Branding: The Key to Surviving the CAC “Valley of Death”

Performance-focused ecommerce and DTC brands are increasingly encountering the so-called “CAC Valley of Death” – a point where customer acquisition costs (CAC) climb so high that scaling further becomes unprofitable.

This sectioned post explores why branding is crucial for such companies to escape that trap. You will find data on surging CAC in recent years, evidence of branding’s long-term ROI (via trust, loyalty and higher LTV), expert analysis on balancing performance vs. brand marketing, and case studies of brands that turned CAC challenges around with strong brand-building efforts. The findings indicate that investing in brand is not a luxury but a performance imperative for sustained growth.

Rising Customer Acquisition Costs for Ecommerce Brands

It’s well documented that CAC for online retailers and DTC brands has soared in recent years, eroding margins and straining growth. Key industry findings include:

• Triple-digit CAC Increases: In 2013, merchants lost ~$9 for each new customer, but by 2022 this loss grew to $29 – a 222% increase in CAC over eight years. This reflects a dramatic rise in the cost to acquire customers, which now directly eats into profitability.
  

• ~60% Increase in 5 Years: Multiple analyses show CAC up ~50–60% in the last five years alone. McKinsey reported that “customer acquisition costs have risen an average of 60% over five years” , underscoring an industry-wide trend.
  

• Digital Ad Costs Surge: The drivers include higher digital ad pricing and competition. By Q4 2021, social media CPMs were up 22% YoY and search CPCs up 23% YoY. One DTC operator noted “the cost to advertise doubled between 2019 and 2023,” pushing CAC from ~$20–25 to ~$40–50 per customer. Rapid growth in online ad spend (see figure below) has increased bidding competition and thus acquisition costs.

Figure: U.S. digital ad spending nearly doubled from 2020 to 2025 (bars, left axis), indicating a crowded and costly performance marketing landscape. The gray line shows yearly growth rates slowing after a 38% spike in 2021. This surge in ad spend contributes to rising CAC as brands compete for the same audience attention.

• Privacy Changes Hit Efficiency: The 2021 introduction of Apple’s iOS 14.5 (prompting users to opt-in to tracking) and the demise of third-party cookies have “decimated many marketers’ strategies” and reduced targeting precision . In a survey, 86% of retailers said they must spend more to achieve the same results after iOS 14 (47% had to spend at least 15% more) . In short, performance ads now often yield less return for each dollar spent, inflating CAC.
  

• Market Saturation: The pandemic e-commerce boom led to “2.5 million new Shopify stores from 2020–2022 (a 200% increase)”, intensifying competition . More brands vying for the same customers drives up the cost per acquisition. As one analysis put it, “you’re simply going to battle with double the competition you did before” .
  

Bottom line: Many e-commerce players now face unsustainable economics where acquisition costs outpace the revenue per customer. In this CAC “valley of death,” pouring more money into ads yields diminishing returns.

For example, Blue Apron (a meal-kit DTC) saw ~72% of its customers churn within 6 months, meaning it had to keep re-acquiring revenue at great cost. Its “cost to acquire new customers was rising while the value of those customers was falling”, a lethal combination that drove its customer LTV down over time .

The next sections show why brand-building is a pivotal solution to break out of this cycle.

Long-Term ROI of Brand Investment (Trust, Loyalty & LTV)

While performance marketing yields immediate sales, investing in brand builds customer relationships that pay off exponentially over time. Strong brands enjoy higher trust, loyalty, and customer lifetime value – which improve profitability and even reduce CAC in the long run:

Figure: Average Order Value (AOV) growth by industry over time (orange = after 6 months as a customer; yellow = after 36 months). Loyal long-term customers spend significantly more per order. For instance, in Beauty & Cosmetics, AOV per customer increases by ~45% after three years of loyalty. This illustrates how retention drives higher customer LTV across many sectors (source: Smile.io, 2023).

• Higher Spend & LTV: It’s well known that repeat customers tend to spend more. On average, existing customers spend 67% more than new customers. They also buy more often; one study found loyal customers are 70% more likely to make repeat purchases. Over time this compounds: in the beauty industry, customers spent 30% more per order after 6 months with a brand and 45% more after 36 months. Lifetime value grows as trust and familiarity increase, boosting ROI on the original acquisition cost.
  

