Beware of the trap: Digitalization is not a playground - ads, DTC sales and the harsh reality of performance marketing

🌐💡 Digitalization has turned a lot of things in the business world upside down. Above all, direct-to-consumer (DTC) sales, which bypass wholesale and retail trade and enable direct contact with customers, seem at first glance to be a lucrative strategy. But reality shows that it is not nearly as easy as it sounds. High investment costs, intense competitive pressure and challenges in performance marketing pose significant problems for companies.

✨🎯 The supposed shine of DTC sales

DTC sales promise great advantages: by selling directly over the Internet, the middlemen can be bypassed and costs can be saved. It also enables a closer relationship with the customer and offers the opportunity to collect valuable data about purchasing behavior. But this ideal is often difficult to achieve in reality.

🚧🔍 Challenges and hurdles

First of all, not all products are suitable for DTC distribution. Products that require intensive advice or prefer traditional approaches are particularly difficult to market via this channel. But there are also many challenges lurking for suitable products: setting up your own e-commerce infrastructure requires high initial investments. The platform must not only be user-friendly, but also function reliably - failures can quickly ruin a company's reputation.

💰🔄 High investment costs and price competition

Another important point is the immense cost. Building and maintaining a DTC strategy is expensive. From the platform to marketing to logistics - every area requires investment. In addition, the competition in the online sector often competes on price. This results in discount promotions and discounts becoming the norm, which in turn reduces profit margins.

💔🚶‍♂️ Declining customer loyalty

A big problem is declining customer loyalty. On the Internet, customers have an almost endless selection of products and providers at their disposal. Comparisons are quick and a cheaper offer is often just a click away. This leads to customers being less loyal and companies having to constantly fight for consumers' favor.

📊⚖️ Performance Marketing: Blessing or Curse?

Performance marketing is an essential part of DTC sales. Measures such as social ads, Google Ads and influencer marketing are intended to help direct traffic to the website and thus increase sales. But there are major challenges lurking here too.

💵💻 The high costs of performance marketing

First, the costs of performance marketing are significant. The prices for advertising on social networks and search engines have risen sharply in recent years. This can quickly become a financial burden, especially for small and medium-sized companies. In addition, the success of such campaigns is often difficult to measure. Despite high expenditure, the desired success often does not occur, which leads to frustration and uncertainty.

🌟🔍 The dark side of influencer marketing

Influencer marketing has long been considered a silver bullet in digital marketing. The personal connection and trust that influencers enjoy from their followers can lead to impressive results. But here too, the reality is often different: many companies report that the hoped-for successes do not materialize. A one-time collaboration with an influencer is usually not enough to create lasting customer loyalty. In addition, the costs for influencer collaborations have risen sharply in recent years. Many influencers charge high fees, which calls into question the profitability of such campaigns.

🔄🎨 Danger of addiction and creative limitations

Another problem with performance marketing and influencer marketing is the risk of falling into a kind of addiction. Companies are relying more and more on data-driven decisions and often forget the creative component. Branding and long-term strategies often fall victim to short-term goals. This can cause the brand to lose identity and become interchangeable.

🤔🚀 Scenarios and motivations despite the challenges

Why do companies continue to rely on DTC distribution despite these challenges? There are different scenarios and motivations that explain this trend:

👀🛍️ Visibility and brand presence

One reason companies choose DTC distribution is to increase visibility. A strong online presence allows brands to be better perceived. This can be an opportunity, especially for new and smaller companies, to establish themselves in the market and find a niche.

💸🔖 Loss leader strategy

Another scenario is the “loss leader” strategy. Certain products are offered at particularly low prices in order to attract customers to the website. The aim is to attract customers with attractive offers and get them to buy other, higher-priced products. However, this strategy can be risky as it squeezes margins and there is a risk that customers will only take advantage of the cheap offers and not make any further purchases.

🏆📉 Competitive pressure

The strong competitive pressure is literally forcing many companies into DTC sales. Especially in highly competitive markets, there is often no other choice than to rely on this sales channel. Companies feel like they have to keep up to avoid falling behind.

🔄🔗 The reality of customer loyalty

Despite all of these scenarios, customer loyalty often remains low in practice. Customers on the Internet are extremely price sensitive and willing to change. An attractive offer from a competitor can quickly lead to the hard-earned customer base melting away. This presents companies with the challenge of constantly remaining innovative and competitive.

Investments in Internet advertising in Western Europe from 2000 to 2021 and forecast to 2024 (in million US dollars) - Image: Xpert.Digital

🛒 Direct-to-consumer (DTC) sales: opportunities and challenges in practice

Direct-to-consumer (DTC) sales, i.e. the direct sale of products from the manufacturer to the end customer, bypassing wholesale and retail, is the ultimate dream for many entrepreneurs. This model, which takes place primarily over the Internet, promises significant cost reductions and personnel savings as well as maximizing profits. This dream should become reality, especially through the use of performance marketing and influencer collaborations. But reality often looks different than what is imagined in theory.

