[STEP BY STEP] Maintaining the Cool Factor: Scaling Your DTC Brand in Traditional Channels

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 Keen difference at keends.com/futurecommerce. Hello, and welcome to Step by Step, a podcast by Future Commerce, presented by Keen Decision Systems. This is Season 13, Brian.

Brian: [00:00:48] Wow. If you've been in this industry for a while, Phillip, you've probably heard people ask, is DTC dead?

Phillip: [00:00:56] {laughter}

Brian: [00:00:56] And the question is, well, is it? Or maybe it keeps changing. Right?

Phillip: [00:01:02] Yeah. Totally.

Brian: [00:01:03] And in this Season 13 of Step by Step by Future Commerce, brought to you by Keen we'll be exploring how DTC isn't dead. It's actually just growing up. It's evolving.

Phillip: [00:01:12] And I think we've also witnessed that there are a lot of businesses, not only is the the nature of the channel evolving of a direct to cons er being a channel, but the businesses themselves, they may have started as digitally native, many of them, but as we'll hear in this season of Step by Step, the way that they're using data is in other channels and informing how they're creating strategic decisions that drive their direct to cons er web channel. And so there are some really interesting and very mature omnichannel brands that are contributing here in this season. So, yes, in Season 13 of Step by Step, we're going to examine how DTC is actually expanding and growing and how digitally native and modern brands move past that origination channel, that digital channel into a full on world of omnichannel retail.

Brian: [00:02:01] We're on Episode 1 of 3. So in this 3 part series, we're going to talk with these brands and business leaders about what it means to take the steps you need to move from your origination channel to the next channel and the next channel and the next channel. So I am super excited about how to pick those low hanging fruit opportunities, the ones that are actually going to be winners, and to do that both with data and using your gut. And like you said, Phillip, we'll be talking to people that have done it before, which really makes this a valuable season. I'm so excited to get into it.

Phillip: [00:02:38] And one of the things we learned here in this very first episode with Greg Dolan, the CEO of Keen, and he talks about, you know, this idea of scaling your DTC brand into more traditional channels. Something a lot of these brands would depend on a lot, especially for legacy omnichannel and traditional retail channels are spreadsheets. But what spreadsheets fail to give you, while they're very universal and everyone needs them and everyone sort of depends on them in organization, and some of the biggest sites in the world and the biggest brands in the world still depend on them. Our world depends on spreadsheets, but spreadsheets don't often give you the insights and the data analysis and the heuristics involved in making decisions and then tell you in plain language the types of decisions that you should be making about deprioritizing spend in some channels versus another, seasonality and commonality trends, things that you may not be looking for that, you know, other systems might, and such a system might be Keen. So Greg is going to tell us a little bit about that. But quickly, who is this podcast for this season as we have this 13th season? And I would say it's the lucky season. 13. Lucky n ber 13 of Step by Step, Brian. Who is it for?

Brian: [00:04:06] For this season, we're going to be talking to executives or leaders for growing DTC brands. Or if you're a leader but a digitally native brand of a large CPG or conglomerate. Or if you're considering how to understand what your next channel to sell through is, but you don't really know how to discern what the next winner might look like, then this season's for you.

Phillip: [00:04:26] Yeah. And as you do grow up, you know, the rising tide lifts all ships, but your pie of revenue and channel investment into different areas of new channel growth needs to change and shift over time, and you need to learn how to prioritize that. That's the thing that I think if that is your job, you're going to get a lot out of this season. So without any further ado, this is going to be an incredible season. Let's kick it off with Greg Dolan, the CEO of Keen Decision Systems, as he teaches us how does DTC grow up, and how do we maintain the cool factor and win while doing it?

Greg: [00:05:12] Hey, guys. Great to be with you. Excited for the opportunity to speak.

Phillip: [00:05:16] Yeah. And thank you for partnering here with us on this series, you know, scaling a direct to cons er brand... It's a really relevant topic right now. Of course, scale means a lot of things to a lot of folks. When you're thinking about how you're partnering with brands at Keen today, what are you hearing brands say about the way that they're thinking about scale in the modern sense of the term?

