Direct Brands: Media & Customeracquisition

Direct Brands: Media & CustomerAcquisition 2019-2020

Direct Brands Initiative Strategic Partners: Supporting Sponsor

This report was produced by IAB. The final report, findings, and recommendations were not influenced by strategic partners or sponsors. Acknowledgments

This report would not have been possible without the collaboration and financial support of our Direct Brands Initiative Strategic Partners and supporting sponsor, listed below.

The final report, findings, and recommendations were not influenced by strategic partners or sponsors.

Direct Brands Initiative Strategic Partners

Supporting Sponsor

Additionally, we extend our deepest appreciation to all the marketers,publishers, technology developers, and service providers that have contributed their time, insight, and enthusiasm in support of this report.

2 Objective

Benchmark and understand Direct Brand media planning/buying decisions

• Strategies & objectives • Media selection & preferences • Media buys: drivers • Advertising measurement • Earned/owned impact on paid media • Media management • Where next?

3 Methodology

Online survey executed by Ipsos among 330 direct-to-consumer brand media professionals

• Companies represent all major consumer brand categories • Responses were anonymous and aggregated

Note: Company information gleaned in tandem with the Direct Brand Founders Insights Benchmark study

4 Direct Brands: Profile

5 Direct Brands: Profile

Size of Company Titles Founder and CMO # of full-time employees

4% Non-founder and CMO 17% 14% 1-19 6% 4% 20-49 9% Non-Founder SVP/VP in MKTG/AD 11% 2% 50-99 37% 16% Non-Founder Senior 100-499 Executive/Consultant in MKTG/AD 20% 500+ 38% Senior Director or Director of 21% Don't Know MKTG/AD Supervisor, Senior Manager or Manager of MKTG/AD Gender Media Strategist, Planner or Buyer 65%

Males Females

35%

6 Direct Brands primary target: Millennials (ish)

Average Share of Customers by Generation

Gen Z (0-22 years old) 20%

Millennials 29% (23-38 years old)

Gen X 26% (39-54 years old)

Boomers (55-73 years old) 17%

Silent Generation (74-94 years old) 10%

Base: Total, n=330 To the best of your ability, what share of your customers can be attributed to the following generations? - Mean (Incl. 0) Summary 7 Paid media drives branddisruption! 98% 72% Believe they must Think they can go dark for at invest in PAID media least a period of time

Base: Rely or would rely solely on earned media, n=298 Please consider your Owned and Earned Media. Do you now or have you ever relied only on Earned Media (i.e. no investment in PAID advertisingcampaigns)? You indicated that you have relied or would consider relying solely on Owned and Earned Media. Please choose the statement wh ich best reflects your expectations. 8 Direct Brands: Media Selection

9 Disruptors launch on social channels…

% of DTCs that Invested in Social at Launch Average Share of Social at Launch by Platform

Facebook 32% 62% YouTube 19% Invested in Instagram 16% Social at launch Twitter 14% LinkedIn 11% Did not invest in Reddit 6% Social at launch Messenger 5% Snapchat 5% 38% WhatsApp 4%

Base: Total, n=330; Invested in Social at Launch, n=203 When you first launched your Direct to Consumer (DTC) brand, what percentage, if any, of your marketing/advertising budget was invested in Social Media? You indicated that you invested in Social Media at launch. Please estimate what the percentage of your social budget was by media brand. - Mean (Incl. 0) 10 …But they grow by leveraging allmedia

% of Online Media Per Channel

Search 67% 33%

Display 65% 35%

Social 64% 36% Included Not Included Video 58% 42%

OOH 57% 43%

Audio 55% 45%

Base: Total, n=330 Please help us understand the level of intent your DTC brand has for buying/leveraging the following ONLINE PAID media platforms/ad types. NOTE: Search includes Google, Pinterest, 11 Bing, and others And their offline media spend is bigger than you think!

