What are retail marketers spending their budgets on? The answer may depend on whether you’re a traditional retailer or a digital native, direct-to-consumer brand. New research shows a deepening divide in digital marketing investment priorities between brick-and-mortar-retailers and their DTC counterparts, says Scott Silverman, Founder and Principal of Scott Silverman & Associates.
Online retailing is transforming so rapidly, ecommerce marketers have no choice but to make changes along with it. The marketing tools, technology and initiatives that work well one year may not work as well the next. And, consumer behavior is constantly changing. The most successful ecommerce marketers continuously study the latest in customer trends, the evolution of martech platforms and emerging marketing channels. Measuring investments and making necessary adjustments are always going to be part of the job.
But some marketers are better than others at this process. Sometimes, it’s useful to know how your own marketing investments stack up against others. As new research from CommerceNext and OracleOpens a new window illustrates, there is an increasing divide in ecommerce marketing spending and priorities between traditional retailers and digital-first direct-to-consumer (DTC) brands.
Rising budgets, more spending on acquisition
Through the survey of 100 C-level marketing executives at leading retail brands, we learned that marketing budgets across all retail business models are on the rise. In fact, 65% of respondents said their 2019 budget increased over the previous year. It was encouraging to hear that marketers were asking for more budget and receiving buy-in from their C-suite.
However, it appears that DTC brands’ budgets are increasing at a higher rate than traditional ecommerce retailers. In 2019, 78% of DTC marketers said their budgets had increased, compared to 60% of traditional retailers. Further, the size of DTC brands’ marketing budgets are a higher ratio of their companies’ overall revenues, compared to traditional retailers.
What are retail marketers spending their larger budgets on? The number-one investment priority for retailers of all business models is acquisition marketing. In 2018, 81% of ecommerce marketers cited acquisition marketing as their top priority. A full 53% of respondents said acquisition marketing met expectations in 2018, and 24% said it exceeded expectations. Satisfied with the results of their investments, marketers are spending even more on acquisition in 2019. This indicates that decision-makers at DTC brands are seeing the connection between investing more in marketing and acquiring new customers. Looking ahead to the ever-important holiday shopping season, 75% of ecommerce marketers plan to increase acquisition marketing budgets compared to the 2018 holiday season.
Why does acquisition marketing remain such a large focus for ecommerce marketers? It may be that they often feel pressure to beat last year’s online sales numbers. One way to predictably hit growth goals is through pumping up acquisition marketing initiatives.
Move faster, remove barriers
Ecommerce marketing leaders are aware that they need to make faster decisions and move with more speed when it comes to rolling out new initiatives. A full 30% of all ecommerce marketers admitted that â€œexecuting quickly enough on marketing initiativesâ€ was a top barrier to achieving their goals in 2018, and 42% expect this to remain a barrier in 2019.
However, the things that are stopping traditional retailers from executing more quickly are different from the challenges DTC brands face. For example, 41% of traditional retailers indicated that they’re being bogged down by managing integrations across the marketing stack, compared to 22% of DTC brands. Further, 41% of traditional retailers are dealing with aging technology systems, compared to just 7% of DTC competitors.
Freed from these technological restraints, DTC brands have their own challenges. DTC brands indicated that achieving profitability at scale (40% of DTC vs. 11% of incumbent brands) and attracting and retaining top talent (30% of DTC brands vs. 19% of traditional retailers) are the two top barriers to meeting their goals.
When it comes to investment in tools and technologies, DTC brands and traditional retailers have different approaches. When asked how their marketing departments invested in emerging technologies in 2019 compared to 2018, 70% of DTC brands said they’d increased their investment in a customer data platform (CDP), compared to 63% of traditional retailers. And 56% of DTC brands are increasing 2019 investments in AI for use in customer service, such as chatbots, compared to 41% of traditional brands. DTC brands are also out-spending their traditional counterparts on personalization technology: 56% of DTC brands increased spending in 2019, compared to 51% of incumbent brands.
Shared learning: Lessons for DTC and traditional brands
Looking ahead to the second half of 2019 and early 2020, retail marketers can learn from one another, making adjustments to marketing investments that can help them engage with new customers and better retain the ones they already have.
What can marketers at traditional brands learn from DTC brands?
- Diversification of acquisition marketing channels. When it comes to acquisition, DTC brands have spent a lot of time ensuring that they’re not too dependent upon any one marketing channel and they are testing new channels regularly, such as podcasts and over-the-top and programmatic TV. This gives them the opportunity to find new sources of customer traffic to their online stores.
- Customer data platforms can improve personalization efforts. To succeed with personalization, a unified view of customer data is an essential first step. DTC brands have invested in the right tools and infrastructure from day one to have a more detailed picture of their customers.
- A properly integrated technology stack better supports marketing objectives. Their young age and digital-first model makes DTC brands the clear leader in this area, but traditional brands can gain some ground by investing in modern tools and technologies that break through outdated, siloed marketing applications.
Conversely, are there lessons for DTC brands from their traditional counterparts?
- Prepare for the eventual shift to a focus on profitability. When marketing spending is 20% or more of a retailer’s annual revenue, there is a need to begin exploring how to fuel growth without such a large acquisition marketing spend. DTC brands will need to learn how to strike this balance â€“and what better way to learn than from the traditional brands who have already experienced these growing pains?
- Develop an omni-channel approach. Many DTC brands are now investing in physical stores as a complement to their online-only model. To succeed, they must begin building omnichannel strategies and more complex attribution models to measure the impact of their marketing initiatives.
Above all, brands of all retail models must test new channels and be willing to accept tactics and strategies that don’t work. This is another area where DTC brands are out-marketing traditional brands. But it doesn’t have to be that way. Fear of the unknown can hold marketers back from innovating and realizing true breakthroughs in their customer engagement strategies. As long as ecommerce marketers have the means to measure and adjust when a test doesn’t work, they can learn a great deal that will help inform their next evolution â€“ whether that’s a physical store, a highly personalized web experience, or some combination of both.
Disclosure: This research was conducted by CommerceNext.