Your Facebook Ads Are Working Better Than You Think

Everyone loves a clean narrative, the DTC industry included. 

Direct-to-consumer was supposed to kill retail. Amazon and your website were supposed to be separate P&Ls. Instagram was supposed to democratize content distribution.

Reality, as usual, is a little messier.

This week, we're diving into three stories that challenge those notions. 

We'll explore why your Amazon revenue might be making your Facebook ads look worse than they are (and how to fix it), examine Nike's humbling return to retail after their DTC dreams fell short and peek behind Instagram's not-so-democratic approach to video quality.

Let's dive in.

Today: 

• The complexities of DTC + Amazon ← Understand demand gen across both channels 

• Breaking up (with retail) is the hardest part ← Nike’s fall began with a divorce from their first love

• Pretty privilege on Instagram ← The bigger your account, the better quality your vids

• Quick hits ← Find a super simple hack to up the CTR on your ads

How to turn Amazon into a profit machine for DTC

Most DTC brands make a major mistake when it comes to Amazon. 

They treat their DTC website and Amazon as two different channels, with separate P&Ls. As a result, they attribute Meta/Facebook/YouTube ad spend only to DTC performance, creating artificial competition between the two channels and missing out on a huge portion of their marketing’s demand generation.

Taylor Holiday recently tackled this issue on a podcast recently.  

The reality is that Meta and YouTube drive demand across both DTC and Amazon. Research has shown that 85% of the time, they drive incremental lift on Amazon, often to the tune of over 50% additional revenue. 

In other words, a seemingly break-even ROAS (return on ad spend) of 1.2 in DTC could actually be 1.8 when including Amazon. 

Amazon’s role? More of a search engine than a marketplace. Product discovery and demand happen elsewhere, then fulfillment goes through Amazon. It’s particularly strong for immediate-need purchases, e.g. headphones for tomorrow’s flight. 

Taylor’s recommendations:

Model revenue as DTC+Amazon 

When you go to model your relationship between growth and spend for the next year, include your Amazon revenue.

"Export all of your Amazon revenue as well as your .com revenue…and then try and build that relationship between those numbers so that you can start to get an estimate of impact."

Allocate your media spend proportionally 

"If you look right now in your Amazon PNL looks way better than your dot com PNL, but there's no ad dollars on it... That would be my red flag... That's deceiving you into thinking one channel is producing amazing growth while the other is sort of stuck in inefficiency."

If this is the case, consider allocating media spend proportionally, (e.g., if Amazon is 20% of revenue, assign it 20% of media costs). 

Lastly, focus on total business growth rather than individual channel efficiency metrics.

The key message is that separating channels can create the perception of inefficiencies and prevent accurate growth modeling. Businesses need to view and measure their digital presence holistically.

Takeaway: figuring this out will add complexity to your business. But that’s just how it is. It’s probably something you don’t need to pay attention to until you start making real money on both DTC and Amazon, but once you’re there, bite the bullet.

Maybe don’t break up with retailers

The Economist recently wrote a piece about Nike losing ground to other sneaker brands. 

Part of it is due to Nike’s push into DTC, which we covered a little while back.

But for context, sportswear has long been dominated by Nike and Adidas. Last year they accounted for 35% and 16%, respectively,  of the $146bn in net sales generated by the top 15 brands in the industry. 

Over the past few years, though, Nike’s shares have plunged by 27%. Meanwhile, up-and-coming brands like On and Hoka have seen their share prices skyrocket. 

Many attributed this to their shift from brand advertising to direct response.

Of course, it’s never that simple—other factors include softening demand in China and a lack of innovation after they let go of employees representing “thousands of years’ worth of experience.”

However, the main reason might be something else entirely.

Just last week, we reminded those dreaming of the green pastures of retail that it’s not all smooth sailing. 

It seems Nike felt the same.

Around COVID, they decided to pivot away from retailers and commit to direct-to-consumer (DTC). We can almost hear the analysts in the boardroom: “We’ll have better cash flow!” “Brick and mortar is dying!”

It…didn’t pan out that way. 

As with any breakup, retailers found themselves in some rebound relationships. Newer brands like On and Hoka, as mentioned, have taken advantage, but also older non-giants like Asics and New Balance. 

Nike? Left scrambling to fix things. 

Takeaway: If anyone tries to blame you for coming to early conclusions around Covid, remind them even Nike fell for it. Aside from that, retail might be a pain but this is not the Matrix yet - most commerce is still conducted in real life (over 80% in the US).

Classism has spilled over into… content? 

In a recent Ask Me Anything session, Instagram's Head of Product Adam Mosseri disclosed that the video quality on the app is affected by its popularity. 

This means that videos that draw in more views are shown in better quality, whereas those that don't perform well might experience a downgrade in their display quality.

To save on computing resources. 

Takeaway: Let’s give Instagram kudos for environmentalism. /s

QUICK HITS

• The quickest fix for your BFCM ad CTR, ever.

• Shopify has a new “bought together” report that shows you which items were, well, bought together. Useful for developing your custom bundles.

• Meta is bugging out again - major overspending issues for Rok Hladnik.

• Hershey buys Sour Stripes, a DTC candy brand with about $20M in rev.

• Olivia Kory of Haus shares some data on AppLovin results.

BONUS - A free BFCM guide to big profit made especially for CPG brands from Supliful. Learn pricing tips, product picks, and marketing tactics that actually work for Black Friday.