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Choices and constraints: How DTC companies decide which strategy to follow

Published September 17, 2021

Companies typically have to settle on strategies that align with their customers, employees, investors, and regulators. The more they know about how the other side will decide, the clearer their own strategies become.

If regulators always prefer choice for consumers, then it is easy for a platform to allow multiple payment choices: Shopify allows multiple payment options from its partners, Apple doesn’t.

By regulatory intervention, it will have to now.

Nash equilibrium and Netflix time

Nash equilibrium is a fascinating, post-facto explanation for some of the interesting decisions you will often see in business.

In simple terms, Nash equilibrium states that if you have clarity on the other side’s decision, you can make yours without regret. In other words, there is no incentive to change strategy once each side knows what the optimal position of the other side is, in their combined transaction.

All physical products cannot escape retail, because ignoring retail means a smaller serviceable market. But it is a choice companies can make.

I see this playing out every weekend at home. I don’t mind reading a book alone or watching Netflix with my kid, but when I am available for Netflix and my kid decides to read a book, it is a bummer.

DTCs, DNVBs and game theory

In DTC, how companies decide their omnichannel strategy depends on how well they know what their customers’ choices are and what their ideal strategy will be. In many transactions, constraints are actually good forcing functions — they narrow down choices and help you arrive at an equilibrium faster and cheaper.

The marketing and public-market filing languages make for a fascinating read into the minds of companies.

When Warby Parker filed its IPO prospectus last month, the company referred to its digitally-native status in the past tense. The model was effectively flipped in 2020, as its share of online sales to total sales dropped from 65% to 40%. Meanwhile, its physical store count increased from 126 to 145.

Performance marketing agency MuteSix bets on content and data to boost DTC e-commerce

Published September 7, 2021

Warby Parker filing to IPO last week was one more sign that direct-to-consumer (DTC) is an extremely powerful e-commerce trend. But LA-based performance marketing agency MuteSix didn’t wait that long to build its business around scaling DTC brands.

Created in 2014 and acquired by Dentsu in 2019, MuteSix was recommended to TechCrunch by Rhoda Ullmann, VP Consumer at Sense, a Boston-based startup building a home energy monitor. “They demonstrate best-in-class expertise with Facebook and Google paid ad platforms. They also have a very smart and efficient approach to creative development that was critical to helping us scale,” she wrote. (If you have growth marketing agencies or freelancers to recommend, please fill out our survey!)

Besides Sense, MuteSix’s former and current clients include companies such as Adidas, Petco, Ring and Theragun, to whom it provides a full range of marketing services, including top-notch direct response videos. But regardless of whether you can afford this, we think you’ll learn interesting lessons from our conversation with their CRO, Greg Gillman. The key takeaway? In today’s highly competitive ad environment, both content and data are kings.

Editor’s note: The interview below has been edited for length and clarity.

What can you tell us about MuteSix as an agency?

Image Credits: MuteSix

Greg Gillman: We’ve been around for about nine years. We started out as a Facebook ad agency — as opposed to a lot of agencies that start out by saying they do everything, we decided to focus on what we were really good at. At the time, it was doing Facebook media buying for e-commerce companies. Primarily here in LA, which is kind of the hub of these companies, but also all over. And then bit by bit, we grew the organization.

At this point, we’re a little over 400 people, and we manage upward of $500 million in spend on Facebook and Google, including Instagram and YouTube. What we’ve grown into is a one-stop shop for DTC e-commerce companies: We manage all the channels that a DTC brand needs. And we’re a performance agency; everything we do is based on results. People come to us to drive revenue into their e-commerce businesses.

Why do you think that performance marketing is the right fit for DTC?

DTC entrepreneurs are more focused on immediate impact, because if they’re not selling product, there’s no large brand propping them up. So I think that doing DTC marketing requires you to be more performance focused. For agencies that work with large brands, usually it’s more about impression buying versus performance buying. They can say: I did a reach campaign today to hit 10 million eyeballs, and whatever happens happens, because at the end of the day, you just told us to do 10 million impressions. It’s different than working with a group like us that’s trying to optimize every small piece of the funnel, and being accountable for the entire funnel to drive as much sales or revenue.