59% 41% Spend Online Spend Offline

Base: Total, n=330; <15 Years, n=171; 15+ years, n=135 Please estimate the percentage of your 2019 media spend that is online vs. offline. 12 Offline is as diversified as the online media selection

%of Offline Media Per Channel

Direct Mail 63% 37%

Print 62% 38% Included OOH 60% 40% Not Included

TV 58% 42%

Radio 58% 42%

Base: Total, n=330 13 Please help us understand the level of intent your DTC brand has for buying/leveraging the following OFFLINE PAID media platforms/ad types. Nearly half of Direct Brands use 6 to 15 mediapartners

Number of Online and OfflineMedia Partners/Publishers

20% 1-5 27% 6-10 7% 11-15 8% 16-20 20-25 15% 19% 25+

Base: Total, n=330 14 Please estimate the number of different ONLINE AND OFFLINE media brands/publishers are included in your 2019plan? PREMIUM content matters—massively…

Top Reasons for Including Content Publishers

Easy/good consumer user experience 20% Reputation 20% Display 18% Campaign performance 17% 94% Ability to change campaign creative quickly 16% Direct Brands Using Reach 16% Content Publishers Content relevance 16% Analytics/measurement analytics assistance 15% Relationship with sales/marketing 15% Low CPM (cost-efficient) 15%

Base: Total, n=330; 310 base for those using contentpartners 15 If you are advertising with any content publishers, please choose the top 3 reasons for those included in your advertising strategy. …Although cookie cutter ads won’t cut it

Budgets for Personalization by Year

56% “We have experienced firsthand the performance benefit of reaching 46% consumers who browse our site online with a relevant piece of direct mail. We recognize the value of providing a physical reminder that they can share, discuss, and consider on their own terms. As a result of our digital and direct mail campaigns, we’ve been able to decrease our CPA and add new customers to the brand.”

Scott Palladini 2019 2020 Founder, Bear Mattress

Base: Total, n=330 16 Is the creation and delivery of personalized advertising included in your current or next year’s budget? Direct Brand Media BuyDrivers

17 Customer satisfaction eclipses acquisition

Top 10 Marketing/Advertising Objectives

Drive customer satisfaction 40%

Identify high value audience 31%

Increase customer leads 31% Increase customer retention/loyalty 30%

Drive first purchase 29%

Drive repeat purchase 29%

New product launch 29% Increase high value audience 28% Drive awareness 26%

Identify new customer segments 25%

Base: Total, n=330; <15 Years, n=171; 15+ years, n=135 18 Which, if any, of the following objectives are included in your current marketing/advertising strategy? More than two-thirds ofDirect Brands have CAC and LTV media objectives

% of Direct Brands who Select Customer %of Direct Brands who Select Lifetime Value Acquisition Cost (CAC) as anObjective (LTV) as an Objective

69% 71%

CAC LTV Non-CAC Non-LTV

31% 29%

Base: Total, n=330 Which, if any, of the following objectives are included in your current marketing/advertising strategy? 19 Online social & streaming are preferred for CACobjectives…

Provides Acceptable Customer Acquisition Cost (CAC) by Media Channel (>20%) Social banner/display in-feed 36% OLV on streamingapps 29% Online Channel Music streaming/downloading 29% Offline Channel Podcasting streaming/downloading 28% Digital Direct Mail 25% Social stories 25% Digital Radio 23% Broadcast/Network TV 23% Social sponsored ads (right rail) 21% Terrestrial Radio 21% Traditional Direct Mail 21% Digital OOH 21% Cable TV 20% Social video display in-feed 20% Base: Total, n=330 Please help us understand the level of intent your DTC brand has for buying / leveraging the following online paid media plat forms / ad types. Please select the one option which best 20 fits each medium. …As well as for lifetime value objectives

Delivers Customers with High Lifetime Value (LTV) (>20%)

Social banner/display in-feed 36% OLV on streaming apps 31% Online Channel Offline Channel Social stories 26% Music streaming/downloading 26% Terrestrial Radio 25% Podcastingstreaming/downloading 25% Digital Direct Mail 25% OLV on subscription services 21% Social sponsored ads (right rail) 21% Print 20% Cable TV 20% Digital OOH 20% Base: Total, n=330 Please help us understand the level of intent your DTC brand has for buying / leveraging the following online paid media platforms / ad types. Please select the one 21 option which best fits each medium. Social investment increases when DTCs buy in-house

% of DTC Brands that Increased Social Media Investment, In-house vs.Outsourced

In-House 71%

Outsourced 55%

Average: 60%

Base: Total, n=203, CAC, n=130, Non-CAC, n=73; LTV n=143, Non-LTV, n=60; In-House, n=62; Outsource, n=83 Please share the percentage of your advertising buy that is managed by the following methods. 22 43% of Direct Brands currently have $ earmarked for emerging media

