The DTC Revolution Is for Consumer Goods Companies of All Shapes and Sizes
Today, advertising remains a core marketing activity for most consumer goods companies and CPG brands in particular. But expanding consumer data privacy regulations and the demise of third-party cookies are disrupting the status quo.
Simply put, the third-party data consumer goods companies have relied on for decades to target audiences and measure media and marketing performance is not as accessible as it once was — and consumer expectations for brands are changing.
Savvy consumer goods companies like Heineken and VF Corp are stepping up to the challenge by shifting away from third-party data in favor of first-party data and adopting direct-to-consumer (DTC) engagement models that are both privacy-compliant and create value. They recognize the need to leverage the unique first-party data they have and add to it to create highly personalized experiences for their customers.
But not all consumer goods brands have fully embraced the DTC movement. Some have dedicated their energies to physical shelf space and mass advertising, while others feel they simply don’t have the time or resources to do so. Whatever the holdup may be, here are three reasons why consumer goods companies of all shapes and sizes need to enhance their DTC strategies now.
Risk Mitigation
Globally, privacy and data protection legislation is flourishing. From GDPR to CCPA and beyond, governments everywhere are enforcing robust guidelines for the collection and use of consumer data. Using data irresponsibly for marketing and advertising puts consumer goods companies at serious risk of financial penalties, reputational damage, and more. One need to look no further than beauty brand Sephora, who was recently fined $1.2 million by CCPA for illegally selling consumers' personal data using third-party trackers to get targeted ads and discounts on analytics.
DTC strategies offer consumer goods companies opportunities to collect and scale their own privacy-compliant first-party data by investing in their direct relationship with customers. Offering value to customers, either through insightful content or rewarding digital products and experiences, means companies can collect first-party data with explicit consent from consumers and use it to drive privacy-first audience targeting and measurement strategies — without falling afoul of consumer data privacy laws.
Targeting Precision
In addition to growing consumer privacy concerns, the changing ad tech landscape presents a challenge for targeting the right audiences in digital media channels. For instance, many CPG companies use data management platforms (DMP) to collect on-site and cross-channel data about consumers. This data is then used to create ‘black-boxed’, cookie-based segments for targeting and personalization across the web.
But third-party cookies are a crumbling foundation that will soon be gone for good. As cookies are phased out, it will become increasingly difficult to target consumers effectively, leading to higher acquisition costs and a significant amount of waste.
By embracing DTC tactics, CPG brands can mitigate the impact of third-party data deprecation by forging direct relationships with consumers and collecting the rich, privacy-compliant first-party data they need to build unified customer profiles, create multi-dimensional segments, and target audiences more effectively and efficiently. While the deprecation of third-party cookies may mean smaller audiences, it also opens up opportunities to target higher quality segments that may actually perform better.
Performance Measurement
For many CPG companies, the majority of their product purchases occur through retailers, restaurants and event venues. Historically, this has left these brands with a gap in their understanding when it comes to shopping and purchase data associated with their consumers and the effectiveness of their advertising spend.
To close the gap, consumer brands have attempted to rely on costly third-party data sources and/or third-party pixel trackers on a retailer’s thank you page, for example. But both come with challenges in reliability and actionability, not to mention the cost and risk they pose to consumer privacy compliance.
DTC initiatives can provide a future-proof way of getting the first-party data consumer goods companies need to measure performance while still protecting user privacy. Insights from first-party data can be used to understand the influence of each touchpoint in the customer journey or the lifetime value of a customer.
Product Innovation
DTC tactics also afford CPG brands the opportunity to learn about their various audiences. For instance, what other product categories are they interested in, what motivates them to buy, and more. These insights can lead to new product innovations, campaign ideas, or audience growth.
What’s more, when this data is shared with trusted retail partners in a secure and privacy-compliant manner, like through a clean room, CPG companies can uncover valuable consumer insights (such as shopping and purchase behaviors) and discover potential new audiences.
Privacy laws and cookie deprecation are turning a decade’s worth of marketing and advertising practices on their head. Now is the time for consumer goods companies to take control of their own destiny by testing and investing in an effective DTC strategy. Though the DTC model will never replace the need for many consumer goods companies to sell their products through brick-and-mortar locations and e-commerce marketplaces, it is a low-hanging fruit opportunity for every consumer goods brand to take advantage of.
—Sam Ngo, Director of Product Marketing, BlueConic