What type of clients do you work with?

The majority of the companies we work with are digitally native DTC companies. We’ve mostly stayed in that lane, because we’re really good at it. That being said, we work with companies of all sizes — startups, companies that are already established, and very large companies that need to rework both their creative and their media buying strategy.

I oversee sales, marketing and partnerships, and my role is really trying to figure out which brands make most sense to partner with MuteSix. We’re looking for high-growth brands that we can scale, and we’ve learned through the years that what works well are demonstrable products that have cool user value props.

We’ve worked with lots of startups at different points in the funnel, starting from the ground up and working with them through various rounds of funding, all the way through acquisitions, including two by unicorns. But these days, ground up is tougher. I like them to have some proof of concept — putting through $10,000-$15,000 per month on Facebook or $5,000-10,000 on Google usually shows me that there’s some life to it. But I don’t want to limit us if it’s a cool idea. I talk to a lot of people who come back once they’ve proven it out a little bit.

Have you worked with a talented individual or agency who helped you find and keep more users?

Respond to our survey and help other startups find top growth marketers they can work with!

What kind of clients are definitely not a good fit?

It won’t be a fit if there’s no real unique value prop for the product. If it’s just another run-of-the-mill company, a consultant can charge them a lower amount of money and set up Facebook ads, but what we are looking for are high-growth businesses.

The compensation for our campaign managers is actually tied to the performance of the campaigns, so if I bring a bunch of campaigns that we can’t scale, we’re gonna have a lot of unhappy media buyers who ask: “Greg, why would we take on this brand?” It’s a business model that has helped us attract top talent, but we need to make sure that we’re bringing brands that we think we can scale.

And it’s easier than ever to start a company, but it’s tougher now to scale it and take it past the $2 million-$3 million run rate. So I always revert back to asking founders: What are five reasons why people want to buy your product? What are the five reasons that they don’t? If the entrepreneur has trouble answering this, it’s not going to work. If they can’t tell somebody why their business is good, then we’re not going to be good at selling it.

How is MuteSix different from other agencies?

I’d say the main difference is that we have a 70-person in-house video creative team; and what we’re really good at doing is shooting and coming up with performance content. Not just content that looks and feels great, but video that is reverse-engineered to sell product.

Another key component is that we have a whole data science team that is also integrated with our media buying team, and that helps companies navigate things like attribution and signal loss due to the iOS 14 update. Right now, that means focusing on looking at the whole picture rather than by channel and working on mix-modeling attribution.

What are some of the things your data team focuses on?

One of the biggest things that brands struggle with is figuring out attribution, and how you continue to spend money even though you may have lost some signal into the platform. If Facebook skews too heavily, and Google is on last click, then sometimes it looks like things are never working. To help companies make informed business decisions, we are building statistical models that show information at higher-than-the-platform level.

We are also building better segments of customer profiles that help the clients understand who their core audience is, but also helps us build predictive audiences for finding new people.

Another big thing we’re trying to solve is incrementality. We work with large brands that have a strong organic following on social media; and their question is: “Hey, Greg, why should I spend more money if I would have acquired those users anyway?” So we’ve done incrementality testing with brands that spend a lot in other channels than Facebook and Google. We helped them build out different ways to look at the data so that we continue to spend in those channels and they actually know the incremental lift that they’re getting.

There’s one other piece that I think is super important and usually overlooked: first-party data. We work with brands to try and acquire as much of that first-party data as possible, segment it and use it, because that’s what they’d be left with if Facebook shut off tomorrow.

How do you prepare and adapt for changes in the marketing ecosystem?