📈 Attractive visions of DTC sales

In theory, DTC sales have clear advantages:

1. Cost reduction

Direct sales eliminate the margin that would otherwise go to wholesalers and retailers.

2. Personnel savings

A leaner operational process saves personnel and operating costs.

3. Direct customer contact

Direct contact with the customer enables immediate feedback and closer customer loyalty.

🔄 Flywheel model in influencer marketing: attract, interact, inspire

In the digital age, performance marketing plays a central role in implementing this strategy. Performance marketing includes measures such as social ads, social selling, Google Ads, retargeting/remarketing, display ads, native ads and more. An essential part of this strategy is influencer marketing, in which social media influencers present products to their numerous followers and thus work according to the flywheel model: attract, interact, inspire and convert them into a purchase.

❗ The challenges of DTC sales

Despite these advantages, many entrepreneurs face significant challenges when relying on DTC:

1. Not all products are suitable

Not every product can be sold profitably directly to the end customer. Products that require particular explanation or are very specific still require advice and a physical point of sale.

2. High capital expenditure

Building a strong online presence and running extensive marketing campaigns requires significant financial resources.

3. Competitive lever price

DTC providers often have to compete on price, which can lead to declining margins.

4. Customer loyalty

Customer loyalty is difficult when the main attractiveness of the offer is the low price.

5. Discount campaigns as the essence of performance marketing

Discounts and special promotions, which are often standard in performance marketing, can reduce the perceived value of a brand in the long term.

6. Declining consumer response

Customers are increasingly becoming less responsive to traditional online marketing methods due to advertising overload.

7. Branding and creativity suffer

While the design and packaging of the products stand out, their actual quality and uniqueness can fade into the background.

In this context, performance marketing can seem like an addiction that is difficult to find a way out of.

💸 Cost factor performance marketing

Although performance marketing provides a clear overview of costs and click data, there is a risk that the numbers are consciously or unconsciously glossed over. The ad campaigns not only incur costs for creation, administration and support, but also considerable ad costs. In addition, there are expenses for external agencies that specialize in various channels and whose involvement is necessary because internal marketing managers often cannot manage this complexity on their own. The costs of influencer marketing can also be significant, which already forces many companies to fight hard for profitability.

To hide the seemingly endless costs, some companies resort to accounting tricks: spreading costs across different accounts to make the return on investment (ROI) look better.

📊 Three main scenarios despite high costs:

1. Expanding visibility

Increasing awareness and increasing market shares in order to establish yourself in the long term.

2. “Loss Leader” concept

Past losses are offset by future gains. This is done by collecting contact information from first-time buyers and then targeting these customers via email marketing to encourage repeat purchases.

3. Competitive pressure

Especially in highly competitive markets such as fashion, cosmetics and nutritional supplements, there is often no other option than to accept high marketing costs in order to stay in business.

Nevertheless, customer loyalty remains almost nil in these scenarios. It is a misconception that performance marketing automatically ensures long-term customer loyalty.

🤔 Interesting observations and reality

While platforms like Google and Meta continue to post record revenues and influencers proudly flaunt their luxurious lifestyles, the financial success of most advertisers remains modest. There is a noticeable silence when it comes to concrete success stories. This shows the discrepancy between the theoretical promises of the DTC model and the harsh reality that many companies find themselves in.

🔍 Careful cost-benefit analysis and continuous adjustments!

Direct-to-consumer sales undoubtedly offer exciting opportunities and significant advantages, especially in terms of cost reduction and direct customer contact. However, these advantages also come with significant challenges that entrepreneurs should not underestimate. High marketing costs, strong competition and often deceptive customer loyalty are just some of the hurdles that need to be overcome.

Entrepreneurs should therefore carry out a careful cost-benefit analysis and continually adapt their strategies to changing market conditions in order not to fall into the trap of endless performance marketing. Ultimately, only a holistic and flexible approach can ensure long-term success in DTC sales.

➡️ It is therefore all the more important not only to develop performance marketing expertise, but also to integrate it into the established and existing business models in order to create real added value.

➡️ We are looking for market experts with specialized performance marketing expertise, not just general market or performance expertise.

Sales & Marketing Learnings: About the addiction to performance marketing – when “Nike” lost its lead with inefficient online advertising – Image: Xpert.Digital

The case of Nike impressively illustrates how a former sports icon can maneuver itself into the sidelines through a failed marketing strategy. For decades, Nike built its image through gigantic sponsorship deals and unforgettable advertising campaigns. These measures not only shaped the perception of the brand, but also created a strong emotional bond between the brand and its consumers.

By pivoting to digital direct sales and performance marketing in 2020, Nike sought to adapt to changing market conditions, particularly during lockdowns. At first, the move seemed effective as online sales increased and inventory began to move. But this strategy had serious long-term disadvantages.

More about it here:

• Nike in the marketing dilemma: The steep descent of a sports icon due to incorrect strategies

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👁️‍🗨️ Advertising refusal: Why users love ad blockers and how marketers can react

The topic of performance marketing is omnipresent in today's digital world. Companies invest billions in online advertising to place their products and services directly in front of their target group. But what happens when this target group begins to actively defend itself against this advertising? A significant proportion of Internet users use so-called ad blockers to avoid omnipresent advertising. This development represents a significant challenge for performance marketing. In this text I will examine the reasons why users use ad blockers and what performance marketing can learn from it.

