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Incentives shape markets.
If you haven’t heard 🙉, CAC is rising.
Yes, VC money plays a part in this outcome, but we should also talk about the mechanisms at the execution level that impacts almost all online businesses.
If you haven’t heard 🙉, CAC is rising.
Yes, VC money plays a part in this outcome, but we should also talk about the mechanisms at the execution level that impacts almost all online businesses.
The first culprits are the long tail of mediocre to bad ad agencies. I personally know a few great ones, but they’re generally maxed for capacity because of their good reputation and bias for partnerships - and they are very picky about their clientele.
In DTC, these ‘meh’ agencies care very little about operational efficiency or truly maximizing ROAS.
+ percentage of ad spend incentivizes scaling ad spend instead of optimizing CAC.
By leaving meat on the bone, we all end up paying a little more for every bite.
+ percentage of ad spend incentivizes scaling ad spend instead of optimizing CAC.
By leaving meat on the bone, we all end up paying a little more for every bite.
The second culprit is corporate strategy. Here’s a thought experiment with three DNVBs in the pet care space.
The Farmer’s Dog @thefarmersdog - raised $47M
Ollie @olliepets - raised $17M
Wild One @wildonepets - Seed Round $unknown
The Farmer’s Dog @thefarmersdog - raised $47M
Ollie @olliepets - raised $17M
Wild One @wildonepets - Seed Round $unknown
For a company like @thefarmersdog, that ostensibly has the same product as @olliepets, but is more mature and has raised more money, keeping acq costs high (continually outbidding the competition) can be a strategic move to keep significant financial pressure on Ollie.
.@wildonepets is probably my fav new pet brand.
It really tickles my millennial fancy from almost every angle:
1/ Priced to spur my consumer reflexes into action
2/ Aesthetics: dog toys + my wife’s macrame piece + accent wall = 👌🏾
3/ Digital: their site is a doggy daydream 🐶😴
It really tickles my millennial fancy from almost every angle:
1/ Priced to spur my consumer reflexes into action
2/ Aesthetics: dog toys + my wife’s macrame piece + accent wall = 👌🏾
3/ Digital: their site is a doggy daydream 🐶😴
Even taking the linear commerce model...
- prioritize audience development and sell directly to their owned channels -
... it requires consistent high quality and engaging content, and good content is expensive to make.
And even harder to differentiate in a crowded market.
- prioritize audience development and sell directly to their owned channels -
... it requires consistent high quality and engaging content, and good content is expensive to make.
And even harder to differentiate in a crowded market.
There’s only so many podcasts, videos, and newsletters that a customer can/wants to consume.
*Every* brand in this thread is facing this challenge.
*Every* brand in this thread is facing this challenge.
I mean look how many there are - all competing for relevance against each other as well as other much higher margin products.
The competition to acquire in other verticals has a direct effect on the acquisition models of almost all digitally native products and services.
The competition to acquire in other verticals has a direct effect on the acquisition models of almost all digitally native products and services.
Example: the downstream effects of @Opendoor trying to acquire THE SAME customers at any cost because their margins, at scale, are tech margins (90%+), means that they’ll try to outbid pretty much anyone.
Ad platforms are obviously fine with high margin businesses driving up acq costs because the platforms benefit, but in the end it’s us - the consumers - that lose.
We start paying more for products and services that can’t struggle to minimize acquisition costs, and thus adjust prices to maintain margin.
We’ll continue to see this in 2020. Brands will launch as luxury products with higher price points for what used to be considered ‘basics’.
'Brand' will continue to transition from what was historically a signal of trust based on reputation for a great product, to a signal for identifying your in-group, regardless of the product quality.
In the end…
Startups lose.
Customers lose.
Platforms win.
Startups lose.
Customers lose.
Platforms win.
