consumer is has always been the ultimate goal. Selling online, while crucial, isn’t sufficient. Traditional brick-and-mortar stores still hold value in the retail landscape.

Department stores, often considered conventional, have demonstrated their resilience. They offer consumers the ability to compare products, validate pricing through comparison shopping, and provide a sense of discovery. This enduring value highlights that DTC brands should consider embracing physical retail spaces to cater to diverse consumer preferences.

DTC Plus – Blending Online and Offline

DTC brands are adopting strategies like “DTC-Plus.” This approach extends beyond online sales by incorporating physical stores where brands can showcase their products alongside those of like-minded brands. As exemplified by companies like Masami, this strategy combines the benefits of both digital and physical retail spaces.

The Power of Community

Another essential aspect of sustaining DTC growth is building and nurturing a brand community. Roy Bernheim, Co-Founder of Decommerce, emphasizes the need for DTC brands to “own and host their own community.” Proprietary communities reduce the reliance on costly social media marketing, enabling direct communication with the audience. These communities foster repeat orders, data collection, and insights into consumer behavior, all of which are crucial for long-term brand sustainability.

Storytelling as the Cornerstone

According to Daniel Langer, CEO of Equite and advisor to luxury brands, the essence of DTC success lies in storytelling. Brands have transitioned from being mere manufacturers to multifaceted entities encompassing retail, publishing, and socio-cultural influence. To stand out, DTC brands must tell their unique story that evokes emotions, resonates with customers, and differentiates them from competitors. It’s not about selling a dream; it’s about selling a distinct and profoundly meaningful dream.

In retrospect, DTC was never merely a business strategy; it’s a channel, a means to an end. The real essence of DTC lies in the message, the product, the sense of belonging it offers, and the values it upholds. DTC’s success stories are those of brands that made consumers feel good. While the channels may change, these core principles remain constant.

Creating a brand today is more challenging than ever. The modern world is bustling with noise and competitors. The DTC brands that originally succeeded in online sales are now expanding into physical stores because that’s where their customers are. The journey was never about the channel; it was always about crafting a compelling message, offering remarkable products, fostering a sense of belonging, and upholding core values. These principles remain timeless, guiding brands toward enduring success, whether DTC or otherwise.

In Conclusion

The symbiotic relationship between Performance Marketing and DTC isn’t just an option; it’s a necessity for brands aiming for exponential growth. To thrive in this dynamic landscape, DTC brands should seize the power of Performance Marketing, leveraging its capabilities to reach, engage, and convert. For those ready to take the leap, Saffron Edge stands as a trusted partner, offering unparalleled expertise in crafting tailored Performance Marketing strategies that propel DTC brands to unparalleled heights. Embrace the synergy, fuel your growth, and step confidently into the future of DTC with Saffron Edge. Your success story awaits.