3 Ways DTC Brands Impact Legacy CPG Playbooks

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Direct-to-consumer (DTC) brands have forced legacy CPG brands into a major strategy shift. The rumblings of the digital transformation signaled change was coming, and the rise of DTC brands has led CPGs to rethink consumer engagement and the marketing tactics necessary to achieve that goal. And, in today’s digital-first marketplace, CPG margins are tightening because of the competition from DTCs as well as Amazon’s white-label product lines.

The result of these challenges sees the CPG playbook evolving to meet the digital-first ecosystem through tactics including investing in acquisitions, moving advertising budgets into digital, and including emerging marketing channels such as experiential marketing to create brand awareness and make direct consumer connections.

Buying into the party

One way CPGs are addressing the DTC brand challenge is the tried and true “if you can’t beat ‘em, join ‘em – or at least bring them into the fold” approach through acquisitions. Two prominent examples include Unilever’s $1 billion acquisition of Dollar Shave Club and P&G’s Schick brand’s $1.7 billion acquisition of Harry’s.

For the startup DTC, an acquisition by a legacy CPG brand means an exit for its investors and access to budget and distribution clout offered by a global company. For the CPG, the move turns a competitor into a portfolio brand but more importantly gives the CPG a more direct line to the consumer via the acquisition. Traditionally, CPGs dealt with big-box retailers, meaning they did not have direct access to customers. The DTC brand business model does, however — along with all the first-party data on customers who regularly engage with them.

Bringing a DTC brand into a CPG portfolio also offers an excellent testing ground for new product lines thanks to an already built-in and engaged customer base. This real-world approach to product development and testing is a far cry from CPG’s traditional focus group-driven R&D approach.

Industry experts tout the value in having a direct connection to the consumer, especially in innovating and understanding how that audience interacts with the brand, and CPG acquisitions of DTC brands are also a hedge against changes happening in traditional consumer product distribution.

Getting physical

DTC brands are a natural fit for innovative and engaging campaigns, such as experiential marketing via pop-up shops and other physical activations. Because the brands are largely a digital-first — and possibly subscription-based — experience for the consumer, having a memorable, customized, and fun experience for the audience stands out in a way CPG products on brick-and-mortar store shelves never will.

Consumers remember pop-up activations because the entire experience is geared toward engagement. Pop-ups and other experiential marketing efforts are tailor-made for social media sharing — what marketers often call “Instagrammable” — and because the brand interaction is bespoke, it fosters a more one-on-one connection between the brand and customer than the traditional store experience.

CPGs can tap into the experiential marketing trend through DTC brands they’ve acquired or even by taking legacy brands straight to consumers via physical activations as a way to freshen up customer brand perceptions and take part in cutting-edge marketing tactics.

Investing in digital

The most obvious strategic change sees CPGs heavily moving ad budgets into digital. In doing so, CPGs are just following every other industry, but since online advertising outpaced linear TV for the first time a few years ago, this tactic is a no-brainer. Per a Cadent Consulting Group survey of 100 CPG manufacturers, around 200 retailers and 300 shoppers, CPG marketers spend more on digital ads than all other traditional advertising channels.

This shift to digital means CPGs are investing in technologies to better understand the digital and social media marketing ecosystem — as well as content creators, teams of graphic designers, influencers, and social media savants to effectively meet target demographics online.

Digital marketing covers a range of campaigns from video ads to paid social on platforms like Facebook to native ad formats designed to blend in seamlessly with publisher websites.

There’s no denying that today’s DTC landscape is changing the way legacy brands are operating. As the battle for market share continues, CPGs must continue to evolve their business models and their approach to connecting with customers if they aim to compete.

Alon Leibovich is CEO of BrandTotal.