Because we work with so many brands, we have a lot of senior leadership on each channel level. We routinely meet across departments and share insights. The data science team also builds pretty robust reporting. We try to stay ahead of our brands and to be forward-thinking about anything that is ultimately going to impact the agency. We’re constantly trying to hack our way through things like the types of content that work and things that we know will help us scale.

That’s how we have always approached it. Every major shift in our business was done to answer the needs of the brands that we were working with. For instance, there’s a data side to our business because it’s more important than ever to use that. Facebook used to be a platform where you could throw anything at the wall, and you would get a 4x or 5x return. No one’s asking about data when you’re literally printing money out of Facebook, right? It only happens when the margins get tight. But then Facebook became a more crowded platform, and the same happened with Google: more advertisers, higher CPM and a more competitive environment. We needed to be smarter about what we were doing, so we built out our data team.

Now there’s two levers that we can pull: the data side and the creative side of the business. Again, we are a performance marketing agency, focusing on all the levers. Because platforms like Facebook are only going to be more competitive, they’re only going to get more expensive, and we are only going to lose more traffic. So the more agile agencies have to think much farther outside of what we are doing on these platforms; because we’re going to make up the incremental revenue on things like SMS, influencer marketing and organic content, to continue to drive money into the top of the funnel.

Why is your content arm so important as a lever?

We have an integrated solution where our media buyers are paired directly with our video editors and producers to allow us to be agile and quick; because as everyone knows, content is king. What we try to do is optimize around things like what we call the thumbs-up rate on Facebook — three-second video views. If I held someone for that long in their newsfeed, I can potentially get them into our flow. We do the same on YouTube, and we do things like this on programmatic, because the name of the game is to get people into the funnel and work them through it. And we’re using both our data science team and our creative team to build out and optimize on the front end around these quick metrics to get things moving.

In my opinion, there’s no close second to an SMB agency that has a content arm like we do. Leveraging our content team to build performance content is one of the biggest levers that we have. Three and a half years ago, Facebook was telling us: “If you don’t build video content, and if you don’t prioritize video in the newsfeed, it’s not going to work.” At the time, we leaned in very hard — and the pain of growing a creative team of 70 people is real, especially in LA. But it’s allowed us to scale our agency.

Cheeterz Club wants to make reading glasses hip

Published August 31, 2021

Can reading glasses actually be cool? A new eyewear company called Cheeterz Club thinks so. The startup is working to change the perception of reading glasses from being just cheap, disposable items you pick up from a rotating display rack at your local drug store to being something you’d actually be proud to wear. To do so, the company is designing its glasses with quality lenses and frames in a range of styles, while still keeping the pricing affordable.

The startup — whose name is a reference to the slang term for glasses, “cheaters” — was founded by Jennifer Farrelly, whose background includes work in advertising and sales at companies like Uber and Virool.

She said the idea to make a better set of readers came to her because she found herself frustrated by the current options on the market.

“It all started a few years ago. My friends were posting on social media these really depressing comments and posts like: ‘I’m old and turning into my parents, this is awful.’ And I [thought to myself] why does it have to be like that? I feel just as young today as I did 10 years ago,” Farrelly explains. “Why are my friends and I feeling forced to feel old because of something that happens overnight?,” she says, of what felt like the sudden onset of middle age and the hardships it brings.

What’s worse, Farrelly says, is that when you finally make your way to the drugstore to pick out some reading glasses, all you’ll find are bad, plastic pairs that both look and feel cheap.

“That’s even more demoralizing,” she adds.

Image Credits: Cheeterz Club

So Farrelly teamed up with a former Warby Parker and Pair Eyewear head of Product, Lee Zaro, to design a new line of more fashion-forward eyewear.

Zaro, who is based in the LA area, immediately saw the opportunity.

“Drugstore reading glasses are typically poor in quality, and can feel like they are designed with our parents in mind, leaving a huge unmet need for sophisticated eyewear options,” he said. “When Jennifer approached me to help design her first line of eyewear, I knew it was a brilliant idea.”