% of Direct Brands with $ budgeted for emerging media

43% Yes

6% No

No, but there will be in 2020

27% 25% I don't know

Base: Total, n=330 23 Is there a percentage of the budget earmarked for buying emerging media? Brick & Mortar = BUY MOREMEDIA

% of Direct Brands that expanded brick & mortar Spending among those with retail this year retail expansion

Made significant brick- and-mortar strategy changes* 11% Spent/spending less

No significant changes made 43% Spent/spending same 25% 75% Spent/spending more

46%

*Significant B&Mchanges include: 24 • Opened first brick-and-mortar location Base: Total, n=330; Among Spending More Retail Strategy, n=84 • Expanded the number of brick-and-mortar locations How, if at all, did the changes you made to your retail strategy affect your Paid Media spending? Direct Brands: Measurement

25 In aggregate, Online Audio and Social channels perform slightly higher than for delivering an acceptable Cost per Customer Acquisition… …But when ad types are parsed, Social In-feed and AVOD outpace all other media measured

Provides Acceptable CAC by Online Media Channel Top 5 Ad Types that Provide Acceptable CAC 24% 23% 21% Social in-feed 36% 18% banner/display 16% Ad-supported video streaming 29% 12% app (AVOD)

Music streaming 29%

Podcasting 28% streaming

Audio Social OOH Video Search Display Social stories 25%

Base: Total, n=330 26 Q.47: Below are the PAID media you've identified as part of your current strategy. Which, if any, of the following describe why you selected each? Direct Brands cite Direct Mail as the Offline channel that provides an acceptable Cost per Customer Acquisition (CAC)… …and Direct Mail performance is led by Digital Direct Mail

Provides Acceptable CAC by Offline Media Channel Provides Acceptable CAC by Direct Mail Type

23% Digital Direct Mail 25% 21% 21% 19% 19% Traditional Direct 21% Mail

Provides Acceptable CAC by TV Type

Broadcast TV 23%

Direct Mail TV Radio OOH Print Cable TV 20%

Base: Total, n=330 27 Q.47: Below are the PAID media you've identified as part of your current strategy. Which, if any, of the following describe why you selected each? For delivering audiences with greater Lifetime Value, Social In-Feed and AVOD Online ad types also lead Online

LTV Rating by Online Media Channel

22% 22% 20% 20% 16%

12% Top 2 Online Ad Types for LTV

Social in-feed 36% banner/display

Ad-supported video streaming 31% app Social Audio OOH Video Search Display

Base: Total, n=330 28 Q.47: Below are the PAID media you've identified as part of your current strategy. Which, if any, of the following describe why you selected each? Offline, Radio and Direct Mail are the top two most instrumental in delivering customers with high Lifetime Value …but when parsing by Ad Type, Digital Direct Mail leads in the Offline selection

LTV Rating by Offline Media Channel Direct Mail LTV Rating by Type

Digital Direct Mail 25% 25% 22% 20% Traditional Direct 19% 19% 18% Mail

TV LTV Rating by Type

Cable TV 20%

Radio Direct Mail Print OOH TV Broadcast TV 16%

Base: Total, n=330 29 Q.47: Below are the PAID media you've identified as part of your current strategy. Which, if any, of the following describe why you selected each? Disruptors may look sophisticated…

~70% of Direct Brands invested in brining analytics expertisein-house

69% 31%

Base: Total, n=330 Do you have an in-house analytics person/team? 26 …But attribution modeling is still largelyrudimentary

% of Direct Brands Using % of Direct Brands: Attribution Models Attribution Models byType

First interaction 56% 64% Last interaction 34% Last non-direct click 26% 6% Yes Lead creation touch 25% No Linear 25% I don't know Time-decay 22% 31% Multi touch 22%

Positi on-based (U shaped) 7% Wshaped 2% Other/Custom 2%

Base: Total, n=330 Are you currently using media attribution models to determine media value? 27 Please share the type of attribution model(s) you are using. 55% ofDirect Brands have included offline media in their attribution model

Successfully acclimated offline media into our attribution model(s) 55% Currently working on/attempting to 2% acclimate offline media 4% Tried but unable to successfully acclimate offline media

We've not attemptedto acclimate offline media

39%

Base: Use media attribution models, n=210 28 Have you included OFFLINE media into your attribution model(s)? Ad buys are predominantly outsourced to third parties

% of Ad Buy Managed by:

Outsourced to agency 38%

Outsourced to consultant 35%

Handled in-house 27%

Base: Total, n=330 29 Please share the percentage of your advertising buy that is managed by the following methods. 47% (and growing) of buys are Programmatic vs. Direct

% of Media Buy YoY – %of Media Buy YoY – Programmatic Direct Purchases

56% 52% 50% 47%

2019 2020 2019 2020

Base: Total, n=330 What percentage of your total annual ad buy is programmatic vs. purchased directly with a publisher/platform? How do you expect that to shift in the next two years? Please estimate the percentage of your total annual ad buy that is pro grammatic vs. purchased directly with a 30 publisher/platform for 2020/2021. Disruptors are programmatic—by design

Online Tool s : In-house vs. OutsourcedAnalytics 55% Website analytics 36%

54% Customer service 37%

53% Email marketing 40%

41% Content creation 33%

40% Website testing tools 33%

Default Social Media service 40% (included with account) 33%

In-House Outsourcing

Base: In-House, n=80; Outsourcing, n=156 31 Which of the following tools for online marketing/advertising are you currently using or has your direct-to-consumer business used? (Currently using) Earned / Owned Impact on Paid Media

32 Earned media makes brand disruptionpossible

%Reliance on Earned Media ONLY Belief in Earned Media

Yes Believe earned 95% media is a 90% significant “… PR is the gift that keeps on contributor giving: It lives on in search, it helps your SEO, it’s its own strategy. I was No a firm believer from launch that 10% 5% Do not believe in telling a story and building a earned media narrative around a brand was invaluable from amarketing perspective.”

Ariel Kaye Founder, Parachute

Base: Total, n=330 Please consider your Owned and Earned Media. Do you now or have you ever relied only on Earned Media (i.e. no investment in PAID advertisingcampaigns)? 33 Earned Media as significant contributor(s)? Social platforms are touted as the greatest contributor of “earned” media

Top Earned Media Types

Social Media (non-Influencers) 68%

Social Media Influencers 66% Online publications (e.g. news, lifestyle, product website, etc.) 64%

Broadcast TV or streaming video 58%

Events 57% Offline publications (e.g. news, lifestyle, product magazine/newspaper, etc.) 56%

Organic search results 55%

Review sites 54%

Press mentions/releases 54%

Bloggers 48%

Base: Total, n=330 34 Which of the following types of Earned Media have you identified as significant contributor(s) to the following objectives? Media Buys: Where Next?

35 At least 1/3 of Direct Brands that are not using the following Online media will consider them for ad buys in the future

% of Direct Brands not Including in % Considering in Future Planning current media buy:

35% Display 46%

33% Search 45%

42% Video 42%

36% Social 41%

45% Audio 38%

43% OOH 33%

Base: Total, n=330 40 Q.43: Please help us understand the level of intent your DTC brand has for buying/leveraging the following ONLINE PAID media platforms/ad types. …and more Direct Brands currently excluding the following Offline media will consider them in the future

% of Direct Brands not Including in % Who Will Consider Offline, by Media Type current media buy:

42% Cable TV 40%

36% Digital Direct Mail 39%

42% Broadcast TV 37%

40% OOH 34%

42% Radio 33%

38% Print 31%

38% Traditional Direct Mail 26%

Base: Total, n=330 41 Q.44: Please help us understand the level of intent your DTC brand has for buying/leveraging the following OFFLINE PAID media platforms/ad types. 43% of Direct Brands currently have $ earmarked for Emerging media

% of Direct Brands with $ budgeted for Direct Brands report that in 2020, Emerging media nearly 70% will have some budget for Emerging media 43% Yes

6% No No, but there will be in 2020 I don't know 27% 25%

Base: Total, n=330 42 Q.74: Is there a percentage of the budget earmarked for buying emerging media? Top PAID media given unlimitedbudget:

Base: Total, n=330 36 If you were given an unlimited budget...Please select the top three media platforms/channels you'd invest in that you are not currently using. About Us

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38 About Our Supporting Sponsor

PebblePost is the leadingdigital to direct mail marketing platform. We capture online interest and intent data to send relevant direct mail that activates buying decisions at home and drives conversionseverywhere. We invented Programmatic Direct Mail®to help brands convert more shoppers into buyers using advanced targeting, algorithmic optimization, attribution and quantitativeanalysis. PebblePost® is a venture-backed company based in NYC.

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