Tucker Matheson is a co-founder and Managing Partner at Markacy, a digital marketing strategy firm headquartered in New York City.
Facing uncertainty, strong brands fall back on fundamentals: customer relationships, conservative spending and results. For their part, faced with uncertainty, consumers turn to brands they trust.
The past 20 years have demonstrated the internet’s reach and potential for commercialization. Brands like Casper, Dollar Shave Club and All Birds have utilized direct-to-consumer distribution channels to wrest market share from industry giants.
Since then, many new direct-to-consumer brands have flooded the market, riding the wave of search and social media advertising and benefiting from the risk-on mentality of investors, thanks largely to a combination of loose monetary policy and aggressive revenue projections.
Larger enterprises have followed suit, investing in direct-to-consumer business models and creating their own digital shopping experiences, affording them access to valuable first-party consumer data and enhancing their existing omnichannel distribution.
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Increased competition and the proliferation of digital advertising platforms have made it harder and more expensive to scale profitably. The past year has been a stark reminder of the disruptive power of market cycles, with inflation reports coming in at 40-year highs and the Federal Reserve implementing aggressive quantitative tightening policies that have hampered economic expectations.
Inflation, rising interest rates, supply chain disruptions and global conflict have depressed consumer spending this year and forced brands to focus on the bottom line. Direct-to-consumer business models are no exception.
A strong brand is an excellent defense against unstable or changing economic conditions, which is why brands need to balance profitability with strategic brand awareness investments.
Our Approach
A recent McKinsey survey found that 78% of CEOs now rely on CMOs to contribute to growth. Marketing has shifted from a cost center to a profit center. With this in mind, here are some tools and tactics that will help you get the most out of your marketing budget this year and next.
1. Tap Into Financial Modeling
Defining and tracking a profitable media efficiency rate (MER) is key to measuring a brand’s financial success. This MER can be leveraged to model revenue goals, budgets and recommendations about media mix and customer acquisition cost.
We use this e-commerce profitability calculator at our firm to help our clients determine their ideal MER.
2. Maximize Core Channels
Focus on managing your most profitable and trackable marketing tactics to peak profitability.
• Facebook: Creative is the key variable for Facebook and Instagram performance. Brands should constantly be testing new formats and ensuring their ad content is closely aligned with their marketing calendar. Test new ads every two weeks and emphasize thoughtful quarterly content production.
• Google: Strive to manage Google to maximum profitability by capturing brand volume, optimizing Google Shopping, and refreshing Display, Discovery and YouTube creative quarterly. Recently, we have also observed numerous clients having success with Google’s Performance Max campaign, which is a new goal-based campaign type that allows performance advertisers to access all of their Google Ads inventory from a single campaign. It’s designed to complement your keyword-based Search campaigns and help discover converting customers across all of Google’s channels.
• Email/SMS: Email and SMS should drive 15%-30% of your total e-commerce revenue. Implementing best practices for campaigns and automation flows will increase email capture and revenue. First-party data capture has become a critical focus area for CMOs with the upcoming death of third-party cookies in 2023. Brands should be measuring month-over-month email list growth and testing a variety of tactics and partnerships to drive email and SMS list growth. In addition to gaining first-party data, brands are also focused on gaining zero-party data about their customers’ profiles, interests and preferences. This data can be used to advance targeting and personalization across the customer journey.
• Website/SEO: Your website infrastructure and content strategy should support organic traffic growth and a streamlined, conversion-optimized user experience that increases average order value. Shopify and other cloud-based content management systems provide brands with unique insights and access to a robust app marketplace that supports website reviews, subscriptions, merchandising AI and more. In addition to maintaining a healthy infrastructure, brands have to stay on top of keyword research and develop organic content strategies that become recognized by search algorithms over time.
3. Align Media Mix & Investments With Financials
Improving efficiency without halting growth requires thoughtful research and testing of expansion channels that drive brand awareness.
As CMOs evaluate their revenue targets, they must prioritize funding their most profitable channels while continuing to invest in brand awareness. Portfolio allocation should always include a mix of direct response and brand awareness investments to create and capture new customer demand.
As brands scale media budgets, more funding should be allocated to brand awareness initiatives like direct mail, TV, out-of-home or direct buys, and a set profitability threshold should be used to determine when to ramp up spending on core direct response channels.
Content drives advertising effectiveness and overall performance. CMOs need to ensure that content production is tied closely to where the brand is spending the most money. Further, this content should be aligned closely to the marketing calendar, with the aim of enhancing new products, promotions or themes.
Finding A Balance Between Profit & Growth
While e-commerce saw a massive lift in demand during the pandemic, volume has returned to pre-pandemic levels. According to the U.S. Census Bureau, e-commerce sales increased by $244.2 billion (43%) in 2020, the first year of the pandemic.
While demand is correcting and the economy is trying to find stability, CMOs need a renewed focus on profitability across the board. However, excessive caution is the wrong approach.
Brands that can optimize organizational efficiency while continuing to invest in brand awareness expansion and scalable digital infrastructure will have a leg up on the competition when the economy shifts back to growth mode.
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Author: Tucker Matheson, Forbes Councils Member