Greg: [00:05:39] Oh, absolutely. So, you know, direct-to-consumer brands obviously grew up in a digital world, in an ecom world. And their support for their brands and their consumers found them online, and the support for their brand is very digitally focused. And it's been very, you know, it's leveraging cookies. It's leveraging an understanding of being able to target your consumer in a very detailed granular way.  And obviously, with cookie deprecation and that going away, it kind of changes the model as well. And I think there's also a focus more as you scale on being able to profitably grow and make sure that every dollar is working as hard as possible for you, not only in your legacy channel, which would be direct to consumer, but also what is necessary for you to start growing into different channels to reach your consumers in different ways. Right? So where we've seen in the past very ROAS-focused, let's put as many dollars in Meta in Google as possible and maximize ROAS to reach a consumer in the online world. We now have to think much more broadly around how to reach our consumer different ways and build brand equity. I know we're going to talk about kind of brand building brands for sustainability. But in order to start growing into those traditional channels, you have to take also a balanced, more traditional approach to how you're reaching your consumers as well. Both balancing the top and the bottom of the funnel, brand building with growth marketing, bottom of the funnel activation, and that's really how you ultimately support a brand across a number of different channels.

Brian: [00:07:16] Yeah. I think it's a really good point. And you kind of touched on it already. I think one of the challenges that DTC brands are facing when they look at this is they've taken a very modern approach to growing their brand, to building their brand, to advertising their brand. And so one of the things that I think some of these brands are concerned about when they go start to look at some of these traditional channels or additional channels is losing their voice and losing their unique appeal when expanding into these channels. So do you have some advice about how these brands, as they start to look beyond their existing channels that they've put their voice into, how they can maintain that level of modernity or unique appeal?

Greg: [00:08:07] It's maintaining your legacy channels and where you've invested in the past, but rightsizing that investment is really important because that will then free up dollars to be able to support the brand elsewhere. And what we see a lot in this world is an overspend in certain channels, particularly at the bottom of the funnel. So we talk about brand building, but if you're really focused primarily on the bottom of the funnel and really driving transactions, you're not building as much equity as you possibly can in terms of sustaining that. And you need that equity to be able to start transcending and moving into different channels. So what we would advocate for is to make sure that you're spending the right amount in your core channels, your legacy channels, and making sure that the financial return is optimized. That's what we do is making sure that you're not overspending in a certain channel. You're not overspending in a certain time period and making sure that you're maintaining that footprint in your core channel with the right amount of spend. I think there's also an opportunity to balance top and bottom of the funnel even when you're focusing on DTC channels in ecom and starting to drive more brand building there. But then as you look into the new channels, it's really an understanding of how marketing messages are consumed in those channels. So as you move into brick and mortar, maybe you're moving into Walmart, traditional Target, some of the big box retailers, in store presence is going to be really important. So incorporating shopper marketing, retail media in store is going to be more important. So by rightsizing the investment in your core legacy marketing tactics to support your core channel, you can then free up dollars to invest in channels and marketing tactics are going to support the new channel. And then the other piece to it is making sure that you're building long term sustainability and you're balancing that top of the funnel brand building and awareness with bottom of the funnel transaction driving tactics.

Phillip: [00:10:21] Over time too, as the business grows more holistically, you're thinking about it not probably in terms of one channel being the sustaining portion of the business, but a balance of channels being where you're creating, like, a life cycle with your customer and obtaining new types of customers. I think the thing that a lot of DTC brands and their leaders that we speak to get hung up on is while launching in Walmart or Whole Foods or launching at Target, it doesn't just happen overnight. They're the results of successful tests. And those tests have to be successful, and they're not going to be successful without some other tactics in specific regions that also help drive that type of awareness. So maybe tactically these channels wind up supporting each other to some degree. And maybe that's something you could talk about how you measure the efficacy of as they're looking to sort of redirect spend from what you're calling legacy channels like website, ecommerce, meta ads?

