The One Key to Winning in 2024 with Luke Austin

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[00:00:18] Richard Gaffin: Hey folks. Welcome to the E-Commerce Playbook podcast. I'm your host, Richard Gaffin, director of Digital Product Strategy here at Common Thread Collective.

And I'm joined this week, not by Taylor Holiday, but by our war reporter, our head of growth strategy, Luke Austin, who is back from paternity leave. Sporting a paternity leave beard. Looks fantastic very nicely trimmed. And so what we're gonna talk with him today a little bit about is he's, he's gone from one sort of Crying newborn to another, which is of course, managing e-commerce brands and figuring out what to do in this really sort of, difficult time for those brands.

So, Luke how you doing, man?

[00:00:55] Luke Austin: I'm doing good. That was an incredible introduction.

I appreciate when whenever anyone calls this scruff that I'm rocking a beard, so I also appreciate that nod. Yeah, we are, we were just, just talking about, I'm on like a two week probationary review period when it comes to my paternity leave scruff.

So my wife has the ultimate decision making power here every two weeks. We'll do a check in. Then to get the thumbs up, the thumbs down and we go forward from there. So pass the first two week check and we'll see what what happens next ?

[00:01:23] Richard Gaffin: It's a little game of facial hair, chicken, like the longer it gets, you can push the line, but as soon as it gets too long, you may have to lop the whole thing off, which is a 

[00:01:30] Luke Austin: Exactly. And where that line is will be a very, very interesting point to discover for our relationship. 

[00:01:36] Richard Gaffin: you go. We should keep everybody updated on that as well, but, all right, so for the time being facial hair side, let's talk a little bit about. Kind of what you've been thinking in terms of the current state of e-commerce and what that's going to mean for next year. So, Taylor and I talked a couple of weeks ago about this concept of what is 2024 going to be the year of.

And Taylor's answer to that question is, is margin innovation essentially finding new ways to be profitable? And I, I would say that your answer to this question is not much different from that. But I think you have a, maybe a specific perspective on it given some of the work that you're doing and some of the clients you're working on.

So maybe talk through a little bit about. The kind of the state of the union right now and what you think that's going to mean for 2024? Yeah, given that fact,

[00:02:18] Luke Austin: Yeah, so. I think one, one of the things that we have seen over these past couple weeks specifically coming out of the DTC Index data from last week was the September, the September data, and there's great podcast on on that. 

So, essentially what we saw though was. Revenue was up year over year. M e r was in a solid spot as well. That was up also, but that was being driven by returning customer revenue instead of new customer revenue. And the new customer revenue side of things is not performing as strongly and or nor as efficiently.

[00:02:52] Richard Gaffin: Hmm.

[00:02:52] Luke Austin: As you know, the total brand m e r. So with that context in mind, and then thinking about what we saw from some of the Labor Day performance, even what we're seeing here in October, as we're, as we're looking at Prime Day and some brands offering around that. I am, I'm sitting here and I am honestly a bit nervous about what Black Friday Cyber Monday and Holiday is going to look like for a lot of DTC eCom brands. Based on this macro data that we're looking at, specifically nervous about the extent to which it seems like a large number of brands have have cashed in their chips on the returning customers earlier on this year.

So the, that Labor Day performance with the returning customer revenue higher right brands are planning. Heavier pushes and offers for early bird. You know, early November offers. There are some brands doing prime day stuff right now in October, and then their early bird stuff is launching, you know, less than a month later. And the returning customer base, I. It's a finite number of of customers there. It's not, there's, there's not you know, the pockets of those customers don't go forever. And so there's going to be a limited nu amount of value that can be extracted from those customers. Now, brands have hopefully grown their returning customer base over the course of this year so they can get more growth from them. But I'm a bit nervous about what that's going to what that means for the rest of Q4. If brands have cashed the chips a bit too much on the returning customers earlier on in, you know, late Q3 or early Q4.

[00:04:19] Richard Gaffin: Yeah, so one, we actually released a another DTC Index email just today. So whenever you listen to this, it probably have been released yesterday, but the . So, and that trend, of course, like the upshot of it, is that trend is definitely continuing. And in fact, aMER over the last two weeks is down 16% year over year, which is massive.