Survey on reasons for using ad blockers worldwide – Image: Xpert.Digital

🚀 Why do people use ad blockers?

A look at the reasons why people use ad blockers shows a clear picture: users are overwhelmed by the amount and type of advertising. The most commonly cited reason for using an ad blocker is the sheer volume of advertising, which users find excessive. In the modern, connected world, it is not uncommon for a single user to see dozens of advertisements in a matter of minutes. Many people find this flood of advertising annoying, which leads to a negative attitude towards online advertising in general.

Another reason that is often cited is the disruption that advertising causes. Advertising often disrupts the natural flow of Internet usage and can significantly impact content consumption. Whether it's pop-ups that take up the entire screen or videos that autoplay, such interruptions lead to users' frustration and ultimately the decision to install ad blockers.

In addition to the sheer quantity and disruptive nature of advertising, the issue of data protection also plays an important role. Many users are concerned about how their data is collected and used by advertisers. Using ad blockers provides these users with a sense of security and control over their online experience.

Another interesting motive for using ad blockers is the relevance of the advertising. Many users feel bothered by advertising that is not relevant to them. This “misplaced” advertising is often perceived as useless and annoying. When users repeatedly see irrelevant advertising, they lose trust in the brand and interest in the products or services it offers.

🌐 What can performance marketing learn from this?

The insights behind the reasons for using ad blockers offer valuable lessons for performance marketing. The first and perhaps most important point is that user experience must come first. If advertising is perceived as annoying, it will do more harm than good. It's not enough to simply run as many ads as possible; It is crucial to design these ads so that they do not annoy or interrupt the user.

1. Less is more

One of the clearest messages ad blocker users send is that there are too many ads. Advertisers should consider how they can streamline their campaigns to run fewer but more effective ads. Quality should be over quantity. Targeted and personalized advertising can be less invasive and still achieve high engagement rates.

2. Increase the relevance of advertising

To gain user trust, advertisers must ensure their ads are relevant. This requires deeper segmentation and better targeting. Advertisers must effectively use the data they collect about their users to create ads that match those users' interests and needs.

3. Transparency in handling data

Privacy concerns are another important reason for using ad blockers. Companies should be transparent about their data collection practices and give users more control over how their data is used. This can be achieved through clear privacy policies that are easy to understand and options for users to limit the extent of data usage.

4. Prioritize user experience (UX).

Advertising should not affect the user experience. Pop-ups, automated video ads, and other intrusive formats are major sources of frustration. It is therefore important to design advertising so that it fits seamlessly into the user experience. Native advertising, where advertising appears as part of the editorial content, can be a solution here if implemented correctly.

5. Build long-term customer relationships

Instead of seeking short-term success through aggressive advertising, companies should aim to build long-term relationships with their customers. This can be done through valuable content, useful information and thoughtful interactions. Such a strategy can increase customer trust and encourage them to voluntarily engage with the brand instead of feeling harassed by advertising.

🔮 The future of performance marketing in an adblocker-friendly world

Performance marketing is faced with the challenge of adapting to a world in which more and more users are using ad blockers. This requires a fundamental overhaul of the strategies currently in use. Companies need to get more creative and find ways to deliver their messages in a way that appeals to users without annoying them.

A possible solution could be to develop new advertising formats that are less invasive and more engaging. Interactive advertising that involves the user could play a role here. Integrating advertising into the content itself, without it being directly recognizable as such, could also be a strategy to increase the effectiveness of advertising and at the same time reduce the use of ad blockers.

Another important aspect is the training and awareness of advertisers. Many of them are not fully aware of the negative effects of excessive and intrusive advertising. Workshops, seminars and training courses could help raise awareness of these issues and steer the advertising industry in a direction that meets the interests of both advertisers and users.

Performance marketing can learn valuable lessons from the reasons for using ad blockers. By focusing on user experience, increasing advertising relevance, adopting transparent privacy practices and developing innovative advertising formats, it can compete in a world where users increasingly want to take control of their online experience. The challenge is to design advertising in such a way that it is not perceived as a burden but rather as added value. This is the only way performance marketing can continue to be successful in the future.

📣 Similar topics

• 📣 Using ad blockers: What does performance marketing learn?
• 🛡️ Privacy and advertising: Finding a balance
• 💼 Optimize user experience: Less is more
• 🔍 Relevance of advertising: tailored to the target group
• 👥 Building trust: Through transparent data use
• 📊 Advertise more effectively: user-centered approaches
• 🔒 Data protection: A fundamental issue in marketing
• 📱 Interactive advertising: engage users and win
• 🎯 Address target groups better: bypass ad blockers
• 🖥️ Innovative advertising formats: the future of marketing

#️⃣ Hashtags: #UserExperience #Privacy #RelevantAdvertising #Transparency #InnovativeAdvertising

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