The competition for consumer brands to grow and scale is reaching a boiling point. A convergence of increasing privacy restrictions and macroeconomic headwinds is making it increasingly challenging to acquire new customers and operate profitably. Recently, I met with Alex Song, founder and CEO of Proxima to discuss the current climate and his insights on how brands can harness AI to better target and engage with new customers while lowering the cost of customer acquisition.
Gary Drenik: Smaller consumer brands and D2Cs have been struggling lately — one high profile bankruptcy filing in October was Hello Bello baby products run by celebrity couple Kristen Bell and Dax Shepard. How has the landscape changed for smaller consumer brands and D2Cs that may have gained traction during the pandemic?
Alex Song: The landscape for smaller consumer brands has changed significantly since the pandemic due to a variety of factors. First, the Apple 2021 privacy change spurred the subsequent loss of audience targeting signals, making it more challenging for brands to target their marketing efforts. In addition, the weakened economy and the re-emergence of physical retail has made the competition for customers especially fierce. Finally, the cost of goods has also become a more prominent concern for shoppers. According to a recent Prosper Insights & Analytics survey, up to 69% of Americans say that low prices are very important when shopping online.
In fact, up to 44% of shoppers are buying more store brand or generic products and up to 33% are doing more comparative shopping online.
The 50% increase in the cost of acquiring customers is an uphill battle for brands of all sizes.
This is certainly relevant for celebrity brands like Hello Baby which often have the benefit of launching with a built-in audience of their loyal followers. This immediate brand awareness can have great benefit at early stages as the initial cost of customer acquisition is significantly reduced. But over time, all businesses will reach a point of diminishing returns on new customer acquisition and the efficiency at scale will become harder and harder to maintain.
It’s important to remember that a business cannot be successful without there being product market fit with a meaningful market size. A celebrity backing a product can bring a lot of buzz, but the product still has to be great. Then, even when there’s a strong hero product, there needs to be a product development pipeline that naturally expands purchases from the same customers. Without these strategies in place, consumer brands will face difficulties attracting new customers and boosting customer loyalty regardless of celebrity backing.
Drenik: So, with that backdrop in mind, what is the path forward for smaller consumer brands and D2C? Or is any consumer brand today really trying to straddle the digital and physical world?
Song: It’s important to understand that today’s environment has changed the forward trajectory for brands. The Apple privacy change made it so that D2C channels are no longer exclusively the path forward to growth. It’s also no longer about showing growth potential to investors– D2Cs and all digital consumer brands need to prove profitability and unit economics.
A strong retention strategy to get every possible dollar out of an existing customer is critical to finding success at scale, especially as the cost of each incremental new customer gets more and more expensive. Getting a customer to repurchase at the right moment is the key to effective retention, and data insights can unlock this impact.
The brands that lean into data intelligence and insights on purchasing decisions are the ones well-positioned to succeed. In the absence of customer tracking information, proven insights and customer segmentation is necessary to succeed on other online shopping platforms and ultimately brick and mortar retail spaces.
Drenik: How can AI-powered data intelligence help? And do brands need to concentrate on building out data science teams in-house in order to succeed? That can be out of reach for many.
Song: AI-powered insights will help enormously in transforming a brand’s ability to acquire new customers. In Proxima’s case, consumer brands — really of any size— can reach more customers via their own data married with our data set of 60 million unique customer personas. There’s a reason that 84% of companies are actively incorporating AI solutions into their business or name it a top priority, and customer acquisition is an area ripe for it. Yet you don’t have to hire an in-house team– the data intelligence solution can serve in its place, and at a fraction of the cost.
In fact, brands can leverage incredible tools that can lower CPAs, increase ROI on ad spend, and help scale ad spend profitability and more efficiently. Leveraging this advantage will be critical for smaller consumer brands to build a highly engaged audience and customer set so they don’t get washed away in a vast online marketplace where consumers have more choices and preferences than ever before. This is why we built Proxima, to solve this pain point and help brands scale profitability.
Drenik: Can you give concrete examples of insights you can provide to a brand?
Song: Here’s a big one — the best predictor of a next purchase is a past purchase. Understanding shopping patterns is key to understanding your customers, their behavior, and their potential as loyal and returning customers. In other words, if you know how, when, and how much your customers have shopped before– that will always be the best predictor of what they will do next.
At Proxima, we offer brands intuitive insights that will help enhance their understanding of their customers through network-powered predictive models utilizing AI. Our analysis provides key metrics that help brands make the best decisions on how they run campaigns, who they advertise to and who will benefit most – and when – from their ads.
Drenik: What were some takeaways from the recent holiday shopping season?
Song: I always encourage retailers to think of the holiday shopping season as a marathon, not an end-of-year sprint. You can’t have a fantastic holiday season where you pull out all the stops on customer acquisition and then burn out in January. High- intent traffic may build short-term revenue, but you need to continue to spend on awareness to truly scale and keep new customers engaged and coming back for more.
To be successful beyond this high spend period requires an acute focus on customer retention strategies. Make sure you’re investing in the loyal customer base you currently have as well as the one you built during the holiday season. Continue to use your customer data to create personalized campaigns and experiment with new channels (think partnerships and influencer marketing). Above all, lean on customer data intelligence to help you make the best possible marketing decisions to ensure your brand is still around by the time the next holiday season rolls around.
Drenik: That’s great advice, Alex. Thank you so much for sharing your insights on how brands can utilize AI-driven insights to better understand their customers and stand out against the competition. We really appreciate your time and wisdom.
Read the full article here