• Improved Profitability: Because loyal customers yield more revenue, even small improvements in retention drive big profit gains. According to Bain & Company, a mere 5% increase in retention can boost profits by 25%–95%. This dramatic leverage comes from reduced re-acquisition needs and higher spend per customer. It also costs far less to keep an existing customer happy than to win a new one – acquiring a new customer can cost 5–25× more than retaining one. In one analysis, just a 2% increase in retention was estimated to lower acquisition costs by as much as 10%. In short, loyalty is a cost saver and revenue booster.
  

• Brand Trust and Price Premium: Strong brands cultivate trust and emotional connection, which directly affects the bottom line. 81% of consumers say they need to trust a brand to buy from it  – if your brand isn’t credible, performance ads won’t convert efficiently. Conversely, trusted brands can even charge more: 87% of consumers are willing to pay a premium to buy from brands they trust (as of 2025). This means better margins and less price sensitivity when you have brand equity. Emotional loyalty also creates resilience; customers with an emotional bond have 3× higher lifetime value and actively refer others to the brand.
  

• Lower CAC Through Advocacy: Satisfied customers essentially become marketers via word-of-mouth and referrals, lowering your effective CAC.

  For example, Allbirds attributed its rapid growth to word-of-mouth; according to its founders, only “a small amount” of sales came from social media ads while most of Allbirds’ sales came through consumer word-of-mouth and direct organic traffic. Similarly, brands with high loyalty see a large portion of revenue from repeats and referrals. It’s estimated that 80% of a company’s future profits often come from just 20% of existing customers (the most loyal segment). Those return customers generate new business at near-zero acquisition cost by referring friends (e.g. Allbirds’ referral program rewards referrals with $15 credit, far cheaper than its ~$129 industry-average CAC in fashion. In essence, brand loyalty lowers the cost of future customer acquisition by creating a virtuous cycle of organic growth.
  

All these points reinforce that brand-building has tangible long-term ROI. Investments in customer experience, brand values, and community can increase trust and retention, which directly translates to higher LTV and lower relative acquisition costs over time.

As one loyalty report succinctly put it: “43% of customers spend more at brands they’re loyal to” because they trust those brands’ products. In a high-CAC environment, that increased share of wallet and retention can make the difference between profit and loss.

Performance-Only vs. Brand+Performance: Finding the Right Balance

Relying solely on bottom-of-funnel performance marketing is a short-term play that eventually hits a wall. Expert analysis and industry experience strongly suggest that a balanced strategy – combining brand and performance marketing – outperforms a performance-only approach in both growth and efficiency:

• Short-Term vs Long-Term Effects: Performance ads (search, social, etc.) are effective at capturing existing demand and driving immediate conversions, but they do not build brand equity or future demand. As marketer Mark Ritson bluntly states, “Brand marketing drives sales, but performance doesn’t build brand”. Over-focusing on performance can “harvest” sales from the market’s in-market buyers but fail to “plant seeds” with the larger set of future customers. This myopic approach eventually leads to stagnation – or the CAC valley of death – once the easily acquired customers are exhausted. Brands need to invest in upper-funnel brand building to feed the lower funnel in the long run.
  

• The 60/40 Rule – Evidence for Balance: Robust research by Les Binet and Peter Field (covering hundreds of campaigns) found the most effective marketing mix allocates around 60% of budget to brand-building and 40% to direct-response activation.

  This 60/40 rule achieves the best balance of short-term sales and long-term growth. Companies that skew too far toward performance (short-term) often see a burst of sales followed by fading growth, whereas those that maintain brand investment see sales compound over time. For example, athletic brand Adidas discovered it was overspending on performance ads – 77% of its budget – which made ROI look good only in the very short term. Once Adidas conducted econometric analysis, they found 65% of sales were actually driven by brand marketing efforts, not the last-click performance ads. This insight led Adidas to rebalance toward brand, ultimately strengthening both its sales and marketing efficiency.
  

• Diminishing Returns of Performance-Only: Without brand support, performance marketing faces diminishing returns and rising CAC, as many DTC brands learned recently. Gap Inc. and TripAdvisor, for instance, admitted that a period of over-reliance on promos and performance marketing eroded their brand equity and forced them to refocus on brand advertising to sustain sales. Brands that neglect awareness and preference end up paying more and more to acquire each incremental customer. A CommerceNext study noted that as acquisition costs climbed post-iOS14, retention and brand have to take center stage for marketers.

  
  

  In essence, performance marketing efficiency is boosted by strong brand metrics – Nielsen data shows a 1-point gain in brand awareness or consideration can translate to a ~1% increase in sales. The funnel works better at every stage when consumers know and favor your brand up front. Performance ads for a well-known, trusted brand will convert more cheaply than ads for an unknown brand.
  