Returning customer revenue is still up 10%. And MER overall is up 3% year over year. But the, the trend line is, is definitely down, especially compared to, even to last week. MER is now down. And so again, yeah, what that points to is like, yeah, people are bringing discounts forward, squeezing the returning customer revenue sponge a lot earlier.

And kind of the upshot of at least this sort of past DTC Index observation is that, Returning customer revenue is also going to probably start taking a hit this coming week because of prime day. So that the bottom in that sense might drop out as well. So what this all points to is like, we're sort of potentially heading for trouble in November.

[00:05:20] Luke Austin: so

[00:05:21] Richard Gaffin: I think the question then becomes like, what do we do? And maybe specifically what have you seen the clients that you're working on, what are they doing to sort of figure this issue out?

[00:05:33] Luke Austin: Yeah. So in the midst of all of this going on, what we're seeing across the macro data set and what you just walk through as the Director of growth strategy, what I'm thinking through is, okay, what, what is it gonna take in 2024 for brands to see Continued growth, especially if they really lean into their, you know, offer strategy, returning customer revenue and the remainder of Q4, which to be clear is the time to do that.

That's what we've communicated in terms of what our strategy is, right? Four peaks, the fourth peak, et cetera. So this is the time to do that, but, The, the growth to see growth in 2024, it's gonna require thinking about something different than what's our next offer? What's the next marketing moment?

What's the next sale that we're offering? And I think this is what bridge, you know, bridges to Taylor Taylor's main point and, and your discussion around margin innovation. And so what we're gonna dive into now is for the brands that we see achieving growth at scale. What does margin innovation activities actually look like to push that growth at scale?

So, it to, yeah, so to sort of frame the, you know, margin innovation point another way, 2024 I think is really gonna be the year of brands either living by their model. Or living to their model or breaking the model for their brands By engaging in these margin innovation activities, living by the model, this is connected to, you know, what we do with our spend A M E R retention regression models. We get to a high confidence of if a brand continues their current trajectory, whereas that gonna land them in terms of their 2024 outcome. And then the question becomes, alright, are we going to just keep the status quo to, to live by that model? Or are we gonna go after You know, incrementally new activities to break the model.

So what does that look like to break the model for brands heading into 2024? We've got three, three different sort of case studies examples that we'll walk through here. One from a personal care brand, one from apparel brand, and then one from a footwear brand about what, what it takes for them to achieve consistent growth.

And I think has some really good lessons for, you know, medium to larger size DTC brands in the space.

[00:07:44] Richard Gaffin: Cool. All right. Well, yeah. Well, so let's jump into it. I, I'll just sort of, maybe reiterate here. This is a little note that you sent over before we hit record. To break the model brands will need, or sorry, to achieve growth brands will need to one, sell more to their. Existing customer base makes sense.

And to incrementally stack their acquisition funnel. So let's, with that kind of as the frame in mind, let's jump into, let's say our first brand, which is a deodorant brand. Talk to me about what they're doing to achieve both of those things. Sell more to the existing customer base, stack their acquisition funnels, and avoid the sort of situation that e-commerce in general finds itself in.

[00:08:19] Luke Austin: Yeah. Yeah. So, and to be clear, the, these brands that we'll walk through are Let, let's say greater than 50 million in DTC e-commerce revenue. So these are medium to larger sized brands, and I think that's important to call out because it can, it can be easy to think that for the smaller brands, the ones just getting into the space a lot. There's, there's more activity needed to, to break the model and engage in this way. And then for larger brands, they have greater awareness and affinity and, and they can, you know, they don't need to need to have this sort of This level of activity on their marketing calendar. But I, I just think that's not, not true.

That's not what we see for the large brands that are consistently achieving achieving growth. So for the personal personal care brand, This is what it takes for them. They launched four seasonal collect collections of brand new synths and SKUs for their core collections throughout every year. So, major seasons beginning of the year, spring, summer, and then their fall holiday. I. Have a new sense that they're launching across their product categories for their core for their core SKUs. In addition to that, they're doing one to two new product category launches per year. So incrementally new products that they're launching, I think, you know, a different header or subheader on the website of a completely new category that they can sell products to. And then in addition to that, Multiple offer moments you know, marketing calendar moments throughout the year in terms of sale offer strategy or brand, brand collaborations as well. So, that's, it's pretty substantial in terms of the lift that's needed. This isn't just, Hey, what are our four main offer moments or marketing moments throughout the year?