Greg: [00:11:26] Our software is built on being able to tease apart, the impact of every marketing tactic, and the interaction effects across both. So we know that if you're spending at the top of the funnel, video, brand building, messaging, it's having an impact on the effectiveness of your bottom of the funnel activities and your tactics and vice versa. So there's an interaction effect that we're able to measure and tease apart and really get a good understanding of how that's all building towards sustainable business. What we see a lot of times is if you're focused too much on one channel, whether it's, it could be meta, and you're focused too much on the bottom of the channel, there's an isolation effect and there's a point of diminishing returns on that spend. So every dollar has less impact over time. And what happens is, as you're we know long term effects in marketing will build brand over time, so if you're focused on the bottom of the funnel, your brand is decaying, your marketing is decaying very quickly. So if you're transaction driver, you're driving the bottom of the funnel. You're driving that transaction without a lot of equity and residual value for the business, so every dollar again is not working as hard as the last dollar. So we have DTC customers that are spending all their money in the bottom of the funnel, and they're actually they have a base that's declining, right, versus building long term sustainability. So it's really important to have a good balance. And again, it's going to depend on what your objective is. You're driving towards long term value, driving towards a revenue number in the short term, or you're driving towards a profit number in the short term? That dictates what your mix looks like. But to build a long term sustainable business across channels, there's a good balance top versus bottom of the funnel of 60/40, 70/30 that then has an interaction effect that drives longevity and sustainability in your brand, while driving the right amount of bottom of the funnel kind of revenue driving performance over time as well. And that's really the best practice that we see. I mean, there's always situations where, hey, I want to grow the top line faster and I don't care about the bottom line. I'm okay with burning cash. And in that case, you're going to spend much more of your activity in the bottom of the funnel, but if you're looking to drive long term value, long term profitability, a better mix is to have a heavier mix at the top of the funnel.

Brian: [00:13:57] Do you feel like that this helps hedge against getting too fragmented or basically, as you go invest in additional channels? The way that you're describing it, I'm thinking that you're going to be able to assess whether a channel is effective, whether it be top or bottom more quickly with a tool like yours. Is that one of the ways that you see it being assisting?

Greg: [00:14:28] Yes, it's the real time feedback loop on what's working and what's not. But, yeah, you want to be really strategic about where your consumers are looking for your product, and really focus your efforts there. And then it becomes if I'm going to get a base level amount of distribution, a number of doors, then I'm going to make sure that I have the right amount of support to make sure I'm driving velocity and turns for that. And that becomes the marketing plan that supports that new channel. And that could be an in store activity, other types of marketing tactics that we know are going to support the transaction at the shelf, and then that becomes a test and learn situation where you can continue to scale and understand how to build on that and also becomes a road map as you look to enter other physical channels as well. So, yeah, it requires a more consistent feedback loop in order to understand what's working, what's not, and how you redirect your resources when things aren't working, or you step on the gas when things are working. So I have a lot of runway in terms of spending in this particular tactic. I know that I could spend a lot more profitable and it's driving the type of return that I want. So I'm going to spend more here versus there. And that is really enabled by a real time solution like ours to be able to pull all these pieces together, quantify, understand where you are on the response curve and the profitability curve to ultimately get to the right mix of investments to drive the business against the intended outcome.

Phillip: [00:16:06] I guess there's, you know, a bigger question here around a lot of these companies that are on the cusp of looking to try to expand are really needing to shift the profitability curve for their business and really figure out what the right amount of money is to spend, especially for those who are trying to become profitable outside of having maybe potentially had investors that were writing blank checks for them for a couple of years. So now we're in a situation where some of these brands can't really afford to fail. They need to make the right decision. Is there a risk to be making a mistake somewhere in the business, and how do you sort of hedge against that with the right type of measurement?  Because I often talk to brand leaders where they talk about, "Well, we're over extended by, it's a mile wide and an inch deep. We're testing in too many channels, and we just really need to figure out one particular one, but everybody has their darling." So everybody has one channel marketing channel or acquisition channel that they love. There's a lot of them digitally nowadays as well as these physical, you know, traditional brick and mortars.

Brian: [00:17:56] Or even have one ad in that one channel.

