#86 Scaling D2C Brands with E-Commerce Marketing & Behavioural Science with Kyle Hoffman

Jonny Ross: 00:00:07

She. Hello and welcome. We are live. We're live on Facebook. We live on LinkedIn. We're live on YouTube. This is Jonny Ross, fractional CMO. I've got Kyle Hoffman with me. How are you, Kyle?

Kyle Hoffman: 00:00:28

Doing fantastic, Jonny.

Jonny Ross: 00:00:30

All right.

Jonny Ross: 00:00:31

Yeah, I'm really good. Thank you so much for joining us. I know it's early for you, but we're going to be talking deep, deep diving into DTC and behavioral science today. Welcome back to Jonny Ross, Fractional CMO podcast. Today we're delving deep into the world of DTC brands, ecommerce and the transformative power of behavioral science. With us is the dynamic Carl Hoffman, the strategic mind behind Willow's explosive Growth and the director of Growth Strategy at Function Growth. Experience spans from applying cutting edge technology and behavioral science to scaling brands. Crafting sustainable business models in today's eCommerce landscape. In this episode, we'll uncover the story behind Willow's success. Grasp the significance of behavioral science in brand scaling and gather actionable insights for your DTC brand journey.

Jonny Ross: 00:01:24

Are you ready to ignite your brand strategy? Let's dive in. So, Kyle, tell me. Tell me about the The Willows growth story and and and how it's part of function growth. I think function grows the agency well as a brand that you created. Tell us the story.

Kyle Hoffman: 00:01:45

Yeah, exactly. Well, first off, that was probably the best podcast intro I think I've ever gotten. You to join me on every zoom, every zoom meeting that I ever do. Give my intro that way. Think with all sorts of clients. Um, yeah. Well, that was a cool story. Um, there's not a lot of agencies out there who start their own brands, and so it's kind of unique in that regard. But, um, but function growth, I'll get the back story. Function growth is a part of Xeno Ventures, which used to be just it was a company our founder McLaren started the company and his grandmother's garage 25 years ago and it's a really cool classic entrepreneurial story. But it started as a programming company and development company.

Kyle Hoffman: 00:02:32

Building websites sort of evolved into a business consultancy and marketing agency. Um, and within the last five years, really, we started to work with B2C brands and part of the company, of course working with brands much different than working with some of the larger clients that we have in our more classic marketing agency, which is now called Method One. Um, but so we've about five years ago started working with more brands and started having a lot of success. And, and so in 2021 we decided that it was a good idea to launch our own product company because, you know, we were having fun growing everyone else's. Why not grow our own? And around the same time, McLaren had been traveling across the country and discovered compression socks. Basically, he was doing a long distance relationship with his now wife. At the time it was his girlfriend, but traveling across the country almost every weekend, compression socks sucked. He was like, well, you know, compression socks, we could totally disrupt this industry.

Kyle Hoffman: 00:03:40

There's, you know, all the compression socks were not very colorful. They were scratchy and sort of uncomfortable to wear. They were either too tight or too loose. There was just a lot of opportunity that he saw. And of course, he was busy running the agency. So he brought me on around that same time to help launch Willow and also to run strategy at function Growth, which was the portion of the agency that that really focuses on brands. So, so fast forward a little bit and we've we've launched willow and function growth is now bringing on new clients as well. We have we have a couple other owned and operated brands that we're working on to that can talk about just yet. But hopefully on our next podcast we can talk about those ones. But yeah, well it's been an amazing story. We we, like I said, was highly experimental when we were first launching it. We're like, you know, can we even launch our own brand? And, and we kind of just had some really explosive growth in the first year.

Kyle Hoffman: 00:04:45

We did five times as much as we thought we were going to do. And then, you know, this year we're on track to do 400% of what we did last year. So it's just been it's been really tremendous. And and we've learned a lot over the over the course of actually fully managing and running the brand.

Jonny Ross: 00:05:03

So tell us some of the secrets on how you got it to grow and sort of boom so much in that first 12 months.