And we're dialed, this is four seasonal collections, couple new product category launches, and then layer on those marketing and offer strategies on top of that.

[00:10:07] Richard Gaffin: Right. Yeah. So it sort of goes back to the old adage that the most important part of advertising is the product itself and the most powerful tool. In some ways, when we think about our sort of four peaks marketing calendar system, this idea that you need to generate moments of, or, or rather create moments of revenue generation throughout the year, one of the most powerful tools to do that is to launch a new product.

But in terms of Lyft, the easier thing to do, of course, is to run a sale or decide, you know, today is going to be, you know, It's deodorant day or something like that, when in fact, for this brand, the, their marketing, the cornerstone of their marketing calendar is consistent product launches even to the point of expanding categories, which I think is pretty interesting.

So,

[00:10:49] Luke Austin: So,

[00:10:50] Richard Gaffin: yeah. So I mean, what, what goes into that? And I imagine like it's a, it is a massive operational lift. There's a lot of planning that goes on. Like what's what, so what does it take to make that happen?

[00:11:00] Luke Austin: Yeah, so I think one important thing that it takes is is a fundamental shift in terms of what is the highest impact lever that we can pull to achieve growth. Going back to that point that we made earlier, to achieve growth, brands need to sell more to the existing customer base and then to incrementally stack new acquisition funnels. I think what we see a lot of is that there are certain brands that spend a lot of their resources, specifically the time energy spaces and meetings thinking about what's the next campaign that we can launch on meta that could you know, achieve scale at our, at our ROAS target or, or increase our efficiency. And that's important, but that's, that's a second priority, especially if, you know, 50% plus of your revenue is taken up by returning customers. If you're trying to innovate margin and grow your, your marginal outcome for 2024, selling more to your existing customer base is gonna be the most effective way to do that way higher than, you know, stacking new acquisition funnels.

So, to your, to your question, I think that that perspective in itself is what it, what is the highest impact lever that we can have on growing our business and then focusing time and resources accordingly to that. In this case, launching Finding new things to sell our existing customer base that are great products that they see value in is going to have an outsize impact versus thinking about you know, a new campaign that we can launch on meta you know, compared to what the impact on the, on the business outcome will be.

[00:12:33] Richard Gaffin: Gotcha. Okay. 

[00:12:34] Luke Austin: think, I think that perspective, I think that perspective is, is important. And then, yeah. Connected to that is then what is the the operational sort of execution

that it takes to get. Get to that point. But first is like yeah, in alignment on the brand side in terms of yes, this is the most important thing that we should engage in to achieve our our 2024 business outcome.

[00:12:56] Richard Gaffin: Gotcha. Okay, so let's, let's then jump to the apparel brand and talk about what they're doing. 'cause it's similar in terms of or it's similar in terms of their ability to launch new product, but obviously it's a different product altogether. And so what does it look like for them to. Innovate margin, let's say, or sort of prep themselves for next year.

[00:13:15] Luke Austin: So for, for this apparel brand, they're really connected to to sports. And and so that, that is the main licensing that they do on, on their products. And so What they do is for each major sport kickoff and season, so for the kickoff, going into the new season of that sport. And then during, you know, the initial let's say month of that season they're launching about three to five new collections per week.

