[STEP BY STEP] Exploring Channel Diversification for DTC Brands: How to Expand and Not Explode

Phillip: [00:00:10] This episode of Future Commerce is brought to you by Keen, the industry's only future facing media planning software powered by AI. Sign up for a free trial and see the Keane difference at keends.com/futurecommerce.

Brian: [00:00:39] Hello, and welcome to Step by Step, a podcast by Future Commerce, presented by Keen Decision Systems, and we are back with Season 13. You are listening to episode 2 of 3. So if you are just jumping in, you might want to go back and listen to episode 1, which was fantastic with Greg Dolan, CEO of Keen Decision Systems. It was a great look, a first look, at how should DTC evolve from a baby business to an all grown up business. And I'm so excited about this. A lot of people over the past couple years have been asking, is DTC dead? It's probably not dead. It's actually just evolving, and it's time for it to move past puberty and get into multiple channels and do more than just be a digitally native brand. And really, we're not just talking DTC. We're talking modern brands and what it takes to move to multiple channels. This is a super exciting topic because it's actually kind of hard to decide which channel is the right one to jump into next.

Phillip: [00:01:50] Yeah. I mean, you mentioned puberty, and part of growing up is going through puberty. And what better brand to come and talk about those growing pains into adulthood and maturity than Curology? Today, we have Steve Siegel, who will be joining us in just a moment, the Chief Marketing and Innovation Officer at this brand, Curology, which began in the medical prescription skin care space, curing and treating acne, and now has created an incredible and phenomenal omnichannel business with a variety of products and modalities. And one of the ways that they have grown up in the space, not just by finding new doors and new channels or even new categories, but by delivering new systems within the business and putting new types of more mature processes into place in order so they can keep the growth coming so that they continue to serve more customers. And what's really interesting about the conversation, which, by the way, I know people use this word a lot. I'm going to be really careful in saying it. When I say that this was a master class, I don't think I've ever met anybody in our space who could literally probably teach at an academic level how to grow a brand from 0 to 9 figures, but I am very, very certain that Steve Siegel could do that.

Phillip: [00:03:14] In fact, today, we're going to answer a bunch of questions which don't get answered very often like what strategies can DTC brands use to diversify marketing channels, and how would you diversify or go about in order of operations in determining a framework for determining channel diversification? So not just marketing channel diversification, but actual retail channel diversification. And then there's a lot of this balance between long term brand building and typical DTC or ecommerce advertising and paid acquisition. And so we get into a lot of it as well as the product and sort of category expansion strategies. There's no better place to hear about the growth from 0 to hero than in this particular episode. Brian, who's this episode for? And we'll get right into it.

Brian: [00:04:03] Yeah. If you're an executive or leader at a growing DTC brands or if you're leading a digitally native brands at a large CPG company or a conglomerate or if you just want to know about how to grow to the next level. If you're a young brand, a new brand, a a brand that's looking to take the next step, this podcast is for you. And who better to talk about it? Like you said, Phillip, I mean, to quote a different Steven Seagal, it's all about superior state of mind.

Phillip: [00:04:35] {laughter}

Brian: [00:04:35] I think we've got a little bit of that ahead here. {laughter}

Phillip: [00:04:41] Yeah. And he's going to put the choke hold on the tension between growth and ops. My gosh. We're getting ourselves into trouble now. This is going to be great. I know you're going to...

Brian: [00:04:56] {laughter}

Phillip: [00:04:56] You're really going to love this episode. Let's get into it. Without any further ado, join us as we sit down and speak with Steve Siegel, the Chief Marketing and Innovation Officer at Curology about how to expand and not explode.

Steve: [00:05:18] Thank you so much for having me.

Brian: [00:05:19] Steve, as we start to explore channel diversification for DTC brands and how to expand but not explode, can you share just a little bit about the background of Curology and how you came to be, and that I think will set the stage for where you're at now as a business and how you've been able to evolve.