Phillip: [00:17:58] Right. It's running yourself so thin over all of this, you know, also leads to a lot of conflicting data too. So how do you parse all of that?

Greg: [00:18:04] One, understanding in a step by step approach. Let's understand the profit profile of the current channels that we're investing in. Measurement really focuses on the past, right, at the end of the day. So what the last dollar delivered. So if you look at your ROAS, if you're looking at ROI, it's the last dollar. And we educate a lot of our clients on having the highest ROI or the highest ROAS isn't necessarily the best thing at the end of the day. It shouldn't be a goal to maximize your ROI because if you're getting an ROI of $4 on a $4 return on every dollar, well, you're not spending enough of that channel. And if it's below a dollar, you're overspending. So that's how you kind of can... It's informative to have a historical ROI, but it's not guiding a decision. Where the decision happens is at the marginal ROI calculation. So what is the expected impact of the next dollar invested? And if that next dollar invested is greater than a dollar, you want to put more in that channel. So that's what our system is able to do. So you start with those legacy tactics. And so what is my ROI and my marginal ROI on Meta versus Google versus other channels that I'm investing in? And if it's above a dollar, you keep investing in that until you extract all the value from that particular tactic.

Brian: [00:19:29] It sounds to me like what people thought were arbitrage channels were actually just underinvested channels.

Greg: [00:19:36] Yep. Yeah. You have to have an understanding of where you are relative to the optimal in order to understand whether you can put more, you can step on the gas more or you need to take money out, either divert to another channel or potentially another week. So we're also finding that a lot of the brands overspend during key seasonal periods. Well, let me spend too much on Prime Day. Well, if you spend too much, you're actually overspending based on the amount of demand that's available to you on that day. And you actually could drive more profitable volume if you spend on the shoulders of Prime Day. So leading into Prime Day or on the backside of Prime Day. So getting to the right week and the right channel is really important, and we dissect both of those in our application. So once you have a good understanding of that, then you're saying, "Well, I have dollars that I have to redeploy. What's the most compelling tactic to drive the channel behavior that we're looking for?" So how do we best support our channel distribution? So that could be a dollar of spent in shopper marketing or some retail media or it could be anything, and within our system, we have a bunch of norms that we can utilize in our marketing elasticity engine to start at least getting estimates for where the next best dollar should be spent to support that particular channel. Then it becomes the next step becomes, "Well, let me actually go execute what I have most confidence in and get some real time learning." A month later, you have new data. You're able to see, is it working better than I expected, worse than I expected? Where can I then make my next investment decision? But it's really that closed loop and real time feedback loop that provides the guidance for you to kind of learn your way into these decisions and ultimately make sure that you're not making mistakes, like with dollars that really have to work hard for your brand.

Brian: [00:21:28] What happens when there's an indicator that things are kind of stagnating? The amount of spend that you put into the channel is actually not really changing the incremental dollars that you see from it. Inconsistent results.

Greg: [00:21:49] So being able to understand whether that's a marketing problem or an external factor problem or an external environment factor is really important.

Phillip: [00:21:57] The Spider Man meme, everyone's pointing at everybody else. Right? Yeah.

Greg: [00:22:01] Yeah. Yeah. It always drove me nuts. It was always marketing's fault when things weren't going well, and it actually got all the praise. Like being a quarterback in the NFL, you're going to get, you know, all the blame when you lose. You're going to get all the kudos when you're actually winning. And it's actually not the case. We see a lot of situations where there's a negative external environment, whether it's competitive pressures or economic conditions, consumer sentiment, whatever factor is driving a headwind for the business. And marketing is actually doing a great job of offsetting those headwinds and continuing to build your business through these difficult periods. And if you're not able to quantify that and tell that story, then marketing's going to get all the blame, when it's actually doing the job that you needed to do during that difficult time. So being able to understand and quantify those pieces, and that's also a key consideration of, you know, if I'm stagnant, is it marketing or is it the external environment? If it's the external environment, I need to keep my marketing going in the most profitable way possible to offset the headwinds. And if it's not, on the flip side, if we have a positive external environment, that might be an opportunity for your marketing to scale even further than expected because you have some really positive external factors that are driving your business. So that's what we generally see, and to be able to dissect that and understand that allows you to get to the right strategy to get beyond that stagnation.

