How data protection initiatives impact DTC brands
DTC brands have enjoyed considerable success in recent years, transforming the e-commerce landscape and breaking the codes of traditional brands. But many of them are now under threat: the application GDPR (General Data Protection Regulation) and Apple's iOS 14 update are creating new restrictions, disrupting online advertising, and driving up DTC brands' acquisition costs.
How do these data protection measures directly or indirectly impact DTC brands ? How can they face this new challenge? Sqwad gives you some insight.
Everything you need to know about the new data protection measures affecting DTC brands
GDPR at a glance
The GDPR (General Data Protection Regulation) is a European regulation that came into force on 25 May 2018 and aims to strengthen citizens' rights regarding personal data. It applies to all companies and associations in the Member States and non-EU countries that collect and process data from European residents (such as Google, Facebook, or Amazon).
It's based on several main principles, in particular
- Consent: visitors must now explicitly agree to the collection of their personal data, hence the need for brands to allow users to browse with or without cookies.
- Transparency: the company must clearly define the purpose of the data collection and give this information to its users.
- Responsibility: companies must be accountable for protecting personal data; they must make their employees aware of the issues related to data processing and put in place appropriate procedures.
- Individual rights: this is known as "privacy by design"; users have the right to access, rectify and delete their data at any time. Companies must take the necessary action if users request it within one month.
Apple's iOS 14 update
On April 26th 2021, Apple announced that it would focus on protecting its users' data privacy with the iOS 14 update (specifically iOS 14.5). This announcement is based on the ATT principle, "App Tracking Transparency".
ATT requires all applications in the Apple Store to send a notification to their users, asking for their consent to collect and share their data. Microphone access, location, contact list, camera and photo or video library are also subject to the user's explicit consent.
Since this update, many Apple users do not consent to use their data, and applications can no longer exchange information about their users as easily as before.
All this data feeds the algorithms and systems that govern online advertising. This is because user behavior can be tracked and assigned a detailed advertising profile and provide targeted ads according to their interests.
As a result, social network advertising algorithms on Facebook or Instagram are fed with fewer data. This affects their performance. Brands using advertising on Facebook or Instagram have noted a drop in conversions, a decrease in targeting quality, and an impact on campaign statistic reliability.
In short, it's more difficult and expensive for a brand to get a personalized ad to the right person at the right time.
Personal data protection measures: what are the consequences for DTC brands ?
Measures that control users' personal data are great news for users but a real blow for DTC brands. Here's why:
- Strong compliance requirements
Firstly, the GDPR enforces many new obligations on companies, which are sometimes challenging to implement: measures to ensure an optimal level of security for personal data (pseudonymisation or anonymisation, impact analyses, intrusion tests, etc.), implementation of cookie consent banners that comply with regulations, keeping a data processing register, procedures for access rights, the right to rectify and to be forgotten, etc.
These adjustments are complex and often require support from experts.
- A shift in marketing strategies
These data protection measures also force DTC brands to reconsider certain aspects of their marketing strategy. For example, it's becoming increasingly difficult for brands to exploit second or third-party data.
Second-party data is data that's purchased or exchanged from a trusted partner. Third-party data is provided by third-party companies that accumulate it from different sources and consolidate it for marketing. This data is valuable for brands that want to extend their acquisition funnel and feed retargeting scenarios, for example. However, the collection of this data is now strictly regulated, based on user consent.
Brands have to rely more and more on first-party data, i.e., data that they collect directly, and are restricted in using their traditional marketing levers.
- Soaring acquisition costs
The DTC brands ecosystem comprises many small, fragmented brands, which alone do not have enough first-party data to implement effective marketing campaigns. This is in contrast to the large groups with a more extensive customer base and budget.
Finally, the GRPD and the iOS 14 update substantially impact online advertising performance, which is the preferred acquisition lever for most DTC brands.
Indeed, many brands that rely heavily on paid media, with substantial investments in Google Ads, Facebook Ads, Instagram Ads, display and retargeting, are seeing their campaigns lose effectiveness. They have no choice but to increase their budgets to maintain their conversion rates.
As a result, their CAC or customer acquisition cost soars and their profitability is strained.
Many DTC brands are at risk because of these data protection measures
With this general increase in acquisition costs and the new difficulties caused by data protection measures, the entire DTC brands model is under threat.
Several of them have come together to publish an appeal for help, in the form of the We are Fireflies movement, with an open letter to Minister Bruno Lemaire.
It states that these brands welcome the progress made by personal data protection measures and, in particular, the GRPD: "The objective is obvious: it aims to respect and protect the privacy of our customers. We wholeheartedly support this measure. But it requires support: "The urgency is already here: our CAC (Customer Acquisition Cost) have doubled in just a few months. Our profitability has been split in half. Only the big companies are holding up.
Sqwad is here to address this issue. To help brands engage with their customers differently and help them create a more sustainable and profitable model for growth.
Sqwad is an at-scale partnership management tool. Collaborate with a large ecosystem of like-minded brands to pool your audiences, resources, and knowledge to launch high-performance campaigns while reducing acquisition costs.