New collections meaning a, you know, a selection of skews a few skews, several skews. That have a certain colorway or design to them that is incrementally new to the business. So three to five new collection launches per week in order to push volume, sell those new SKUs to their existing customers, and then of course, layer that on their acquisition efforts and be able to drive new customer growth through that. And then in addition to that, They're doing a, you know, brand col collaboration drop per year as well. So something new with a different brand within the space. And then they have their core offer moments like most brands do that we'd associate with, with the Four Peaks, black Friday, cyber Monday. And then yeah, earlier in the year as well. But I think what's what's wild is three to five new collection launches per. Weak is what this very large direct to consumer e-commerce brand that we would all know and what it takes for them to push growth and, and on top line growth and margin growth consistently for them. And I don't see a lot of brands doing that in. In the space even smaller, you know, medium-sized direct to consumer e-commerce brands where they don't have that level of brand recognition of brand affinity, that's gonna give them more efficiency on their acquisition efforts. They have to push it through the marketing activities that they engage in, and this is the level of execution that it takes, even for a really large, well-known brand to achieve consistent growth over

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[00:15:54] Richard Gaffin: Okay. So one, one more example, footwear brand. So this is different in the sense, I'd say particularly that it's a higher ticket item. What are what are they doing?

[00:16:01] Luke Austin: What are yeah, so almost every week they launch a new limited edition exclusive sku. It'll be a limited quantity drop. Every week a new colorway for one of their core footwear silhouettes. And then throughout the year they have four seasonal collection drops as well that's related to the personal care brand.

We saw that. So each season you have your you have your, yeah. For each season of the year, you have assortment of different silhouettes that have. Incrementally new colorways that they've never launched before. So that's a larger drop one to two new product drops per year. Completely new products silhouettes within their footwear lineup. And then one to two new brand collaborations per year as well. Which gets them into, you know, new incrementally new markets within their, their footwear category. So weekly drops of limited edition colorways seasonal collection drops four of those a year. One to two new silhouette product drops.

One to do two new brand collabs, and then of course, your offer strategy on top of that Black Friday ceremony, holiday another sale early in the year as well. So yeah, that's what it takes for them,

[00:17:11] Richard Gaffin: Gotcha. All right, so the moral of the story seems to be across these three brands, release a lot of products all the time. So that maybe raises two specific questions for me. Number one is, what does this look like or what could this look like for a smaller, more medium brand that may not have the resources to make this sort of frequency of, of product release happen?

And then the other question that I have is,

[00:17:35] Luke Austin: is

[00:17:36] Richard Gaffin: So say my brand is not in one of these three spaces. What's interesting is like all three of them, the industry really lends themselves to releasing a lot of products and a lot of sort of incrementally different products as opposed to drastically different products or product categories.

So what if you're an industry like, I don't know, furniture or something like that, where you're selling big ticket items where.

[00:17:58] Luke Austin: I

wear 

[00:17:59] Richard Gaffin: Creating new product is not as simple as changing a couple of colors and releasing it. Of course I don't know the industry that well. Maybe it is that easy, but, so maybe like an answer that question, the second question first, which is to say if you're in a different industry from this, let's say you, you are in the 50 to a hundred million dollars range and your product doesn't really, isn't a consumable and doesn't necessarily lend itself to repeat purchase.

What, what's the, becomes the strategy there?

[00:18:23] Luke Austin: Yeah, so for brands where it's a much higher percentage of new revenue coming in versus returning revenue that that has to be That's definitely a consideration. That has an impact here. But I would, I would argue that for those brands, this is, this is more important even than for brands that have that returning customer revenue because each of these initiatives, activities also is fuel for the acquisition side of things.

So each of these drops, each of these new collections are most likely during that same time period, your highest performing. Meta acquisition campaigns, your top selling products within your your p max feed, right? So like the, these are going to perform really well on the acquisition side and give fuel for that fire. And the apparel brand in this example as well, sees really high percentage new revenue as well. So it's not, you know, heavily skewing, returning, and that's, and this is what helps to fuel their acquisition efforts because it's allowing you to drive New products into new markets for new users by introducing new skew drops, right?