Phillip: [00:23:35] What are some examples of brands that have been able to accomplish all of these things that we just talked about, from scaling up, keeping the cool factor, you know, utilizing your existing team to sort of shift strategies and expand the business, make better decisions, and see out ahead?

Greg: [00:23:55] Yeah. The cool factor is very kind of creative and kind of brand image driven. So we would work to make sure that every dollar that's being exposed to the consumer is having the maximum impact beyond creative. So it's in the right channel at the right time to be able to drive the right behavior that you're looking for. And that's really where we focus as a company, as a software. So there are brands that are doing really well are open to how the marketplace is changing and realize that they have to think differently about how they're making their decisions. And that's both brick and mortar legacy brands as well as DTC brands. So I kind of talked about it beforehand. A lot of the DTC brands that we start talking to are still very focused on those one or two channels that have worked really well in the past, with a focus on ROAS, a focus on historical measurement to really guide future decision making. And I think the change that's necessary there is to say, "No, it's an omnichannel world. I have to think about how all these dollars are working across the funnel, top and bottom of the funnel. And I have to be really clear on what I'm trying to achieve as a brand." And, Phillip, you brought this up before. Am I driving aggressive top line growth or am I balancing top and bottom line? Am I trying to maximize profitability? That all dictates the types of decisions that you make and how you utilize the system and where you put your dollars, and that's pretty consistent across the board. So the folks that are doing really well with us are open to and agile enough to adjust to the changes and how the marketplace is evolving, and recognize that the way things have been done in the past may not necessarily be the best way forward. So we have to think differently about how we measure, what we're using to inform decisions, how we're holding ourselves accountable to those decisions, and making sure that they're tied to real dollars and cents and not some kind of vanity metrics or marketing objectives that can't be truly quantified in a financial way. So that's really what we're trying to drive. How do you start to connect all these decisions directly to a financial outcome and ultimately drive more profitability and continuous improvement over time?

Brian: [00:26:17] So, you know, as you look at some of these enterprises trying to sort of go the other direction where they come to DTC, how have they been faring? Have you seen any results in these sort of traditional brands trying to make the step to more modern channels, sort of the reverse of what we've talked about?

Greg: [00:26:37] They have the same challenges in the opposite direction, {laughter} honestly. It's again, it's a different skill set. It's a different vernacular. It's a different set of potential tactics for them to leverage. They're not always organizationally set up. So I think, you know, on both sides. So if you're legacy DTC, you have to make sure you have the right talent base and experience to be able to kind of move and be able to operate in a brick and mortar channel, more traditional channel. The opposite is true for the enterprises that are, you know, legacy brick and mortar traditional and trying to move into the ecommerce space. They've often created these kind of sidecar organizations that are ecommerce focused.

Phillip: [00:27:20] Yeah.

Greg: [00:27:21] The problem with that is that you have different decision makers in different parts of the organization. Right? So the advice always, if you're trying to move, is trying to create an omnichannel organization that can look across all of your channels as well as being able to allocate across. So you're trading off decisions across all of your marketing. You're building a brand. Right? And that brand has different channel distribution. You need to be able to look at it and plan for it as a brand. So I'm trying to maximize an impact associated with making sure every dollar is working as hard as possible against that objective. And that's been the same problem with enterprises going into ecom. It's so decentralized to the point where the left hand is not talking to the right hand, and they're not optimizing their dollars across that entire network.

Brian: [00:28:13] Do you think it's an organizational problem as well? Like you mentioned the sidecar business. Do you think the data that's coming back from Keen and from other sources is actually it should be indicating that a like organizational change needs to be made at some of these enterprise businesses?

Greg: [00:28:33] It's just the way that decisions are being made. So we have a number of clients that, you know, 30% of their marketing budget is being spent on ecom and the CMO doesn't have access to it.

Brian: [00:28:43] Crazy.