To differentiate itself from lower-end readers, Cheeterz Club glasses are made with 100% acetate and feature spring hinges and stainless steel. The lenses, meanwhile, offer more clarity than is often found in reading glasses.

Image Credits: Cheeterz Club

Typically, ophthalmic plastic lens materials have an Abbe value — a measure of the degree at which light is dispersed or separated — between 30 and 58. The higher number offers better optical performance. Crown glass can have an Abbe value as high as 59, but polycarbonate readers (like those from Warby Parker, Farrelly notes) would have an Abbe value of 30. Cheeterz Club lenses, which are CR-39 lenses, are at at 58. This is a difference you can tell when trying the glasses on alongside your drugstore readers.

Cheeterz’ lenses also offer 100% UVA/UVB protection, and are oil and water repellent. They can optionally be bought in one of eight fashion tints, from pink to blue, or in two sun shades. Consumers can also opt to add Blue Light coating to help with screen-induced eye fatigue or they can choose Progressive lenses, which combine distance vision with a reading lens.

Tints are an extra $10, Blue Light protection is $25 and Progressive lenses are $40.99 — lower than market rates.

At launch, Cheeterz Club offers 42 different styles ranging from traditional to the more modern, starting at $28.99.

Farrelly says finding the right price was key, because unlike regular glasses, consumers often buy multiple pairs of readers to leave around the house or car, pack in purses and bags, and so on.

“If I break something that costs me a couple hundred dollars, I’d be really upset about it,” she says. “But at a drugstore price of under $30, I can have them in all sorts of colors and different tints.”

For Farrelly, making the startup a success goes beyond bringing higher-quality reading glasses to market. It’s also about serving a demographic that often gets overlooked.

“Founders in their forties do not get representation, and it’s unfortunate. And there are also people in their forties and fifties that have disposable income and are looking for cute things. They’re spending so much money on facial creams and Botox,” she says, “but then you’re forced to put this really ugly pair of glasses on your face that make you feel bad about yourself.”

While Cheeterz Club today is selling direct to the consumer, the company is talking to eye doctors, boutiques and others who may eventually resell for them, as more of a B2B model. It’s also testing selling on Amazon with one pair of Blue Light glasses.

Cheeterz Club plans to start discussing fundraising with seed investors later this fall.

Update, 8/31/21, 5:30 PM ET: Cheeterz Club incorrectly shared the number of frames available at launch. An earlier version of this article said it was 14, it’s actually 42, they said. We’ve updated with the new information.

Forerunner Ventures’ Kirsten Green demystifies the COVID-19 consumer era

Published May 14, 2020

“In general, the consumer has proven to be more resilient than I would have thought,” said Kirsten Green, founder of Forerunner Ventures, which has investments in breakout D2C stars like Glossier, Hims and Bonobos.

She joined us for an Extra Crunch Live conversation to help us better understand buying habits in the COVID-19 era. With tens of millions out of work and uncertainty all around, people are spending less, but Green showed up with a healthy dose of optimism — while acknowledging that her worst-case scenario planning was wrong.

Her top-line advice for companies

Take a cautious approach, be prepared to make hard decisions, but be thoughtful about that. Don’t just make a knee jerk-reaction, which is “this is the apocalypse, we all need 36 months of runway, fire half your staff and go to the bunker.” I think the biggest opportunity for companies right now in many ways is to create value by demonstrating their flexibility.

Atoms nabs $8.1M for shoes you can buy in quarter sizes for each foot

Published August 30, 2019

The direct-to-consumer trend in fashion has been one of the most interesting evolutions in e-commerce in the last several years, and today one of the trailblazers in the world of footwear is picking up some money from a list of illustrious backers to bring its concept to the masses.

Atoms, makers of sleek sneakers that are minimalist in style — “We will make only one shoe design a year, but we want to make that really well,” said co-founder Sidra Qasim — but not in substance — carefully crafted with comfort and durability in mind, sizes come in quarter increments and you can buy different measurements for each foot if your feet are among the millions that are not exactly the same size — has raised $8.1 million.

