Why DTC Brands Aren’t Swayed by Cheaper Social Media Ads

Last year, Luca Faloni, founder of the Italian menswear brand of the same name, suspected that if he wanted to grow his brand, he had to look beyond social media to reach new consumers.

The DTC brand has historically marketed its cashmere sweaters, chinos and more online, but in September, it placed a wraparound ad on a Milan tram that travels one of the city’s most popular routes. The brand went further in November, stamping its logo on the sides of 50 London taxis.

“If [customers] see you on different channels, let’s say once it’s print, once it’s a store, once it’s online, once it’s a friend, they believe the brand is more real,” Faloni said. “It increases the likelihood that they’re going to buy.”

His hunch was right: Luca Faloni ended 2023 with 53 percent year-over-year sales growth and broke even on the basis of earnings before interest, taxes, depreciation and amortisation, propelled in part by these non-digital ads. As the company seeks to grow sales 40 percent year over year and notch EBITDA profit margins of 4 percent in 2024, they’ll up the number of non-digital ads accordingly, accounting for 20 percent of the brand’s marketing budget versus 10 percent last year.

DTC brands like Luca Faloni have long been synonymous with social media ads, but they’ve fallen out of favour in recent years as their costs have risen while their effectiveness simultaneously sank. Facing increased pressure to grow sales and increase profits, DTC brands began experimenting with new advertising channels to reach consumers, including the kind of offline marketing that Luca Faloni invested in last year.

Now, however, the tide is turning. The costs to advertise on Meta decreased 22 percent last year versus 2022, according to estimates from marketing strategy and services firm Belardi Wong. The social media giant is also working more closely with brands to better target potential shoppers, capabilities that took a hit after Apple enacted its much-discussed privacy changes in 2021.

Still, these more favourable conditions won’t bring brands back en masse, as they continue to invest in both offline ads as well as other digital channels, like search.

In 2024, DTC brands will continue to expand their advertising mix, tying digital campaigns to traditional formats, such as events, in hopes of driving sales and customer retention. And as Google phases out cookies, which track user behaviour across different websites and help brands target potential shoppers with ads, they’re also extending their search ad strategy to platforms like Amazon and TikTok, while collecting more data on their sites to prepare for a cookie-less internet.

“It’s about looking at the efficiency of your overall marketing mix, really understanding your consumer and connecting with them,” said Calla Murphy, vice president of digital strategy and integrated marketing at Belardi Wong. “It’s almost a little bit of going back to marketing basics. You have to know your consumer, you have to be everywhere.”

Deepening Diversification

Brands today understand that convincing people to shop with them requires interacting with customers across multiple touchpoints. As brands invest in a range of marketing avenues outside of social media, they are ensuring that those channels work well together.

For example, last year Dermalogica ran its “skin we treat it all” campaign — which highlighted the brand’s ability to address all skin conditions — on Instagram, YouTube and podcasts. At the same time, the 38-year-old skincare brand hosted events for Sephora and Ulta Beauty called “give a treatment, get a treatment,” where customers learned more about treating their specific skin needs.

The brand found that this multichannel brand awareness approach helped it attract more engaged customers who spent more time on its site and bought more goods. In the past, Dermalogica’s social media ads, which accounted for 40 percent of its paid advertising budget last year, could increase traffic on its site, but algorithms sometimes caused campaigns to reach customers who were less likely to be interested in the product once they got there. This year, multichannel campaigns will account for more than 60 percent of Dermalogica’s marketing budget, up from around half of the budget in 2023, said Aurelian Lis, the brand’s chief executive.

“There’s been a shift for more meaningful interaction with brands,” said Julia Ramanadhan, Dermalogica’s vice president of global marketing.

“You don’t want to buy reach, you want to buy engaged reach,” Lis said.

Luca Faloni is also investing in in-person events to grow the number of places that potential shoppers can happen upon the brand. The company is sponsoring the tennis open in Munich in April, where it will sit alongside sponsors like BMW, and the Financial Times’ luxury summit in Venice in May.

The Enduring Power of Search

Social media is no longer the be all, end all of digital advertising, and search — where brands find lower costs and more eager-to-buy consumers — is benefitting from that shift.

For the first time in 2023, Luca Faloni spent half of its digital advertising budget on Google, in part buying search terms like “menswear” and “knitwear,” where it found customer acquisition costs were 30 percent lower than on Meta. Google will likely account for more than 50 percent of the brand’s marketing budget this year.

“Obviously you need to keep spending on Instagram to generate that awareness, even for people that are not in buying mode in the short term,” Faloni said. “Google works really well for people with purchase intentions in the short term.”

Skincare device maker Therabody has also had success using search engines to amplify new product launches. For example, its $200 smart goggles eye mask, which claims to reduce anxiety and assist with sleeping, sold out upon launch last year in part because Therabody targeted people searching for sleep trouble solutions on Google, said John Solomon, Therabody’s chief marketing officer.

This year, the brand is taking that strategy further, spending to appear at the top of Amazon search results and on influencer content that links to its TikTok shop in order to reach Gen-Z, Solomon said.

But with the end of the cookie on the horizon, brands that rely on Google are strengthening their abilities to compile their own data. Lab-grown diamond maker Lightbox, which spends nearly 40 percent of its annual marketing budget buying search terms on Google and will continue to do so this year, for instance, will comb through its existing customers’ purchase history and newsletter sign-ups to identify buying patterns. Then, it will work with a media agency to target potential shoppers who exhibit similar behaviours.

“We’ll continue to learn and expand as Google makes bigger moves,” said Melissa Crivillaro, Lightbox’s chief marketing officer. “We’re trying to make sure that we’re doing everything we can to prepare for that.”