Rather than let's adjust something on our creative to get into new markets and sell to new people. Let's, let's offer completely new product into the marketplace. And, and that drives it. So I think for brands that skew a higher percentage new revenue versus returning, this is just as important. And To, to the first question about for categories where maybe this isn't where, where this is more difficult to, to make changes like this? I think, I think this is difficult for every category. 'cause I. Personal care, for example, requires formulation and testing of those products, the effectiveness of them, right? In addition to the nu sense or the new packaging or whatever it might be. Whereas for example, furniture like you brought up. There's not as much of that that goes on to, you know, the, the formulation of, of what's in the consumable. So I, I just think this is hard across every industry and from what I've seen, it's really an orientation of the brands to focus on this as something they get really good at. Operational excellence, product innovation, excellence. It's an orientation of the brand to really figure that out and dial this in to then fuel What their marketing efforts look like on the new and returning side of things. So for, for any brand that's thinking of this as sort of like an add-on, Hey, how can we tack this on? You know, we're really paid media acquisition focused, like operationally, product innovation. We're, you know, we're, we're not that good. We like, we're, you know, we're kind of get by. It's, it's really an orientation of saying, we're going to get really good at this because this is what it's gonna take sooner or later to get us to the next level of growth and achieve, you know, that margin innovation, that margin outcome for the year ahead.

[00:21:17] Richard Gaffin: Yeah. One other thing strikes me too is that a lot of the times when you have new product to launch, It makes the amount of effort that you have to put into the marketing, especially on the creative side. It actually reduces that a lot, at least in my experience, where if the product team is doing their job, let's say, and, and actually let's say like your brand is focused on new product drops.

All that the creative really has to be is particularly to the returning customers, is just a picture of the new product and an announcement that the new product has arrived and all of a sudden all of this sort of stuff that you have to . Bang your head against the wall about, in terms of like creative innovation and thinking of like what's the right angle, what's the perfect creative, like what's the an evergreen thing that's going to work?

All of a sudden, all of those problems are almost instantly solved by the fact that you have something new to show and something new to talk about. So in that sense, it is a shift of effort away from having to sit around and try to create the most creative ad campaign, let's say, and towards putting the creativity maybe where it counts the most, which is in the product development.

[00:22:14] Luke Austin: Yeah. Yeah. Or, or at least it gives you both options,

right? Where you can lead with that product release and then you can layer on the creative innovation to sort of fuel that to the next stage. It's really like The product launch is, is like the wave, right?

It's like the moon and the wave is is being driven in, and then the creative marketing side of it is then saying, okay, where, where's this wave gonna break?

Where's it gonna ride the best? And you can sort of fuel it to that next

level rather than, Hey, let's try to create all this energy, all this energy from the creative and media

[00:22:47] Richard Gaffin: Yeah, that's a good way to put it. Like the creative. I think people too often think about the creative as, as the breakthrough itself. Like if we just found the right creative, we would be able to start the fire when in fact, like the purpose of good creative is to maybe optimize or to take advantage of something that's the momentum that already exists.

It's to harness a force that already exists rather than to, to creative from scratch. And that's where kind of like the, the product really drives that. So, Then the other sort of thing that I think would make sense to discuss and, and maybe the answer is it doesn't look much different, but for a smaller brand, let's say sub 50 million in a different growth stage, to what extent is product development?

Is this going to be the key to margin innovation next year?

[00:23:28] Luke Austin: So I. Every brand is gonna have to figure out how to sell more to their existing customer base. So that, that's really the question to contend with, is, What, what is it gonna take to deliver more value to our existing customer base? That's going to drive our growth. And yeah, if brand is 50 50 new versus returning revenue trying to drive whatever growth is needed, all through acquisition is gonna be very costly and difficult.

So, achieving that growth through the existing customer base is really the question to Contend with, I think it's gonna be different for everyone. Even in these examples, we saw slight variations in terms of you know, one leaning more on weekly drops of slight colorway variations versus another really leaning into sports moments versus the personal care brand focused around those seasonal collections, those four main pillars as they're focused.

So I think, I think that'll look different. For each one, but the, the question of what does it take to get our existing customer base to buy more products and to deliver them really value valuable products is, is gonna be the question to contend with and is gonna require making current products better in some way finding ways to do that, making Current product's novel in some way. I think that's, you know, where the, the, the colorway variations, seasonal collections can come into play where we have a really solid product, but how do we make this novel and new An example that comes to mind is one that Mike Beckham gave about simple, modern on, on one of the recent operators podcasts.

And it different colorways of the same water bottle perform very differently for different customer segments, right? So you have a really strong product. You have this water bottle. Having a different colorway of that water bottle can, can bring you know, outsized impact on, on the revenue margin side of things.