Kyle Hoffman: 00:05:12

Yeah, there's a lot of work up front that we did. We did a lot of consumer research to really understand what was going on in the compression socks industry and who was buying it. And that was all really helpful to how we launched. But we actually positioned the brand to be to be we wanted to be the compression socks brand that sort of introduced new customers to compression socks because compression socks have all these great benefits of wearing them. They improve your circulation, which in turn improves your energy and your health and all these other things. There's a core set of compression socks users who absolutely know what they are.

Kyle Hoffman: 00:05:45

They even get prescribed compression socks from their doctors. So they have to they have to wear have to wear them for their health. But we wanted to build this brand and be more inclusive, have it be, you know, the brand that everyone can discover compression socks through. And of course, when we launched, our core audience ended up being, at first just this the people who already knew about compression socks but think it was there's a little bit of aspirational element to it. It was there's a lot more people. A lot of older people will typically use compression socks and we sort of built the brand to be younger and more fun and think that there's even the older consumers have identified with that brand ethos in a way. So there's a lot of work we did up front with the branding to make it colorful and fun and engaging. We put a lot of effort into the pricing strategy because partially because we decided that we wanted to launch this brand to be 100% online e-commerce, we weren't going to do any wholesale fully to see right at the peak of iOS 14.

Kyle Hoffman: 00:06:50

So some might say that was a terrible idea, but it worked for us and it was because we had this great pricing strategy where if we saw what if a consumer bought a one pair of socks from us when they first ordered, we knew that we were going to lose money because acquisition costs are just so much higher on Facebook these days. We were doing like 90 the early days, we were 95% of our customer acquisition through Meta. And so we built a smart pricing strategy where we have like a mystery pair upsell and we have some really smart technology and custom technology that our company built into the checkout. We've Shopify but built it into the checkout our cart the way that we arrange our products on the website, free shipping threshold, all these things to drive the app. And it all worked really well. We have our average is around $80 for first time consumers, which of course gives us the margin we need to be able to to spend and scale up customer acquisition through digital channels. So great brand.

Kyle Hoffman: 00:07:54

We started with great pricing strategy that we started with and then when we were first were launching, I would say we were okay at doing all the the digital ads. We've become really, really good at doing all the digital advertising because of iOS 14. Everything has shifted to be a lot more creative, creative driven. And so like you obviously can't do as much targeting, reliable targeting through meta. So we're now using the creative. It's almost like a step back to some of the more traditional styles of marketing where you really have to get in the mind of the consumer. What are the things that they care about, What are the things that they that that your ads need to speak about? And so we've we've got and for the past year, I would say the first year and a half of even though of well, we were just producing as much creative as we possibly could iterating on what was working and just optimizing our campaigns to figure to basically optimize towards those best performing ads and then continuing to iterate and iterate.

Kyle Hoffman: 00:08:58

We've recently started to adopt more of we're calling it the Creative Iteration framework, but but we're getting smarter about concepting and iterating. I would say in the past it's just been a lot of kind of like batch and blast, as much creative as we can optimize for the good ones, more creative optimized for the good ones. And we've recently started to get really smart about taking our creative and making it modular in a way so that, you know, this ad is doing well and this ad is doing well. Okay, well, what are the pieces and components of each of those ads in which which are linking up? Oh, this one. They both have the same intro. That must be why our stock rates are so good. So let's take that and then, you know, add it to these other components that are working well. So I haven't experienced too many other agencies that are doing that or too many other brands that are thinking about it at that level of detail, but think it's a movement that there's think think that's the direction that a lot of companies are starting to go.

Kyle Hoffman: 00:09:54

So it's exciting. It's a lot of stuff going on.

Jonny Ross: 00:09:58

So so in that first 12 months, I'm hearing that there was a lot of meta advertising and, and that was powered heavily by regular new content, new creative and what.

Jonny Ross: 00:10:12

What the.

Jonny Ross: 00:10:13

Were you using things like Google ads as well, or was it all through meta?

Kyle Hoffman: 00:10:19

Yeah, I think we probably we were definitely doing some Google, but it was mostly branded campaigns in the beginning, and then we launched some YouTube campaigns as well. And now YouTube has become the second biggest channel for us. Um, now we're doing, I think now Google is probably around 70% of our ad spend and the rest is YouTube and CTV and some Google things that we're doing as well. So we've diversified quite a bit. But still, you know, 70% is still going to meta.

