There are a lot of bold post-COVID-19 Direct-to-Consumer (DTC) predictions circulating the interwebs right now. I see articles with headlines like ‘DTC is Dead’ followed almost immediately by ‘DTC is the New Retail.’
So here’s my contrarian prediction:
After COVID-19, the DTC space will grow as it consumes traditional brick-and-mortar distribution at a faster clip, but it won’t substantially change as a single business channel. This means brands must think outside the box and continue to innovate on ways to leverage traditional distribution channels—all while building customer loyalty and fostering a unique community.
What am I willing to wager? 100% of our company’s future. The key to large-scale growth is omnichannel presence—something we’ve been planning since our founding in 2016.
Over the last couple weeks, we saw what happens on a micro-level when brands are solely reliant on another party to sell and distribute goods. Amazon sellers who use Fulfillment By Amazon were shocked to learn that Amazon was only accepting new deliveries of “staple items” that were necessary for the fight against COVID-19. This temporary pause is crushing sellers who depend on inventory turnover to support not only their business, but their personal overhead as well.
On a macro-level, and despite the pandemic, Customer Acquisition Costs (CAC) will continue to rise for all DTC companies due to target market exhaustion through brand growth phases and the increased competition and rising costs on platforms like Facebook. Target markets are like a dart board—the bullseye is made up of early adopters who don’t take much convincing to convert to a purchase and will always require the least amount of advertising effort. However, when a company grows faster than the bullseye, then they must expand to the next rung where new prospective customers need additional messaging—which means more advertising expenses. A few more rungs and your new reality is 3x the initial CAC. Can you offset the effects of rising acquisition costs with great content and layered advertising tactics? Maybe. But if you’re growing 100% year over year your CAC will inevitably rise.
You cannot be held hostage by Facebook’s traffic cost or Amazon’s swift move to cut out it’s sellers (albeit for a good cause). The most efficient way to combat CAC and grow sustainably is by leveraging existing business models to fit your distribution—innovative strategies to meet the customer where they already shop, visit, and play—while seamlessly and subtly integrating into their day-to-day lives.
Here’s our growth playbook:
Retail Distribution. Yes, I know. One could argue that we’re moving backwards—our margins will decrease compared to DTC and we’ll be beholden to big-box retailers. But we’re going all in with our new made-for-retail product, Death At The Dive Bar. We’re meeting the customer where they already shop and widening the top of the sales funnel for our DTC subscription service. More than just a volume-margin play, big-box retail distribution will subsidize our direct response advertising costs and help build the brand far quicker and cheaper than we ever could with a single channel. In February we attended the NY Toy Fair, and our expectations going in varied, but we walked away with commitments from the largest U.S. retailers (more on this at a later date). The companies that will win are those that can find innovative ways to diversify revenue streams.
Community + Technology. There’s never been a more important time to build a community around your brand—and social media can make that a quick, easy, and free reality. From day one, we provided ways for our Members to communicate and collaborate by creating a secret Facebook group where today over 117,000 Members comment, post, and engage as they solve their Hunt A Killer episodes. Through social listening, we saw that Members post about everything from current events and shared true crime interests in addition to commenting and asking questions about their individual gaming experience.
Our initial intent was to use communities as a way to improve the Hunt A Killer experience by collecting necessary feedback and tracking Members’ interactions and observations. Not only did we collect feedback, but what happened naturally was perhaps the best form of marketing: brand ambassadorship and word-of-mouth growth. The secret Hunt A Killer Facebook group grew authentically because it creates a sense of belonging where people can tackle challenging ciphers together, give no-spoiler hints, and exchange theories about the storyline while experiencing an immense sense of accomplishment and excitement from completing.
We’re doubling down on the community aspect by integrating more technological aspects into the Hunt A Killer experience through a custom application. While COVID-19 may accelerate parts of the technology strategy, we baked this into our plan years ago. We want to own these channels, and by bringing the conversations into our ecosystem we can increase engagement, retention, active listening, and enhance the immersive gaming experience.
Will Hunt A Killer follow the same road as Netflix and go 100% digital? We’ll let the data drive those strategic decisions—in the meantime, we’re building.
Licensing (inbound and outbound). Our core competency consists of creating astounding intellectual property (IP), and our unique ability to transform that IP written by our talented in-house writing team into immersive gaming experiences. This presents two clear opportunities: translating our existing IP into different mediums (think: television, books, movies, etc.); and leveraging IP from existing franchises and transforming it into our medium of gaming experiences. Licensing our content creates new revenue streams while expanding brand awareness. It also exposes Hunt A Killer products to new audiences while driving CAC down by tapping into a franchise’s already-established following.
These initiatives started back in 2017. Today we’ve closed on exciting new licenses that you’ll see on shelves and online very soon, and we’re continuing to explore new mediums with top industry names.
It’s never too soon to ask yourself, “where do we go from here?” It gives you permission to escape today, and understand that a future exists through the fog. The DTC brands that win tomorrow will be the ones that plan for omnichannel today.
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