Steve: [00:05:43] Sure. So I would say Curology has come a long way. The company actually turns 10 in a few days, which is a great milestone, and it started in San Diego, California. It was started by a mom, Dr Nancy, and her two sons. The older son became CEO of the company, Dr David, who's also a dermatologist, and they said they wanted to start a company with a few things in mind. They saw a few gaps in the market. The first is they saw that the accessibility of dermatologists was really tough. It was tough for people to get into a dermatologist's office, and really hard to make an appointment. It was very expensive, and there were plenty of parts of the country where dermatologists weren't accessible at all, especially in rural areas. So they said for something like acne, which is relatively easy to treat, they would start a telemedicine practice where you could go online and you could answer a few questions and you would actually get a consult from a dermatology provider, and then you would get a custom formula to treat your acne, and that would be shipped out to your house. That's really where the company was born, and that's where the company was focused for many, many years. More recently, starting in 2021, the company has really started to diversify. So instead of just treating acne, we now treat both acne and antiaging, and then very recently, we expanded into treating hair loss. We're also sold at retail now, so we've had a great launch at Target and recently launched on Amazon with more to come there. And then we've also started taking the journey that many DTC brands start to take in terms of balancing out really capturing people who are in the market right now and then starting to build brands as well.

Phillip: [00:07:28] I'm a customer, and I was brought in through Target. Now that I know that there's a DTC channel to support and, Steve, you on the innovation side, maybe I have to switch channels. I'm not sure how you'll get the attribution on that, but maybe my vocalizing it to you helps you. Having some of the history of the brand knowing that you're sort of digitally native as a brand, which I think is really interesting because having launched first in ecommerce now, you have sort of this lens and rigor around data analytics, quantified customer journey, channel expansion. It's all happening in the modern era. I'm curious how you are thinking today about what the role is of channel expansion in the business and how you support things like the growth of DTC in an era where customers might be shifting channels back and forth like me. Customers might be shifting channels, and you're looking at, how you have to support individual channel growth, but we also all have to cooperate. So how does Curology solve that, and is there a role that innovation has to play for it?

Steve: [00:08:35] Yeah. So we've looked at diversifying channels from a number of different perspectives. You're absolutely right. There became a moment in the company's history where we were reaching pretty much everyone who we knew would be open to a subscription for acne, and that was great, and the company's been very successful. They've served millions and millions of consumers, but we also knew a few things. Number one is they wanted to build regimen around their everyday routine, so it was about more than just having a prescription product. It was about saying, I need a cleanser. I need a moisturizer. I need sunscreen. I need other products. That was one major source of diversification. And a lot of the work to develop those products was really mining the insights that we knew from a pretty exhaustive consumer base that have been with us for a very long time. Second was, again, you're absolutely right. Consumers want to shop in different places. So even as we expanded into non Rx products, it was very important to create an ecommerce marketplace where people maybe didn't have to get a subscription. They can go directly on and get a cleanser and a moisturizer one off. And then in addition, people shop in different places, so it was very important to us to find a very strategic partner to help us expand into retail. And we've been very fortunate to partner with Target. So Curology launched last year at Target, and in fact, we're very fortunate it was the number one facial skincare launch at Target in the last four years, and that gave us a springboard to actually look at Amazon. So we recently launched Amazon in December. We have more retail customers coming online later this year. So I feel like we've taken a very deliberate and stair stepped approach to how we're diversifying.

Phillip: [00:10:10] And that's how you got me was through Target and the retail channel. I'm curious what is the mindset of the way you think about the brand and as it's changing where maybe in the times past you had to understand the customer on a very deep level by asking them a lot of very specific questions and maybe questions they don't know the answers to, like, "What is your skin type?" And you're like, "I don't know." But success with a product like yours probably requires the customer to know themselves really well and for you to know them back. Retail changes that whole calculus. What does that do for a brand like Curology?

Steve: [00:10:51] So I think you see a couple of things happening. I think the types of people we see coming through channels like Target are people who are looking to supplement an existing routine. So you may have something core, but then you want to supplement with a cleanser or a moisturizer or sunscreen, one of those products. Then what you see in DTC is you see a much more involved consumer. Not that people who will shop at retail don't care about their skin, but you see a much more involved shopper shop on our DTC sites. That's when we start to go a little bit deeper to understand their medical history, the types of things they're seeing with their skin, and then we can really customize the offering specifically for them. So I think it's a very nice balance where we get the best of both, and then at the end of the DTC journey, we can recommend. We can say, "Hey, based on what you've told us, here are some other products we feel like can help balance out your regimen."