Jonny Ross: 00:10:55

And in terms of in terms of YouTube, I assume this is YouTube ads.

Kyle Hoffman: 00:11:00

Yeah, yeah. YouTube ads. Um, and you know, we've, there's a slightly different type of creative I think that works well on YouTube.

Kyle Hoffman: 00:11:12

And so we've, we've had to we've had to do some more, I guess some more sort of traditional commercial style shoots that incorporate humor or um, some of those, those types of creative have worked better for us on YouTube. So it's forced us to now diversify our creative and even more ways by um, by having that fun. Yeah.

Jonny Ross: 00:11:34

Well, so what sort of length of ads do you find work well on YouTube?

Kyle Hoffman: 00:11:38

Um, I think most of our ads are 30s on YouTube, and that's worked well for us.

Jonny Ross: 00:11:45

Okay.

Jonny Ross: 00:11:46

And, um, I was expecting you to say longer actually, and then on meta being a bit shorter, but, um, but, but it's interesting that similar so um, heavily on matter and, and it was through the creative um and then what have you, you said you've learnt a lot and you're now I know that now you work with founders of all sorts of different types of ecommerce businesses, DTC businesses, typically in the US and at all levels.

Jonny Ross: 00:12:19

So whether they're just starting or whether they're sort of turning over 100 million. Um, but you're sort of sweet spot somewhere in between the two, I think. So you know, if a founder's listening right now, what, uh, what have you learnt that you're sort of, you know, what are the key things that if you want to power an e-commerce business, what's, what are the key things that you need to be considering?

Kyle Hoffman: 00:12:45

Yeah, that's a great question and think there's a lot of different answers probably to it. But um, uh, I think that, um, like I said, there's, there's, it's never been more important to find a true product market. The way to think about it, I think, is sort of like you need product market fit. If you have product market fit, that's great. You also need to have a smart pricing or financial strategy for your business that allows you to scale and use and actually make money. Use that money and reinvest it to grow your business.

Kyle Hoffman: 00:13:20

The product market fit is important. Having a smart like for us with well, it was definitely the pricing strategy that was really important. Finding the product market fit is more of that, um, that sort of intangible or hard, hard thing to achieve. Um, but we, we typically like, like you mentioned, there's a lot of different different levels of brands that will work with. But typically if you, if you're able to get $3 million in a year, I think that's kind of that's, that's product market fit. I think a lot of founders would typically say have product market fit. I've heard this a lot of times over by years, but product market fit that. All my friends tell me that the product is great.

Jonny Ross: 00:14:01

Yeah, well and yeah.

Kyle Hoffman: 00:14:03

Do your friends.

Jonny Ross: 00:14:05

How many times have we heard that? Yeah, exactly.

Kyle Hoffman: 00:14:09

And so like, you know, as a founder take a very skeptical or strict approach to, to, you know, achieving product market fit. But if you can get product market fit, um, and I think achieving product market fit these days is, you know, are your customer review.

Kyle Hoffman: 00:14:30

What are your customers saying about you? Like when your customer support agents and your customer experience team is like the most important thing for us to understand what is happening even at well at our we've now scaled up, we're quite a large business, but um, for us to understand what what consumers are actually care about and what they're talking about, you have to listen to your consumers. And so especially in the early days, the early days are so important for us. We we launched well and very quickly realize that a lot of people were having fit concerns like they loved the socks. They felt amazing, but they just weren't quite fitting and fitting right Then we realized that there was a really large segment of, um, of people who needed compression socks, who had larger, larger legs or wider calves, whether it was like athletes or people who were overweight, because a lot of times compression socks are a are a useful tool for, for when you're overweight. But the um, but anyway, so we very quickly launched a wide cap sock and ever since then it's been, you know, 30% of our sales are wide cap socks.

