Unlocking Distribution, Store Discovery, and CAC Arbitrage with Canal
Bennett Carroccio is on a mission to change the way we buy and sell products online.
At Canal, Bennett, his two cofounders, Liam Kinney and Clay Schubiner, and the rest of the team are helping brands unlock new distribution at scale and reach new customers through a completely novel channel. We sat down with him to learn more about the Canal and how DTC brands can stand out in an increasingly crowded digital landscape.
The Gulf Between Discovery and Distribution
Bennett's vision for Canal first came about during the heart of the pandemic.
At this time, he and his fiancée would take long walks around San Francisco in an attempt to remain sane. Strolling through the city every evening, they noticed all the boarded-up stores in the Marina District.
Bennett started thinking:
- What are the implications of the pandemic on retail and discovery?
- What are we losing by not being able to physically walk into stores?
- What new distribution channels might quickly sprout up as a result?
All of the physical storefronts that curated cool, high quality brands that no one really knew about were closed, at least semi-permanently. So, consumers could no longer discover new products and brands in real life.
At the same time, Bennett knew that consumer spending was way up despite the complete absence of brick and mortar.
It became more and more clear that the need for discovery wasn't being addressed in the current market, and that's when Canal's market opportunity started to solidify.
“In a traditional retail store, discovery and distribution occur in tandem in the same physical space. Increasingly, that just doesn’t happen anymore.”
The Rise of CaaS: Curators as a Storefront
When folks shop for new products, they often seek out trusted experts for recommendations.
As consumers ourselves, we intimately understand this process of crawling the blogosphere looking for recommendations and reviews.
Our favorite experts already curate their favorite products, but they don't have the means to actually sell anything unless they create their own end-to-end ecommerce storefront. Why?
Put simply, the process of launching a storefront is insanely complicated, primarily involving the procurement of products, wholesale purchases, warehouse sourcing, and shipping orders. It’s complex, time-consuming, and expensive.
On top of that, the metaphorical pipes of an ecommerce storefront just aren't build out yet. Canal’s core thesis, and latent growth potential, revolves around building these exact pipes.
At its core, Canal is creating a platform that connects brands to these points of inspiration. Now, trusted recommenders can sell on behalf of brands without holding any inventory and still driving sales. All the while, they're helping brands find new, untapped distribution channels.
In December 2021, they launched their first-ever creator storefront—Sharma Bodega—in partnership with Nik Sharma. Nik's storefront features 75 products from dozens of incredible brands, including Brightland, Snif, and Jambys.
“People are already asking trusted people in their network what to buy. In turn, these curators should be the storefront. Canal helps curators do exactly that, but without assuming additional operational overhead.”
Acquisition Arbitrage: New Frontiers
More brands and more venture dollars following the long-tail of ecommerce are yielding saturated acquisition channels and rising pay-to-play prices across the board.
Even with an amazing product, a killer operating team, and a unique story and POV on the market, it’s still hard for emerging brands to stand out and communicate their unique value proposition.
For example, at a16z, Bennett's core criteria for evaluating commerce teams included asking the following questions:
- Can they hire the best people?
- Are they great storytellers?
- Can they build a magnetic brand?
If these three criteria are met, he adds, success should then translate into decent or superior unit economics.
The cohort of over-optimized channels includes the usual suspects: Facebook, Instagram, Google, and even Pinterest. As each day passes, the CAC attached to each channel continues to rise. As a result, brand are seeking out new frontiers to acquire customers cheaply.
The good news, according to Canal, is that arbitrage opportunities will always exist.
Consumer behavior, time, and attention are always shifting.
Each new channel that pops up could be the next big thing, and in turn, offers a temporal pricing lag in which an arbitrage opportunity can exist. For example, even though TikTok is exploding in popularity in terms of ad spend, the platform still rewards organic virality for brands at the forefront of rapidly shifting cultural trends.
“In order to develop relationships with new customers, DTC brands need to optimize for getting in front of them at the right time, with the right context, at a consistent cadence over a stretch of time. That’s what drives results.”
Coming Full Circle: Data Analytics
Brands turn to Canal because they’re looking to be sold elsewhere and expand their product catalog by selling more complementary products. And, trusted recommenders are looking to sell more third-party products because that expands their basket size and drives a higher AOV.
The higher the AOV, the higher the LTV.
In turn, higher LTVs justify higher CAC thresholds, which often translate into shorter payback periods.
Additionally, there’s no upfront cost via Canal.
While discovery and curation are the key drivers of Canal’s business model and adjacent market waves, the true power of its platform lies in its ability to yield quantitative, data-driven results.
As Bennett points out, the platform essentially enables storefronts to sell products with zero operational lift with better real-time data analytics, so it’s pure margin across the board.
More importantly, Canal is entirely success-based, meaning that if a sale is generated through their product, they take a small fee, but if there’s no final sale, no fee is taken. A win win.
“We’re adding dollars to an order with no operational cost attributed to it. That’s more or less unheard of in the performance marketing ecosystem.”
- What to pledge
- How to improve
- Which tools will set you up for success
I think the most important thing brands can do in 2023 is to better manage their customer data—both ethically and effectively. There’s an opportunity for brands to know their customers better than ever before—a clear benefit for both the customer and the brand. When you manage your data correctly, you’ll create stronger and more personalized ads, creative, site experiences, and so much more.