Brian: [00:11:47] It sounds like such an involved process, which means you get a really long engagement with a customer through it. This is something that we at Future Commerce would probably call good friction, like friction meaning touch points with the customer that are necessary to get the right product in place. This definitely like, it's been on my mind lately, and that's this idea that a lot of brands recently have sacrificed what's good for what's measurable and for short term results. And so, I think, you know, for you your relationship with your customer is long standing. It's something that needs to go on and needs to have proven results for them to come back and buy from you again. So can you talk to me about the managing the balance between building this brand and building this connection with customers and then immediate results that are typically necessary in the commerce environment that we're in, in the commerce advertising environment that we've been in? Is there a formula to this, or is this more of an art that you've sort of perfected?

Steve: [00:12:57] Sure. I think there are a few different aspects to it. I think to your question around what happens at the beginning of the journey, you're absolutely right. To the extent that we understand what their specific concerns are, what medications they're on, what they're worried about at the very beginning of the journey, we can really customize a solution for them that they can feel confident in and make sure they have enough of their prescription to last them to really start to see results. And then the other thing that Curology does a very good job of is it checks in with consumers to say, "Hey, how are you adjusting to your formula? Is it working for you? Is your skin irritated?" And if you're adjusting well, then over time, the dermatology providers can actually increase the formula, which is also almost implicitly a source of satisfaction because then you're actually saying, okay. I made it to this point. I'm seeing really good results now. I can even amplify that more. So I think there's a really strong built in system there to ensure we're driving great efficacy. And then on the acquisition side, I think, again, we've been very fortunate over a long period of time to get a lot of consumers in the door. We know acne extraordinarily well. We know how to message. We know how to target. So I think we have a pretty good rhythm there, and I think it's only as we started to expand into new areas like antiaging and hair loss that we had to sort of re-reflex that muscle and start to build it again, but we're also starting to get good traction in both of those areas.

Phillip: [00:14:24] What's the tech stack difference or the marketing motion difference between the different modalities you have in the categories that you service? So prescription versus personal care versus beauty. How how does the technology, the marketing leadership, and some of the tactics differ, and how are they the same across each of those channels?

Steve: [00:14:48] So they're actually, we have one if you're in our DTC environment and you're actually looking to get a prescription from us, that's a very different experience from someone who's just looking to buy something one off from an ecommerce perspective, and then obviously retail's a totally different animal. So those are kind of the three ways that we look at the business. Curology is a relatively tight team, so we don't really have three distinct groups of people who are addressing all three of those different platforms, but we are organized to make sure that consumers get the best possible experience across all three.

Brian: [00:15:24] It is interesting, actually. I'm going to go off script a little bit here, and we can really talk about this. But I have this, like, pet theory right now that you can actually run a relatively small DTC business with kind of the same team that you end up running a really large DTC business with if you have the right tooling. As you've grown as a business and evolved, have your roles had to shift, and what does that tight team makeup that you just mentioned consist of?

Steve: [00:15:55] Okay. So I'll give you a couple of examples. What we try to do is organize ourselves around the greatest priorities. So I'll give you a couple of examples within our tech organization right now. Even go back all the way to the beginning, when Curology was founded, it was very much single-minded. It's you will get an acne prescription in the mail. You will initially get a 30 day trial that will be followed up by a 60 day format and then rinse and repeat, rinse and repeat. There was no flexibility in terms of the buying experience whatsoever. Since then, the world has changed a lot and people want to flex how often they subscribe. Maybe they want to do it every 30 days, maybe they want to do it every 90 days, or they want to sign on for 6 months or 12 months instead of once every 60 days, or they want to buy multiple non RXs in any one trip. So what we've tried to do there is we said, alright, if we have a lean team, you know, the buying flexibility is a huge opportunity for the company. We're going to organize around that. Or we say, we want to make sure that consumers have the largest breadth of experiences. We want to reach the most customers possible, really live into that dermatology model, so offering hair loss is another huge opportunity for us. So that's what we try to do. We say, what are the biggest business opportunities? And then from a tech perspective, we really look to organize around that.