Kyle Hoffman: 00:15:39

And it wouldn't have happened if we hadn't listened to our consumers and really try to understand what was going on. So think, um, yeah, my advice for founders is really like, get serious about product market fit and be honest with yourself about if you've achieved product market fit. If you haven't, be very flexible with like with there's a lot of founders who are very I build this brand this way because that's the way I want this brand to exist. But listen to your consumers and understand what your consumers want because that's what product market fit is. You're not trying to just achieve to build something that you want to exist in the world. It has to also, you know, fit what consumers want.

Jonny Ross: 00:16:18

For those listening or watching right now and hearing that sort of product market fit, just define it a bit more for me. And how do you really understand truly if you have got product market fit?

Kyle Hoffman: 00:16:30

Yeah, it's a good question, I think. Basically, it's value, right? As a founder, you have a thing or as a consumer, there's the thing that you want and you will do something and you will be willing to pay something or create action, attract value.

Kyle Hoffman: 00:16:49

So basically, if your customer acquisition costs are two, there's a lot of like there's not a one thing that will tell you if you have product market fit. It's a, it's a mosaic of everything that's happening with your business. You know, are your customer acquisition costs too high? What sort of things are your customers saying about your product or the experience through your customer support? Um, you know, are the click through rates on your ads just too low? It's it's an entire composition of everything that's happening. But that's why I was saying like you will know if you have product market fit based on what your consumers are saying consumers will tell you. Yeah. And of course the other part of it is the willingness to pay. Like you might have product market fit, but not at the price you're selling your product for at the end of the any product is worth something, but it might be a lot less than what you think it is. And so that's the other component of product market fit.

Jonny Ross: 00:17:45

On the acquisition cost as well. As you said, you know, if you if you're way over on that, then that suggests there could be a bit of an issue there and perhaps perhaps things don't fit. Um, what.

Jonny Ross: 00:17:56

What.

Jonny Ross: 00:17:58

Where is the bigger opportunity? Is it. I guess the answer is it's both. But is it or was the biggest issue? Is it trying to get people to the site or is it trying to get them to convert on the site? And and and were typically do most businesses fail is is it the bringing the traffic or is it the conversion where you tend to find there's the fix is required?

Kyle Hoffman: 00:18:30

Yeah, it's a good question. Um. It's got to be both, which is the the probably diplomatic answer. But no, it's, um, I would say that most. There's so much that goes into creating a good ad, and there's also so much that goes into creating a good website that's going to convert people. I think Shopify can get you pretty close, right? Use Shopify.

Kyle Hoffman: 00:18:57

There's all sorts of great templates. It's all sorts of great tools and plug ins that you can use and you can get your website pretty close to to doing it. The part that is more difficult is understanding like the messaging strategy on the website, what to say when, where, how are you increasing your aof, what sort of like some of those smaller things, putting it all together and having the right strategy for the website. That's difficult. The tools exist. It's not hard to do. The hard part is understanding how to put it all together and make it work. But the creative. I think that that's probably what where people struggle the most because there's it's almost like the sort of the blank canvas issue. There's so many things that you could talk about, especially as a founder. There's so many things you want to say about your brand. You're so ingrained into into, into what you've built and what your product does and what your brand stands for and all those things. And to have to have a team who really knows what sort of things are working and what sort of things are resonating, and to be able to pay attention and understand and read the data and do creative iterations, that that part is really hard and and think you need you just have to be producing a lot of content, you know.

Kyle Hoffman: 00:20:12

And so for small businesses, for founders, you've got to probably have to work with someone to get to the level of content that you need. But they're both part of the equation, right?

Jonny Ross: 00:20:24

Is that content for the site or for social or for both? What? And I'm just wondering in your head, when you're saying you've got to produce a lot of content, I'm curious as to what content you're thinking there.

Kyle Hoffman: 00:20:35

Add content perform. We call it performance creative, which of course.

Jonny Ross: 00:20:41

And this is because people get creative.

Jonny Ross: 00:20:43

This is because people get bored of seeing the same thing. They want to they want to see they need to see it several times before they make a decision.