This is a classic: Let the data guide you. Go where the buyers for your products are and communicate with them on a personal level (i.e. by persona and funnel position) and nurture those relationships (past, present, and future customers). It’s possible—all through data.
We recommend that Shopify brands analyze and update their websites using data-driven decisions. Using analytics tools such as heatmaps and scrollmaps can help brands better understand how customers are interacting with their store.
Store owners tend to make assumptions about the way customers interact with their website. Most never go back and analyze their design choices to find pain points or areas of opportunity. By using heatmaps and scrollmaps, they can see where real customers are clicking and concentrating their attention. Leveraging this data, brands can start to iterate on design and make their online store experience streamlined and intuitive.
Hotjar provides a simple way to implement heatmaps, scrollmaps, and recorded user sessions on your site, helping you acquire incredibly informative user data. Additionally, it gives you the ability to create on-site surveys, which allows you to obtain direct and often critical feedback from users about their experience.
Test various attribution models and analyze the impact on your business. At Fifty Six, we are always here to help our clients identify and optimize their approach—a critical step in any successful marketing strategy.
If I’ve said it once, I’ve said it a million times–Customer Lifetime Value. And even more importantly, Future Lifetime Value (FLTV). With the ever-growing importance of first-party data, it is crucial that brands take a good look at their CRM and FLTV metrics.
Stop allocating budgets to low-hanging fruit that doesn’t move the needle on conversion. Think about what’s really going to improve your CX and the return of undertaking different initiatives—not just on what’s top on your list of bugbears on the site!
One of the best ways to understand your customer behavior is by using HotJar. Their heat-mapping and screen recording tools shine a light on where customers are navigating to and from on your site, where they're rage clicking and experiencing frustration, and where conversion is dropping off within real life customer journeys and flows!
Understanding your customers’ pain points via data and analytics , will allow you to work with your CRO/CX Agency to solve customer frustrations and improve conversion.
Rewind backs up all product, customer, and order data for Shopify sites—essential since Shopify itself doesn’t provide this solution. It's saved so many of our clients time and money from administrative accidents.
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33% of customer service inquiries are pre-sale questions. What does this mean? If you’re not investing in customer service, you’re missing out on revenue-generating opportunities.
The benefits of elevating your customer experience:
- 10% to 25% increase in AOV for customers who engage with live chat pre-purchase
- 21x higher conversion rate for customers who reach out via Live Chat or SMS compared to other site visitors
- 87% of customers who have a great customer experience will make another purchase
- 72% of customers share positive experiences with 6 or more individuals
Gorgias is our favorite Helpdesk platform. They can reduce costs by 35%, primarily by decreasing the average ticket handle time. Their machine learning algorithms are trained on millions of ecommerce-related interactions across Gorgias’ customer base and provide accurate, automated replies for the most common ecommerce inquiries. This helps our agents resolve tickets faster, which provides the customer a seamless experience.
Trust your agency! Agencies do the same things across multiple brands and niches, so we see the trends and have the practice and experience!
Don't be afraid of data and insights. If customers aren't clicking on your emails, try a new CTA. If your ads are driving good metrics at a small spend, start scaling. If your customers are complaining about a product, look into QA! If the data tells you something isn't working, let it go and try something else!
I'm supposed to say Tydo, right? 😉
Double down on differentiation. There will be a lot of headwinds this year and standing out from the crowd will set you apart.
A picture is worth 1,000 words. A video? Probably millions. In ecommerce that value translates into engagement, acquisition, and retention—everything you need to impact your bottom line.
At soona, we've seen the we've seen the impact of creative and the continuous split testing of it yield results. Our resolution is to challenge ourselves and double down on innovation and creative optionality so that each brand we work with can distinguish themselves in a crowded sea of D2C ecomm. We'd love to see our brands share this resolution and keep pushing the creative limits.
Klaviyo. We're using it to power our email and newsletter at soona too!
Optimize your returns strategy! This can lead to valuable customer insights, enhanced user experiences, and increased revenue and customer loyalty.
Brands need to dive deeper into understanding their customers to set themselves up for success. Conduct research to gain insights into customer needs, preferences, and behaviors. By doing so, you can develop targeted strategies that will enhance customer experience and boost overall retention.
Right now I would say Gorgias. Having a good customer service tool is crucial to building strong customer relationships.
Start paying heavy attention to data, specifically around retention. We see a lot of effort put towards acquisition with the assumption that once someone buys, they are your customer forever. Instead, get to know your customer, understand their needs, and analyze their behaviors once they are on-site and judge their sentiment after they have visited. Work with a retention focused and data-driven agency to implement tools that contribute to repeat business and customer delight. It will pay dividends.
When surveyed, about 80% of ecommerce merchants think that they are delivering a great experience to their customers. However, when the same customers are surveyed, only 8% of those customers think that they are getting a great experience from the merchant. Now, more than ever, retaining loyal customers is an essential part of any online business and you should spend time with your customers to judge their experience with your website and products and offer improvements based on that feedback.
Tydo's report cards are an essential tool, along with Klaviyo for email and SMS, Recharge for subscriptions and memberships, Okendo for reviews and surveys, Rebuy for AI driven collections and upsells, Loop for self service returns... each tool is great on their own, but their strength as the ultimate tool comes from when they are used together!
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