Phillip: [00:17:21] I don't want to characterize you as a software buyer, but if there's a certain type of a role in organization, somebody that makes a decision around software, is that a team sport at Curology? And how do things like, I don't know, let's say Keen is helping support this particular series, how does that fit factor into the calculus of what you the types of software partnerships you're making to not just quantify the current state of the business, but how did it help you make decisions around where you're trying to get to? And is the buyer at Curology the same person as the user of the software?

Steve: [00:18:36] Sure. So I can talk about that specific example. So I'm actually a packaged goods marketer by trade. So I grew up in places like Kraft Foods, Cambell Soup Company, Bayer, Mondelez. So that's my orientation. And I think when it comes to evaluating the effectiveness of marketing, historically, Curology has looked at CAC as a key metric or LTV as a key metric, critically important. But what we've said to the organization is CAC, which was very heavily focused on, tended to miss a couple of things. The first is the long versus short effects of marketing. So we know if we're investing in brand building, the impact of that investment isn't going to happen immediately. It's going to happen in the future, and then you also have the situation where you want to be sure you're diversifying your channels. We don't want to just be spending money on one or two channels. We want to be spending money across and really to understand what marketing is contributing over a baseline. So even if we cut our spending to zero, we would get people in the door. So understanding those two impacts, that's much more in my wheelhouse historically. That's why we're relying on a key, and so it would be someone like me making that decision. We also have a really strong engineering team with a great engineering lead. Our head of product is amazing. So when it comes to a lot of those types of decisions, I will typically consult and then lean on them to make those decisions.

Brian: [00:19:57] That's super cool. Yeah. I think you kind of hit on something there. That's how you measure things. Could you kind of dive a little deeper on how you're evolving your metrics or KPIs for measuring success? Because I feel like you just mentioned your different product lines and how they sort of match up. How do you merge those KPIs and what are your most important indicators now? You mentioned CAC before, but what are they now?

Steve: [00:20:28] Yep. So being a packaged goods marketer by trade, I've been trading sort of the Ehrenberg-Bass way of thinking. So that's really primarily [00:20:39] it's all about buyers. If you don't have people coming in the door, then nothing else matters. [00:20:43] So we really reoriented from a DTC perspective around subscribers, how we're doing on subscribers, and then average order value, because in a lot of cases, price tends to be independent from buyers. So those are the two primary ones that we focus on. And of course, we're trying to build a profitable business, so making sure our margins are as high as humanly possible, those are really the three we're focusing on. But then we also still do get questions from the board and others around this whole relationship between LTV and CAC. So that's a whole dynamic. And then more recently, as we started working with Keen, we started looking at the profitability of our investments and making sure that every dollar that we spend on marketing, regardless of where it sits in the funnel, we're getting a dollar, at least a dollar, in gross profit back in the long run.

Phillip: [00:21:32] Brian loves when people say margins as high as humanly possible. I've had this conversation in the past about  [00:21:41]if you love a brand or if you love a service provider, you should be rooting for them to be making money because them staying in business is key to your happiness. That's [00:21:53] such an interesting idea that you're getting this type of a data now from a particular system. There might have been someone tasked in an organization with aggregating this type of data in prior years in your career. Is this type of software investment the kind of thing that allows more people access to greater data? Or does it make your team more aware of data or being able to agree on the same pool of data? And are there pros and cons to trusting software over top of trusting intuition or someone who's a knowledge holder in the business who has an intuition about how these numbers came to be as opposed to just numbers in a dashboard?