Kyle Hoffman: 00:20:50

Several times from different people in different ways. You know, like we have we have UGC Add with 20 different people who are talking about the product and talking about different features of the product. And we're matching them up and putting them together. We're using them solo. We have professional shoots that we've done where we have essentially commercials that we shot that talk about the benefits, some that are more like explainer videos, some that have humor, and you.

Kyle Hoffman: 00:21:22

There's just no way to know exactly what's going to work until you are trying them all. And and to be honest, having what we've seen is having more different kinds of creative helps you, helps your advertising overall because Facebook's algorithm is optimizing for for the individual where you can't really do that. So if someone, you know, Mark might be really interested and resonate with humor, focus videos, but Sarah might be really interested in seeing other people on UGC style videos and by not having both your, you know, if you just do, you miss out on the marks. And if you just do humor videos, you miss out on all the Sarah's. And so you by having both you Facebook will optimize all your ads and you know that's kind of the world we live in nowadays.

Jonny Ross: 00:22:11

To feed the machine and the machine will work it out for you. And I want to talk about behavioral. I want to talk about behavioral science in the sort of pivotal role it has in DTC brands. I know that in your group of companies you have a which is the Consumer Behavior Lab, and I think you've got a behavioral science enthusiast as as a co-founder.

Jonny Ross: 00:22:34

Is that right? Um, tell me more about behavioral science. And you know what? What is it what what should DTC brands be considering and how can it help?

Kyle Hoffman: 00:22:46

Yeah, Yeah. Behavioral science. We love to talk about behavioral science. It's the way we view it is essentially another input to guiding decision making and strategy for companies that a lot of people in the marketing world aren't necessarily consciously aware of. I think there's a lot of there's a lot of subconscious things. We all know that, you know, urgency is an important thing for consumers. If you if you you give people a time limit on your promotion, you're going to get a lot of people who purchase towards the end of it. Um, but but and that's something that marketers are aware of. Oh, you know, we should do a timer, but they're not necessarily aware of why it's happening. And by understanding why there's a lot of other applications that you can that you can do and and test out for your brand. I think behavioral science is essentially this pool of knowledge that you can then use to then run tests and run strategies and see how it applies in the real world.

Kyle Hoffman: 00:23:43

For example, with one of our brands that we work with, there's a there's a concept in behavioral science called artificial limits, which basically states that if you tell someone that there's a maximum amount that they can buy, um, for instance, you're buying a product, well, I'll get to the use case, but the test that we ran but basically it says if there's a limit, then you're going to end up buying more. And so we ran this test and we said, okay, this is great, let's apply it. And we during a promotion, we said the maximum amount of this product that you can buy is for even though most people never would buy it for of this product. And what we saw was that, you know, our our average order value and the amount of products per cart went up like 20% compared to having none of that language. So now we know that that's something to apply to all the future promotions that we do. And so that's just just one example of so many.

Kyle Hoffman: 00:24:45

But behavioral sciences, this amazing thing, we train everyone that function growth goes through a training program to learn behavioral science and all these different concepts that exist. And it just gives us so many ideas and things to play around with. And you're not starting from scratch. It's not like an idea that just comes from, you know, think this would be interesting to test. It's it's based in actual real world studies. Of course, the real world studies and human behavior is such a hard thing to nail down. There's so many different variables all the time. So we always say you have to you can you can take a behavioral science concept, but you should run your own test to make sure that it applies to your product and your brand and your industry and your consumers. But it's just a fantastic resource that, you know, not too many companies think about.

Jonny Ross: 00:25:34

So so is it the idea that you take the concept and then see if it works, or is it based on a data set or customer feedback? Where does where does it come from? And if it is a concept I love the I love the sort of the maximum that you can buy.

Jonny Ross: 00:25:52

And I was wondering if you had any others that you can throw in, because I really like that. But I was wondering if there was any others that you could throw in. So is it the concept or is it the or would would organizations already have some data that would inform behavior science?

