Confidence
It was always going to go this way—and it’s not Apple’s fault.
The popular refrain as it relates to DTC’s struggles with higher CAC has been that Apple stepped in and ruined the party. That the “arbitrage era” was over.
We have tried to stay away from discussing that narrative here, because, frankly, stating that Direct-To-Consumer’s existence was reliant on arbitrage is factually inaccurate (the history of DTC businesses is far older and more storied than Facebook advertising) and, therefore, would devalue the work of so many people who didn’t build in that way.
Besides, if an entire industry was built on such a weak house of cards, what would there be to talk about? This newsletter is built on the premise of exploring the intersection of CPG, DTC and consumer behavior. None of that would matter in a word where “advertising arbitrage” was the main driver.
An alternate, data-backed view of what’s happening was presented recently by Steve Rekuc of Common Thread Collective, who found strong correlation between consumer confidence and CAC:
This is a pretty compelling chart.
Costs were rising well before Apple’s iOS changes, and the rollout of those changes seemed to only cause a three-month departure from a linear trend on rising CAC.
The harsher reality, it seems, is that much of the success we’ve become accustomed to in DTC is more likely related to an incredibly confident consumer and all the macro trends that impact that confidence (plus, of course, a cheap ad source that—inevitably—would get more expensive as it matured):
If true, this would suggest the focus on optimizing CAC is not about solving an attribution problem that Apple created as much as it is about solving a consumer behavior problem.
It strikes us that this has to be true, because changing consumer behavior is how CPG brands have historically grown. And focusing on that—especially in a time of declining consumer confidence (the first in 15 years)—will deliver a much larger impact than anything else.