Why DTC brands are cutting back on agencies

For years, direct-to-consumer soap and bath bomb brand Lush relied on outside agencies for marketing, including working closely with Method on a brand refresh and creating a YouTube channel. But lately, Lush is handling more work in-house, including for critical marketing programs such as its Black Friday campaign. “We’ve got a really strong creative team internally, and a lot of very talented individuals,” said Annabelle Baker, Lush’s global brand director, noting that it also leans on creative thinking from people outside the marketing department. View this post on Instagram A post shared by Lush Cosmetics North America (@lushcosmetics) Lush isn’t alone: DTC brands including Ogee, Glossier, Deux and Public have taken their marketing almost entirely in-house, industry leaders told Ad Age. While in-housing has become popular for marketers of all sizes, the trend is particularly noticeable for DTCs. In the 2010s, it seemed every DTC brand spent tens of thousands of dollars of their fresh venture capital on agencies that promised to create a brand identity that would distinguish the brand from the main players in whichever industry it hoped to disrupt. But with venture funding slowing, DTC companies are changing their go-to-market approaches as they deal with new financial constraints. Also read: In-house agencies grow in popularity U.S. investors had only invested $130 million into direct-to-consumer companies in 2023 as of November, according to a Crunchbase report called “VCs No Longer Do DTC.” That’s down 97% from the sector’s peak in 2021, when it saw more than $5 billion in funding, per the report. See all of Ad Age’s 2024 Agency A-List winners here Agencies that have historically attracted DTC clients, such as Giant Spoon, Red Antler and Fat Earth, are taking notice. Some agency leaders told Ad Age that they’ve noticed fewer DTC brands interested in working with an agency at all, while others said that the scope of the work they’re doing for DTC brands has narrowed to smaller, more project-based work rather than elaborate brand launches and refreshes. The marketing budgets for DTC brands have “definitely decreased” over the past few years because it’s taking them longer to get funding, according to John Gross, CEO, founder and head of growth strategy at digital marketing agency Fat Earth Media, which has worked with DTC brands. DTC brands launching today aren’t defaulting to “let’s go meet a brand agency” as they did 10 years ago, according to agency search consultant Joanne Davis, founder of Joanne Davis Consulting. Sabeena Ladha was adamantly against using an agency for branding and marketing efforts when she founded Deux, the e-commerce doughnut and cookie dough brand, in late 2020. “When we first launched, I was really hell-bent on not spending $100,000 on a branding agency,” she said in a recent interview, even though many DTC brands she looked up to previously created “these beautiful brands with, like, Red Antler.” Ladha didn’t want to spend her own money on a brand that was in its test phase. “I wanted to wait until there was product-market fit,” she said. Also read: How Deux is challenging brands like Krispy Kreme Belt-tightening Glossier is among the brands changing its approach. The beauty brand previously worked with Giant Spoon for its media buying and marketing efforts, but today, “Glossier does not use agencies for typical marketing, all is handled by the in-house team,” said a spokesperson. Trevor Guthrie, co-founder at Giant Spoon, said DTC marketing budgets have “shrunk significantly,” attributing the decrease to “what the marketplace looks like,” and “where venture money sits.” There are still some DTC brands reaching out to agencies for marketing work, but the asks are smaller and more targeted. Giant Spoon has had roughly 10 DTC brands contact it in the past year, according to Guthrie, but the agency has had to turn them down. “There’s budget constraints around it, and we have said no to some of them because of that,” he said. He also noted that sometimes DTC brands’ asks are too last-minute for Giant Spoon to accommodate. View this post on Instagram A post shared by Glossier (@glossier) Davis said she first noticed DTC brands’ shift away from agencies during the pandemic. “Everybody was tightening their belts,” she said. “In adverse times, it forces everybody to find new ways to market.” Today, DTC brands are less likely to go shopping for an agency than they are to hunt for “alternative ways to get the message out,” Davis said. Those alternative methods could be seeding products to influencers rather than using agencies for larger-scale media buying or rebranding. Related: Influencer gifting creates waste and inefficiency for brands “The shape of what brands are looking for in agency partners has shifted,” Maggie Sause, head of marketing at Red Antler, said in an email. “We went through a phase where DTC brands were laser-focused on lower funnel conversion, investing a lot of capital into paid social requiring significant investments in partners or internal teams that could keep the machine running,” she said. “A few years ago, a DTC brand might have come in for a broad number of asks and places they wanted help within the business. Today, a lot of the assignments are very specific, whether that be upper funnel media strategy and assistance or broad awareness creative,” Guthrie said. “And with that, the size of the budgets are more in line with those specific asks.” AI’s impact on media-buying DTC brands are also changing their media-buying approaches, sometimes in ways that require less agency involvement. For instance, Apple’s 2021 data privacy crackdown—which made it harder to track users and measure campaigns—led some DTC brands to invest in alternative marketing channels, including out-of-home and direct mail marketing. It also prompted platforms including Meta to make changes to their ad ecosystem to restore some of the targeting capabilities that Apple’s iOS 14 update sullied. As a result, much of Meta’s ad-buying ecosystem is now AI-powered. Also read: Meta has new AI tools—how brands can use them Alex Stark, chief marketing officer at DTC skincare brand Ogee, said that Meta’s AI tools have improved to the extent that it has made the media-buying process less time-consuming—and, according to him, something now more easily done in-house, especially when factoring in agency costs. He estimated that hiring a media buyer as a full-time employee costs roughly 80% less than what Ogee would have to pay an agency to do the same thing. “Hiring people internally instead … it costs money, but … you can hire amazing people and pay them amazingly well. And it's like a fraction of what you pay an agency,” he said. The agencies Ogee used to use for these efforts charged a 10% to 15% performance fee for ads—but the agency ads weren’t performing 10% or 15% better than the ads Ogee created and bought internally, so the return on investment didn’t add up, he said. @ogee With our Sculpted Face Sticks, getting ready really is that easy! Here our Social Media Coordinator, Ams, is wearing our Golden Contour Collection and our Sculpted Lipstick in Sahara. #BeyondCleanBeauty #getreadywithoutme #fyp ♬ im reaaaddyy - Eloise Dufka How agencies are adjusting The DTC belt-tightening has forced agencies that cater to them into making a decision—either lower prices or change what is offered. “Pressure on pricing really started to increase around February and March of this year,” said Fat Earth’s Gross. “Although we heard these requests and felt these pressures, we elected not to reduce our rates.” Instead, Fat Earth began offering “pared down services that still delivered a high level of expertise while also allowing us to deliver our high-touch services for the clients where this still made sense,” he said. At Giant Spoon, Guthrie said the team lets DTC brands that come in with big asks and small budgets know “what we can do within the budget” and “what’s possible” within those financial constraints. Red Antler has been expanding its offerings to include “tools and experiences that allow our clients to use what resources they have more effectively,” Sause said. Those offerings include in-person TikTok workshops where it onboards a brand team to the platform, and they collaboratively create content together. “This has enabled us to deliver exactly and only what a client needs, while protecting the integrity of the brand they’ve invested so much heart and resources into building,” she continued. “You have to meet brand builders where they are,” Sause said. “There are so many variables impacting their success today from category saturation to fast follower growth to a dearth of funding opportunities, and being prepared to offer them exactly and only what they truly need is critical, so flex your offerings and packages to be hyper-relevant.” Sign up for Ad Age newsletters From influencer marketing to agencies, get the latest news and analysis delivered to your inbox Click here

Why DTC brands are cutting back on agencies

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