Kyle Hoffman: 00:26:09

Probably both, Right. You could approach it from both angles. There's a plethora of behavioral science studies out there that exist. I'll give a shout out to Richard Shotton, who's a part of our Consumer Behavior Lab, but he's written 2 or 3 books on behavioral science, and each one has, you know, 25 to 30 different concepts and basically behavioral science principles in there that can be applied. But you can also take a look at your brand and behavioral science. If you know all these different concepts and you're running something that's successful, it gives you another way to step out of it for a second and think, okay, well, why did this test work? Why, why did this? Why is this homepage variation working better than the other one that we tested? And it could be because of one of these principles.

Kyle Hoffman: 00:26:53

And then that gives you a way to understand it and then something else to iterate on top of it. Um, but yeah, there's tons, you know, there's the choice paralysis, which is the idea that consumers can be overloaded with options. And so, you know, less options that you give them, the more likely they are to change their behavior or social group is one that everyone's familiar with. That's why ads work so well for us, for well, because you see other real people and sort of real in videos, they're shot to look real and those typically resonate the best with people or working with influencers work. An interesting one, really fun one is the pratfall effect, which is essentially people's people's people's sense that by if you show off your weakness as a brand, people actually view that as being more authentic. So authenticity is basically, you know, is is perceived through imperfection in a way.

Jonny Ross: 00:27:58

Okay, give me an can you give.

Jonny Ross: 00:27:59

Me a real life example of that where a brand goes out and and gives a bit of real.

Kyle Hoffman: 00:28:05

We did something really fun last year. We did a holiday card to to our network and we basically had one cookie on it that was, um, we took a screenshot of a cookie, basically placed it there, and then we took a same screenshot at the same cookie, but we made it look perfect. We had like perfect circle around it. And so it looked like just the most ideal cookie. And we sent it out to all, all of our network. And the question was, you know, if you were to pick which cookie to eat, which one would you pick? And people pick the one that is imperfect, but they all but what's really fascinating is people think that they would pick the perfect one, like, oh yeah, would pick the perfect one. Um, but it's like that. And the, the best way to use the pratfall effect is to highlight something that people might perceive as a weakness, but that actually highlights your strengths. So like the classic example is Guinness.

Kyle Hoffman: 00:29:01

Guinness for a long time got a bad reputation because it took so long to pour. At the time when you went to a pub, it took super a long time for the Guinness to be poured because they had to get the foam and whatever for exactly the reason. But it was a common complaint and Guinness created an entire ad campaign around Good things are worth the wait, basically. And so they highlighted this perceived weakness and and they made it a strength. So there's all sorts of really cool applications like that. Pratfall Effect is a fun one.

Jonny Ross: 00:29:33

I love the pratfall Effect. I love the you can only buy a maximum number and I love the idea of less choice because otherwise you're over faced some fantastic gold dust there. And so Kyle, tell me if perhaps a founder of a 3 million turnover e-commerce brand is listening right now watching right now and thinks actually I'd love to speak to Kyle. Where do you hang out. I know that we've got the function growth co is the website where do you hang out.

Kyle Hoffman: 00:30:07

Yeah. Plus growth Co you can reach out to us there. You can get in touch with me on LinkedIn. Um, I've checked LinkedIn daily, so I'll see your message if you reach out to me and connect. Um, you can also shoot me an email k k Hoffman at function growth Co Any of those places would be would be a great place to connect.

Jonny Ross: 00:30:32

Brilliant. All of this will be in the show notes. Um, but we've run out of time and but what a great story in terms of how um well first of all, an agency can grow its own brand and I think that's, you know, all credit there, to be perfectly honest, because so many agencies talk the talk, but very few walk it. So think having having your own brand I think is really credible. And I think that's quite a USP and really interesting in terms of what cars talked about in terms of the matter, in terms of the the amount of creative that you need to give that variety and give that choice.

Jonny Ross: 00:31:13

It's been really good. Listen, thank you so much. Thank you for listening. This has been Jonny Ross, fractional CMO. We've been live on LinkedIn, YouTube and Facebook. Please do subscribe. Hit that notification bell. Don't miss future episodes. Thank you so much for joining. Cal, Thank you for being here and please do reach out to Cal if you've got any questions. We'll see you soon. Thanks very much, Cal.

Kyle Hoffman: 00:31:35

Awesome. Thank you, John. Great.