Digiday Reports Direct-to-Consumer Brands Sour on Facebook Ads

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NEW YORK – Digiday, which covers the digital marketing world, is reporting that direct-to-consumer (DTC) brands are souring on Facebook advertising. 

It says it spoke with 10 DTC companies, and all of them report their marketing mix has de-emphasized Facebook for other digital alternatives – including Facebook-owned Instagram – while seven are expanding into traditional vehicles.

Why? Prices are getting high for audience segments, and the feed has become cluttered.

“We’re trying to move away from Facebook as fast as we can,” Rich Fulop founder of Brooklinen, the direct-to-consumer luxury bedding startup, told Digiday. Fulop said CPMs on the platform are double what they were a year ago. 

“We’re fighting in this little slip of real estate with everyone else out there, and it’s hard to cut through,” Fulop said. “You’re paying for an impression-based auction, so you are essentially bidding against anybody and everybody that wants to compete for that space, so it’s become a hyper-competitive environment.”

Four years ago, when Fulop started Brooklinen, he said the customer acquisition strategy was straightforward: pour money into Facebook ads. Soon, Brooklinen was spending up to 75 percent of its ad budget on Facebook. 

But, lured by micro-targeting segments, Brooklinen and other DTC companies poured money into Facebook. Simple economics took over: Facebook ads became very expensive for DTC brands like Brooklinen, Thinx, Roman, and Quip – all of which are now diversifying their spending to new channels, including out-of-home, terrestrial radio and even print.

In January, Facebook changed its news feed to prioritize user content over branded or publisher content. That, according to several companies, led to increased competition for limited inventory in the feed, while CPM prices have increased dramatically, and ad impressions have sunk. After the algorithm change in January, CPMs on the platform shot up 122 percent year-over-year as the impression rate dipped, according to AdStage data reported in Recode.

Fabian Seelbach, senior vice president of marketing at DTC company Curology, which sends customized acne treatments to consumers, told Digiday his company “can’t work fast enough to maintain the stability of the pricing. The effectiveness for Facebook has gone down and got particularly bad in late April and early May, which is why we are shifting significant spend.”

Seelbach said that Facebook was once a stable piece of its business but, by the end of April, the company was paying 30 to 50 percent more on CPMs, so it had to shift 30 percent of its ad spend away from the platform, and will likely shift another 30 percent in coming weeks.

Part of that spend is going to Instagram Stories instead. Seelbach said the appeal of Instagram Stories is that while it requires a different creative format, all the targeting and audience and mechanics behind the scenes are still in the Facebook ad manager, making it easier for Curology’s internal team to manage the switch. Another reason: Seelbach said Instagram Stories CPMs are now half as much of in-feed Facebook ads. As Curology continues to scale its business, Seelbach told Digiday he expects the company to shift some of its spend into traditional media channels as well.