Steve: [00:22:39] Yeah. So I think the key example is a good one from the perspective of intuitively, even if we didn't have them as a partner, we would know that consumers aren't spending all their time on one or two platforms, so we need to diversify where we spend our media. That's just common sense. And then also there's a lot of science around very few buyers are in the marketplace at any one time. There's some Ehrenberg-Bass research saying only 5% of consumers are in the market at any one time. So knowing you have to balance out your investments at the bottom of the funnel with creating future demand just intuitively makes perfect sense to us, as well as knowing we have to build really strong brands that people recognize and that they recall for the right occasion. So we don't need any data to really help us in those types of decisions. Where we do need to get a little bit more precise, and this is where Keen has helped us a ton, is to help us understand when we're spending too much and too little on a specific platform because admittedly, Curology historically has heavily, heavily over-invested in a small number of channels, and what they really brought to bear was that we can stand to pull back a little bit, really diversify things and do it with confidence because that's not an easy decision, especially in the DTC world where people are looking at conversion day in and day out, and then you're saying, okay, how can we balance out really making sure we're delivering on conversion while also building future demand? So I think that's where they have really, really helped us in terms of getting more precise and building more confidence around the decisions we're making.

Phillip: [00:24:09] I don't want to be presumptuous here because I know that, like, this is one moment in time. At some point in the future, someone's going to listen back and say, "That's not what's happening right now." But Meta has been going through a tremendous tumult right now since Valentine's Day. So for the past month, people that are heavily reliant on Meta as a DTC performance channel are struggling. What are you seeing right now and what has some of the work that you've done over the last couple years to diversify helped you to sort of stay above the challenges that you're seeing in any particular platform right now?

Steve: [00:24:46] Yep. Meta is still a very important partner for Curology. And I think for us, it's just been a natural evolution to understand that they will, regardless of whether it's our core business or helping us build out our antiaging business or helping us build out hair, we have a very close partnership with them, and we still spend a lot with them, but they've also understood that in order to really build this brand to its full potential, we need to go spend elsewhere and look at channels like connected TV. We're spending a lot more with Google than we did in the past. We're also diversifying to even more channels. So I think it is a bit of a balance, and I think where we've also benefited is Curology has scaled over time to a pretty nice degree. So it's not like we're saying we're investing a whole lot less in Meta. We're investing the same or more as we start to scale, and we're able to diversify. So it's not like we're taking from the one hand to give it to someone else.

Phillip: [00:25:42] Sure. Sure.

Brian: [00:25:43] Feels like you nailed this idea of the rising tide lifts all boats, actually, because, I think we've seen a lot of brands go all in on one channel. And, actually, it hurts that channel in the long run if they'd only go for that channel. Because they're missing out on all the other markets that could provide brand momentum back to that original channel. And you said something earlier that really perked my ears up, which was something to the effect of we don't need data to build our brand. Could you dive a little bit further into that and what that means for Curology? Because I think that the two ideas are connected, like, the brand value increasing as across all channels and this idea that building a brand is somewhat disconnected from data. I'd love to hear more of your perspective.

Steve: [00:26:42] Okay. So I'll go back to a couple things first from sort of a more qualitative perspective, but there's a quantitative aspect of it, which is that building the brand really requires two things. It's being recognized and being recalled for the right occasions. That's what we're really focused on. And we can model even outside of our category, the best brands in the world like Coke and McDonald's. They do an incredible... Nike. They do an incredible job of that. So that's what we're modeling, and we're actually we are able to quantify to what degree our brands are recognized and recalled via studies that are outside of, call it, the mainstream, what we do day in and day out running a DTC business. So that part is taken care of. And then the other area where we're focused on where we do leverage some data is to say, if we're going to build a piece of creative, we're razor focused on understanding exactly what's going to drive engagement and get people to respond in the right way and what are those associated metrics. So when we develop a piece of content and we are going to test it, we're making sure we're testing it against very specific action standards to know if it's going to resonate with consumers or not.

Phillip: [00:27:51] So no blimp campaigns in the future for Curology?

Steve: [00:27:55] Highly unlikely. Yes. That's correct.

Phillip: [00:27:59] I love that. You know, as we're thinking about the future of your business, so, you know, Future Commerce likes to look at the future of where businesses like Curology are going. The present right now has been the story that we've just covered, which is, you know, how do you plan and measure scaling the brand into multiple channels? Are there models that you uphold? Are there brands that you revere? Maybe it comes from your past and your experience in prior businesses. But what is the type of a model of a business that you would want to get to, and what does the future of that business look like? Not necessarily which channels you're launching into, but maybe size, scale, and cultural impact. Is that a thing that you guys have a road map for?

