“98% of direct-to-consumer brands are dead”

Firstly introduced to Jeff Bezos by his former Stanford professor back in 2001, the flywheel concept is now on everyone’s lips. Lately, this idea was adopted and transferred to marketing especially by Brian Halligan, CEO of Hubspot. But what is it all about?

According to Gary Vaynerchuk, CEO of VaynerMedia, “98% of direct-to-consumer brands are dead, they just don’t know yet”. Sure this is exaggerated, but the truth is that many brands struggle to acquire and retain customers at the right price. They re-acquire customers again, and again, and again what leads to constantly growing marketing budgets – and costs – in the long-term.

Unfortunately, we are all used to this logic of reacquiring customers all over again. To the logic of a funnel where plenty of customers come in from above and where just a few will finally convert by purchasing below.

But what changed? What’s wrong with the funnel?

First of all, content marketing is becoming much more difficult because your content is consumed more and more on platforms like Google, Facebook, Pinterest, etc. who of course have an inherent interest to keep the audiences in their own space and not in yours.

Also, acquisition costs are rising in most channels. According to Adstage, on Instagram you pay about $25 for one purchase, assuming a CTR of 0.54% and a conversion rate of 3%. This average example for calculating the acquisition cost per purchase makes it pretty clear, that reinvesting in an already existing customer is just not efficient.

Another issue is that privacy concerns reach a new level when you think of consent management, the demise of 3rd party cookies, etc.

Broken Marketing Funnel

So now, what to do?

A solution can be to develop customer retention and word-of-mouth. Acquiring new customers costs five times more than retaining a customer and a retention increase of 5% can drive profit from 25-95%. Word-of-mouth has a huge potential because 75% of people don’t believe in an advertisement.

Should we forget customer acquisition? Of course not, but it shouldn’t be the best and only metric you’re looking at.

The marketing flywheel is about treating customers not as an afterthought and staying regularly in their consideration set in the best, cost-effective way.

Brand marketing can achieve the goal to stay in the consideration set too but here it’s all about the budget and in most cases, the winner will be the competitor with the already highest revenue and marketing investment.

Another option to achieve that goal is spinning the marketing flywheel. The customer stands in the center of all operations. We want to attract, engage, and delight the customer constantly by offering the right product through the right channel at the right time.

The flywheel perspective forces us to put these actions as our marketing goal. Because purchases and profitability will grow if you will create a great customer experience.

Check this OMR Masterclass of Markus Wuebben, Co-Founder and CDO of CrossEngage, and learn how to:

  • increase the size of your flywheel (aka creating more touchpoints)
  • enable you to spin it fast and reduce friction (aka increase frequency and value of purchases)
  • measure and describe your marketing flywheel and identify which KPIs are the most important ones