NEW YORK, United States — When Jon Passavant and Benj Lee decided to sell their leather accessories online, their biggest expense had nothing to do with manufacturing $2,000 briefcases or shipping wallets around the world. Instead, it was marketing that swallowed a third of their initial $1 million budget.
Previously, the pair sold the Passavant & Lee brand through stores, relying on retailers to steer shoppers to their merchandise. Online, they needed a way to stand out from thousands of other brands. They knew they’d have to place ads on search results and social media, but realised that wouldn’t be enough. A portion of their marketing budget will go toward real-world promotional events like pop-up shops and partnerships with other brands.
“We’re not going to blow $100,000 on paid digital and hold course,” Passavant said. “It’s like a drug: the more you take it the less effective it becomes. We don’t want to play that game.”
Passavant & Lee isn’t the only company facing daunting costs to draw online shoppers. As more direct-to-consumer brands fight for attention, digital marketing costs are skyrocketing, with the cost-per-click of search engine advertisement jumping 25 percent last year to an all-time high, according to marketing data firm iProspect. Brands say costs are rising even as the effectiveness of conventional online marketing is falling, with more consumers tuning out the ads saturating their social media feeds.
It’s a dynamic that’s scrambling the model that fuelled success stories like Warby Parker, which faced a less-crowded playing field when the eyewear company’s digital marketing campaign launched in the early 2010s. Newer start-ups are turning to creative alternatives in order to stand out while keeping costs down — even reverting to pre-digital methods of getting the word out, including print catalogues and ads on buses and subway cars.
Rent is basically the same thing as digital marketing.
Naadam, a sustainable cashmere start-up founded in 2013, at first relied heavily on paid search and other conventional digital marketing strategies. Online ads and other digital channels remain central to the brand’s marketing plans, but chief executive Matt Scanlan said he’s also considering taxi ads, subway ads, billboards and other real-world tactics. In September, Naadam will open a store in New York and send out its first-ever print catalogue to 500,000 people. After closing a $16 million funding round last week, the company is also negotiating a package of print ads with Hearst that could be worth more than $1 million.
“Everyone and their mother are buying ads on Facebook,” he said. “We’re seeing enough of a decrease in ROI [in digital marketing] — not just blips on a radar.”
Online entrepreneurs like Scanlan are also moving into physical stores with more finesse than much of the previous generation of fashion start-ups, using brick-and-mortar locations to both drive sales and generate word-of-mouth. Aurate, a jewellery company, launched its e-commerce site in 2015 and simultaneously used pop-up shops to build awareness, rather than paying to promote the brand’s social media pages or place ads on Google. Eventually, they invested in digital marketing, but those tactics remain on par with brick-and-mortar, founders Sophie Kahn and Bouchra Ezzahraoui said.
Aurate currently has four permanent stores: two in New York, one in Boston and another in Washington, D.C. Scanlan said he is also counting on Naadam’s physical stores to find new customers. Spending money to drive sales online, according to the Aurate founders, can actually be more expensive than spending money on rent.
“We did retail before paid digital, and all of our retail [ventures] were profitable,” said Kahn. “Rent is basically the same thing as digital marketing.”
Upscale athleisure retailer Bandier launched in 2014 as a store in the Hamptons, and has since expanded to six locations. The company does much of its business online, but uses its physical locations to find new customers, including in-store features such as a fitness studio in its Noho, Manhattan location, said Neil Boyarsky, who co-founded the company alongside his wife Jennifer Bandier.
“When you think about real estate it’s about how you create programming — art, experience, food,” he said.
Savvy programming, Boyarsky added, could spruce up many different marketing avenues. He pointed to Glossier's 2016 takeover of the Bedford L subway station in Brooklyn, creating a sea of its signature pink in the cavernous space and employing models to hand out hundreds of pink roses to commuters. By adding the latter element, Glossier transformed a subway ad into a full-on, Instagrammable installation. And it worked: the commuters shared photos of the experiment on social media, exposing Glossier to consumers way beyond the Bedford stop.
"That's how you take a $50,000 budget to $1 million in returns," Boyarsky said.
Creating the right retail experience often leads to a surge in online sales as well. After Bandier opened a store in Dallas, the state came to comprise 7 percent of total e-commerce sales, behind only New York and California. Margaux, a shoe start-up, reported similar returns in customer acquisition after investing in physical retail locations. Across Margaux’s four stores, over 80 percent of customers are new to the brand. At their “store-within-a-store” inside Bloomingdale’s 59th Street flagship, that number increases to 96 percent, founders Alexa Buckley and Sarah Pierson said.
To keep costs down, Aurate relies on data collection, from customer feedback to surveys, to figure out what marketing techniques are working, Ezzahraoui said. By understanding what Facebook video performs better and which products get the most clicks, Aurate can determine how much inventory to stock and adjust marketing content in real time. For instance, an early video of a model donning Aurate jewellery did not garner as much engagement as those featuring only the products themselves.
“You have to try to own as much data as humanly possible,” said Rachel Tipograph, founder of MikMak.TV, a video marketing software company. “You’ll know who’s gluten-free, who’s going to go on a trip and who are the guys that love skinny jeans.”
Otherwise, digital marketing can be like “throwing spaghetti at a wall,” she said.
Part of Passavant & Lee’s marketing budget, the founders said, is having a full-time, in-house analytics manager.
Lola, an organic feminine care company, uses online interactions with customers as a marketing tool. The brand receives 900 emails a month with questions from customers, and responds to each one, said Alexandra Friedman, who co-founded Lola with Jordana Kier. The strategy has its roots in the brand’s early days, when focus groups of “15 women in a room” helped drive initial product design.
After launching in 2015, Lola was able to scale from only word-of-mouth recommendations, press coverage and organic — as in, not paid — social media.
“We learned that opening up the conversation was the most important piece,” Friedman said. “We consider our email programme a combination of brand building and customer support.”
There are also third-party tools that help brands get the most out of their digital acquisition costs. To retain customers who visit a company’s website but don’t make a purchase, Jenna Wise, founder of consultancy Stone Set Studio, recommends chatbots, which are artificial intelligence-powered tools that make contact with a site visitor through Facebook Messenger. A chatbot could send a promotional code or a personalised message to shoppers who spend time browsing on the site, in order to convince them to make a purchase.
One of MikMak’s products speeds up the load time of external links in Instagram, for instance, which reduces the average bounce rate — or when a user decides to close the page. Another product adds an “add to cart” function on Instagram stories so users can buy directly after viewing a company’s content in their feed.
“Maybe do a little bit of everything and see what generates returns,” Wise said. “You can have a media plan but you need to have the freedom and agility to adjust based on what’s working and what’s not.”