And so for every brand, there's going to be something like that example where you can deliver more value to your existing customer base through by thinking about your product set, the market that you sit in, and what, what can we,

what can we innovate? What, what novelty can we bring to those customers?

[00:25:38] Richard Gaffin: Yeah. Yeah. There's essentially like a, a new product drop, of course, does not have to. Equal coming up with a brand new product and manufacturing the whole batch from scratch or whatever. It's, it can be as simple as, yeah, again, changing the color makes a ton of sense. Making small tweaks to just elements of it to make it just seem new in some way.

So it, it doesn't necessarily require an overhaul of, of your systems. It just requires like being creative about what your product is and what is going to come off as novel to your specific audience. So, okay. One other question then that I had. Out of the 50 to a hundred million brands that we look at, what percentage of them do you think are doing this, are actually going out and executing the frequency of product drops that they're going to need to succeed or or thrive next year?

[00:26:24] Luke Austin: all of them that are growing consistently are, are doing

this in some way. I, I haven't seen a brand that is achieving growth over a long, a long enough period of time, let's say like over, you know, a year that's not engaging in this level of activity and execution. An an example of Another apparel brand that sits in, you know, this, this revenue category that we've seen over this year is that they actually took the focus of creative innovation this year rather than, you know, product led you know, innovation that we've been talking about.

And they've really, they've really struggled because it didn't have near the same amount of impact that the investment in. New product categories or aligning with different you know, brand co collaborations to Branch Out had. And so that's, that's an example that's yeah, on the forefront of my mind that I've seen kind of comparing to this, where the creative innovation has sort of took the front seat and the, the same impact wasn't there as in the years past when they've really led with product and, and collaboration.

So, Everyone you can, you know, maybe for six months to a year sort of fake it and ride the wave of the re returning customer revenue. That's what we're seeing and that's what makes me nervous as we're looking ahead at the remainder of Q4 and going into 2024 is that works for, for a certain amount of time, but to, to achieve this over a longer period of time. This level of execution and operational excellence and delivering great products that this is what I see driving growth for the, the big brands that we work with.

[00:27:58] Richard Gaffin: Yeah. All right, so long story short, figure out how to operationalize product innovation. Do it frequently if you're not already, because that's, that's basically gonna be the key to succeeding in the coming months and, and through 2024. So, Luke, anything else that you wanna tell the people? Anything else you wanna hit on this subject?

[00:28:18] Luke Austin: I think what's just become really clear to me over the past couple months is, is how difficult

this, this really is to execute well. I. And the brands that have figured it out it, it's taken, it's taken time to get there. It, it isn't something that you know, they brought in, they brought in a team that just knew how to do this sort of thing for that brand and unlock this sort of growth. It took time and a, and a persistent focus to make this, the orientation of what the business focuses on as the highest impact lever they can pull to grow their business over time. Then building that up. And then executing it consistently week after week, month after month, year after year. And so I guess that would be my encouragement as we, as we wrap up here, is that this is really challenging and it takes time to build up to this sort of thing.

So, If brands who are, you know, wanting to build up to this level of execution, just to, just to be cognizant of that, is it's gonna take some time, but it's gonna be well worth it. Once that foundation is laid. May, you know, there may be a hit in the near term the next six months to a year as you focus less on immediate revenue hits promotional strategy, offer strategy, but it's gonna be well worth it for the long run, long-term growth of your business to lay this sort of foundation and orientation of, of how you pursue Growth. 

[00:29:40] Richard Gaffin: right. So, yeah, grow your business the way that Luke. It's grown his beard, you know, growing it out slow, careful trimming , making sure it doesn't get too 

[00:29:49] Luke Austin: And it 

[00:29:50] Richard Gaffin: slow and steady wins 

[00:29:50] Luke Austin: exactly 

[00:29:51] Richard Gaffin: Right.

[00:29:52] Luke Austin: and it takes, it takes

time. takes time.

[00:29:55] Richard Gaffin: Great, Luke, well appreciate you joining us. Thank you so much as always, for your insight on what's actually going down in the world of e-commerce.

All right, and folks, thanks for listening and we'll talk to you again next week. Alright, take care.