The company plans to use the funding to invest in further development of its shoes, and to expand its retail and marketing presence. To date, the company has been selling directly to consumers in the U.S. via its website — which at one point had a waiting list of nearly 40,000 people — and the idea will be to fold in other experiences, including selling in physical spaces in the future.

This Series A speaks to a number of interesting investors flocking to the company.

It is being led by Initialized Capital, the investment firm started by Reddit co-founder Alexis Ohanian and Garry Tan (both had first encountered Atoms and its co-founders, Qasim and CEO Waqas Ali — as mentors when the Pakistani husband and wife team were going through Y Combinator with their previous high-end shoe startup, Markhor); with other backers including Kleiner Perkins, Dollar Shave Club CEO Michael Dubin, Acumen founder and CEO Jacqueline Novogratz, LinkedIn CEO Jeff Weiner, TED curator Chris Anderson, the rapper Chamillionaire and previous backers Aatif Awan and Shrug Capital.

Investors have come to the company by way of being customers. “The thing that I love about Atoms is that it isn’t just a different look, it’s a different feel,” said Ohanian in a statement. “When I put on a pair for the first time, it was a totally unique experience. Atoms are more comfortable by an order of magnitude than any other shoe I’ve tried, and they quickly became the go-to shoe in my rotation whenever I was stepping out. That wouldn’t mean anything if the shoes didn’t look great. Luckily, that’s not a problem, I wear my Atoms all the time and even my fashion designer wife is a fan.”

Even before today’s achievement of closing a Series A, the startup has come a long way on a relative shoestring: with just around $560,000 in seed funding and some of the founders’ own savings, Atoms built a supply chain of companies that would make the materials and shoes that it wanted, and developed a gradual but strong marketing pipeline with influential people in tech, fashion and design. (That success no doubt played a big role in securing the Series A to double down and continue to build the company.)

Within the bigger trend of direct-to-consumer retail — where smaller brands are leveraging advances in e-commerce, social media and wider internet usage to build vertically integrated businesses that bypass traditional retailers and bigger e-commerce storefronts to source their customers and sales more directly — there has been a secondary trend disrupting the very products that are being sold by using technology and advances in manufacturing. Third Love is another example in this category: The company has built a huge business selling bras and other undergarments to women by completely rethinking how they are sized, and specifically by focusing on creating as wide a range of sizes as possible.

So while companies like Allbirds — which itself is very well capitalised — may look like direct competitors to Atoms, the company currently stands apart from the pack because of its own very distinctive approach to building a mass-market business, but one that aims to make its product as individualised as possible.

You might think that approaching shoe manufacturers with the idea of creating smaller-size increments and manufacturing shoes as single items rather than pairs would have been a formidable task, but as it turned out, Atoms seemed to come along at the right place and the right time.

“We thought it would be challenging, and it wasn’t unchallenging, but the good thing was that many manufacturers were already starting to think about this,” Ali said. “Think about it, there has been almost no innovation in shoe making in the last 30 or 40 years.” He said they were happy to talk to Atoms because “we were the first and only company looking at shoes this way.” That helped encourage him and Qasim, he added. “We knew we would be able to figure it all out.”

Nevertheless, the pair admit that the upfront costs have been very high (they would not say how high), but given the principle of economies of scale, the more shoes that Atoms sells, the better the economics.

Currently the shoes sell for $179 a pair, which is not cheap and puts them at the high end of the market, so it will be interesting to see how and if price points evolve as it matures as a business, and competitors big and small begin to catch onto the idea of selling their own footwear at a wider range of sizes.