Greg: [00:28:43] How do you make a decision knowing that all of these pieces have interaction effects and halos across? You're basically compartmentalizing all of the spend, and you're underutilizing the spend, and it's not having as big impact as it possibly can have. You're actually looking at it holistically. So it is an organizational challenge for them to start looking at it. And that's why we're starting to see commercial organizations that are putting it all together, but that also requires a different skill set in many cases. And different processes and different ways of making decisions, which is what folks need to embrace in order to ultimately drive the type of performance that they're looking for.

Phillip: [00:29:27] You're speaking from firsthand experience there and that you spent a decade plus with, you know, Craft and Campbell's and these, I would say, very large, cultural brands, businesses that existed long before the generations prior to us and have an incredible amount of cultural footprint, spend a lot on, I would say, traditional brand marketing, so now when you come down to this sort of, like, tactical thinking about acquiring customer, getting them to convert, and being able to measure on it, it's almost as foreign to some of those sidecar organizations that you're mentioning sort of like it functions more like an innovation team that is like sort of under resourced and over relied upon for some sort of future unlock And in that way, they have a whole lot in common with a startup in that they're also fighting and scrapping for their own future survival too. So they're as much in the same boat as the smaller DTC even though they have, you know, the power of the brand behind them.

Brian: [00:30:29] Well, and to add on to that, there are a number of companies that were DTC that got acquired by these larger players, and they're still being treated like sidecar brands. So we talk about DTC growing up. Getting acquired is, like, the fastest path to that, and so it's even more siloed in some cases. I was just talking to a brand leader who's trying to roll up some of these at a larger org like the ones mentioned. And the challenges you have all these markers coming from all these perspectives and getting them on the same page about how to go after this is really hard.

Greg: [00:31:01] There's a cultural legacy that's brought to bear as well, being a scrappy kind of startup brand that grew organically, but also with very focused spend in certain areas. And bringing some of the traditional brand building techniques to the table as well and kind of marrying that up with the scrappy go to market brand building that's happened with the DTC community, I think is also important. So how do we kind of think about and that that's where the top of the funnel versus bottom of the funnel. How am I thinking about building a brand in different ways to be able to support it in different ways for sustainability becomes really important. Having a financial perspective on your performance that's more forward looking than backward looking is really the key. And whether you're an enterprise or a smaller brand that's emerging, driving that change from thinking about things as a historical look back to one where I need information to guide the next decision. And that decision has to be tied to the financial results that I'm expecting to deliver and those objectives. And we spend a lot of time with our clients very early on really kind of understanding what their brand objectives are. Like, what are you guys trying to achieve? What is your current budget? What are you currently doing? And what do you want to do differently? And then that decision frame becomes the basis for how we move forward with that relationship and guide the brand to the growth that they're expecting, and that's no different for, you know, a small DTC brand versus a larger enterprise. And that's the approach that we take. And the success stories show up in the actual numbers. So, you know, our system is a continuous system. It's repeatable. So every month, every quarter, you're updating the information and you're actualizing the forecast and prescriptive plans that are coming out of the application. So we said do this, You did it. Now let's give ourselves a report card and see how well we did. Where were we on? Where were we off? How do we learn? And then that new model becomes the basis for the next decision. So it's going to continue to optimize with that new information. It's going to learn from it, and it's going to give you an even better look forward from that point forward.

Phillip: [00:33:19] Amazing. Well, I feel like that really kind of sums up the whole idea here in this short Step by Step season, which is there is a... It is one thing to sort of be perceived as a hip new, you know, I would say aesthetically cool brand. It's another thing to be a very profitable, sustainable business, and profits are also cool. And so I think growing up and attaining more acumen as a business for being able to see around the next corner is actually the game. And whatever tool you can use in the modern era, especially as new marketing channels and new distribution channels keep launching is what you're going to have to figure out how to do probably with the current team that you have and probably with the current amount of funding that you have, and so it seems to me, like, yeah, this is the challenge in front of all of us, and I think you've really s med it up nicely there, Greg.

Greg: [00:34:18] Well, I really appreciate the opportunity. It's definitely a growing need and a growing gap in the market. So we're excited to have any conversations to see if we could solve it.