Steve: [00:28:49] Sure. So there are a couple pieces to it, but I would say the first one is there is definitely a road map on how we drive what we're calling more physical availability, and there are two pieces to it. Obviously, retail is a huge piece to it, just making sure we're distributed in more places. But again, there's also this aspect of making the brands extremely easy to find and buy, and that's where some of the buying flexibility initiatives that we're working on really come to bear. So I would say that's one pillar where we feel like we can really build the brand out and future proof it. And I think the other one, without naming specific competitors, there are some in our space that do an exceptionally good job of bringing consumers in the door and actually having them attached to multiple lines of business that have longevity associated with them. So there are some that are very successful and that's what we're doing when we look at, say, for Curology, we have a very strong acne business, but we know we can reach a different consumer as they age who are looking for hair loss solutions. And I would say that's where saying in the future, there could be other ways in where maybe they come in for acne, they stay for hair loss, and then there are these other areas where we can also treat them. So really future proofing the business in terms of bringing someone in and making sure we can offer them products across multiple need states, but all within that center of dermatology focused. Can you meet with a dermatology provider? Can we offer you a prescription for what your conditions are? Can we service that over time and give it to you in a very flexible way?

Brian: [00:30:21] That's super cool. I love that as sort of the road map, and bringing in experts to help sort of validate some of that and connect with customers, I think, is huge. Do you see any emerging channels that are popping up, like that you sort of see as the next big moment of arbitrage for acquiring customers, or is what you described sort of the clear cut path to the next step for where you're headed?

Steve: [00:30:54] Yep. There are a few gaps right now, I would say. So for instance, some of the capabilities on platforms like TikTok in terms of their commerce capabilities, I think are ones that we just have not tapped into so far that I would say would be next up in terms of really looking to build out.

Phillip: [00:31:13] We love giving advice here, unsolicited advice in particular.

Steve: [00:31:19] We love it too. Yeah.

Phillip: [00:31:20] Yeah. If you were to give some unsolicited advice to other brands that are earlier in their journey than where you were right now, say brands 5 or 7 years ago in Curology's journey? What's a piece of advice that you'd give back to them? And maybe, if you had to think about it specifically even from a career perspective, how can people that are looking to have a role like yours in a business future proof their career for what's coming next instead of what's happening right now?

Steve: [00:31:50] Great question. So I'll give you the business answer from a Curology perspective, and then I'll give you my own experience. I would say from a business perspective, if you were to go back and ask the people who were at Curology 5 or 7 years ago, what they would probably say is, "We wish we had diversified the business sooner," and that doesn't mean necessarily go do 20 things all at once. It was saying, okay, we've got a really strong foothold in acne. What are sort of the concentric circles we can build out that are within our core capabilities, where we can really bring in incremental users, drive the business, and help to premiumize things? Those questions really started to be asked, I would say, probably 4 to 5 years ago. So I think [00:32:34] what I would say for DTC companies that are earlier in that journey is saying do what you're doing really, really well, but then start to have those conversations around diversifying channels both in terms of how and where you sell, but also how you reach consumers. You will not go wrong. [00:32:52] And then investing in really strong brands would be another one where you have to be more than just selling products, you have to be about building recognized brands that are recalled for the right occasions, so starting on that journey is critically important. And then what I would say personally, I've been extraordinarily fortunate in my career to work for some pretty fantastic companies, working for some amazing people. And I would say a big part of what I try to do is diversify the experience that I've had personally. So even in my CPG days, that was, can I get local PnL experience, regional marketing experience, global roles? Can I live abroad? Can I work in different categories? Can I work on, you know, mainstream omnichannel retail businesses and now this is my first DTC business? So that's what I would say. If you want to progress to a certain point, it cannot hurt to get the most diverse set of experiences possible.

Phillip: [00:33:45] There's almost like a radar graph of what makes you well rounded and having too much exaggeration in one area of expertise might make you a specialist, but what happens when the market moves away from that specialization as being necessary? So that is an amazing piece of advice. Steve, that's phenomenal.