My colleague Josh, who first wrote about Atoms when they launched, is our own in-house tester, and as someone who could have easily moved on to another pair of kicks after he hit publish, he remains a fan:

“My Atoms have held up incredibly well from daily wear for 14 months,” he said. “They’re still my comfiest shoes and make Nikes feel uncomfortable when I try them again. They’ve sustained a tiny bit of wear on the front of the foam sole (the toe just below the fabric) while the bottoms have worn down a little, like any shoes.

“The mesh fabric can pick up dirt or dust if you take them in the wilderness, and the sole isn’t hard enough that you won’t feel point rocks. But throwing them in the wash or a rub with a brush and they practically look new. The elastic laces are incredibly convenient.

“I’ve probably tied them 4 times since first lacing them up. And for a cleaner, more professional look you can tuck the bow of your laces behind the tongue. Their biggest problem is they’re porous and can let water through if you wear them in the rain or puddles.

“Overall, I’ve found them to be my best travel shoes because they’re so versatile. I can walk all day in them, but then go to a fancy dinner or nightclub. I can hike or even hit the gym with them if necessary, and they pack quite flat. With the quarter-sizing and different use cases, they make Allbirds look like restrictive outdoor slippers. For adults who still want to wear sneakers, the monochromatic color schemes and brandless, simple styles make Atoms feel as mature and reliable as you can get.”

Ali said that among those who buy one pair, some 85% have returned and purchased more, and that’s before it has even gone outside the U.S. Qasim said there has been a lot of interest in other regions, but for now it’s still following its original formula of keeping the organisation and business small and tight, with no plans to expand to further countries for the moment.

What we can learn from DTC success with TV ads

Published July 16, 2019

Kevin Krim and Sebastian Chiu
Contributor

Kevin Krim is EDO‘s President & CEO. His 21-year career has spanned search, social and TV advertising across start-ups and major companies like Yahoo and NBCUniversal. Sebastian Chiu is EDO‘s Chief Data Scientist. He earned his undergraduate and post-graduate degrees from Harvard, working previously as a data scientist at Dropbox.

One of the most-discussed plot twists in recent advertising has been the pivot of Direct-to-Consumer (DTC) brands to linear TV. These data-driven, digital-first players are expanding well beyond Facebook and Instagram—and becoming serious players on the largest traditional medium in advertising.

A January 2019 Video Advertising Bureau study found that in 2018, 120 DTC brands collectively spent over $2 billion in TV ads—up from $1.1 B in 2016. 70 of those 2018 advertisers ran TV ads for the first time.

But while we know that they’re advertising on TV, what may be less discussed is whether they’re succeeding on television—and what strategies they use to achieve their success.

At EDO, we have a unique and differentiated ability to measure how DTC advertisers perform on TV by tracking incremental online searches above baseline in the minutes immediately following individual TV ad airings as viewers translate their interest in advertised brands and products directly into online engagement with them.

By measuring incremental search activity across 60 million national TV ad airings since 2015, we are able to effectively isolate the effects of TV ad placement and creative decisions that are most likely to cause online engagement.

We ran the numbers on DTCs as well as advertisers in various other categories to better understand how DTCs specifically are succeeding in TV ads—and what DTCs who are considering TV advertising can do to achieve success on TV.

Does the David vs. Goliath story play out on TV?

The DTC revolution is a quintessential David and Goliath story. In vertical after vertical, small, digital-native upstarts are changing the game and overtaking major brands. Does that story play out on TV as well—or is TV advertising one area where DTC marketers have finally met their match?

To answer that question, EDO looked at how effectively TV ads elicited viewer activity since September 2018 across eight major industry categories including DTC. Guided by historical ad performance across billions of ads, we rated ad performance based on how closely the DTC ads came to meeting the benchmark volume of brand-related online activity in the minutes following each TV ad airing.

We index each industry accordingly—giving an index value of 100 to an ad that meets benchmark standards, and below-par ads getting a score under 100 while higher-scoring ads receive a score over 100. We chose to set our index baseline of 100 to the average Consumer Packaged Good (CPG) ad since it is such a large and broad ad category. Our results are as follows:

dtc