• Full-Funnel Approach: The consensus is that brand and performance marketing are complementary, not opposing, forces. A full-funnel strategy uses brand advertising (e.g. video, display, PR, content marketing) to generate interest and emotional connection, expanding the pool of future customers, while performance channels capture the demand and intent when it matures.

  
  

  Importantly, brand investment makes performance spend more effective over time – one report noted “stronger brand metrics also improve your performance ad efficiency”. The CAC “valley of death” can thus be avoided by continuously filling the top of the funnel. As an industry commentator quipped, focusing only on ROAS is like “constantly harvesting without planting”, eventually leaving a barren field. The healthiest brands do both – reap short-term sales and sow seeds for tomorrow.
  

In summary, performance marketing alone is not a sustainable growth engine. It’s powerful for driving transactions, but it must be complemented with brand-building to reduce long-term CAC and create a pipeline of future buyers. The data and expert opinions indicate that brands which maintain this balance (even if it means less instant gratification) end up with higher marketing ROI and more resilient growth. A 2024 analysis summed it up: neglecting brand leads to a cycle of ever-increasing CAC and stalled growth, whereas integrating brand marketing “reinforces the results of performance channels in the long run.” 

Case Studies: Brand Building to Overcome CAC Challenges

Finally, let’s look at several real-world examples of ecommerce and DTC brands that successfully navigated CAC challenges by leaning into brand. These cases illustrate how brand investments translated into improved acquisition efficiency or profitable growth:

• Gymshark (Fitness Apparel): UK-based Gymshark grew from a garage startup in 2012 to a £1.4B+ global brand without massive ad spend or outside funding. Instead, Gymshark invested heavily in brand-building via influencer marketing, community engagement and content.

  By partnering with fitness influencers and fostering a passionate community (Gymshark events, social challenges like #Gymshark66), the company created enormous organic buzz. This strategy yielded explosive growth “attributed largely to its pioneering use of influencer marketing”, turning customers into advocates.

  
  

  Gymshark’s revenues hit ~£438M in 2021 with 68% YoY growth, all while keeping CAC low through word-of-mouth and brand loyalty. It’s a prime example of how investing in brand community can drive performance: Gymshark achieved unicorn status with virtually no reliance on the kind of paid performance marketing many DTC peers needed.
  

• Allbirds (Footwear):  Sustainable shoe brand Allbirds is another case where brand values and customer advocacy fueled growth without high acquisition costs. Allbirds focused its messaging on sustainability and comfort, and it actively listened to and engaged its customer community. Co-founder Tim Brown noted that “only a small amount” of Allbirds’ sales came from social media ads – instead, “most of the company’s success can be attributed to word of mouth” among delighted customers. By delivering a distinctive product and brand story (eco-friendly materials, minimalistic design), Allbirds earned an army of loyal fans who did the marketing for them. This allowed Allbirds to scale rapidly (reaching $100M+ in revenue within two years of launch) with an inherently efficient CAC model. Their high Net Promoter Score and organic traffic meant growth was driven by brand reputation more than ad spend. Even as Allbirds later expanded marketing, its early traction proved the ROI of brand-led customer loyalty and advocacy.
  

• Airbnb (Travel Marketplace): Airbnb isn’t a product DTC brand, but it faced a quintessential CAC turning point during COVID-19. In 2020, Airbnb dramatically slashed performance marketing (cutting over $500M) as travel halted. Remarkably, they found that “we could take marketing down to zero and still have 95% of the traffic from the year before”. Over 90% of traffic was coming direct or unpaid, thanks to Airbnb’s strong brand recognition (it had essentially become a household name and even a verb). This epiphany led CEO Brian Chesky to proclaim that marketing’s role for Airbnb would be “not to buy customers but to educate” – shifting focus to brand and PR. Post-pandemic, Airbnb doubled down on brand marketing (including PR campaigns like “Made possible by Hosts”) and saw record demand without returning to heavy paid acquisition. This case shows how a robust brand can drastically lower reliance on paid CAC. Airbnb’s brand equity and customer goodwill accumulated over years allowed it to bounce back with minimal spend – essentially escaping the CAC trap by banking on brand trust.
  

• Adidas (Global Retail): Not a DTC startup, but Adidas provides a textbook example of course-correcting a lopsided performance strategy. A few years ago, Adidas had 77% of its marketing budget in digital performance ads, chasing ROI on a campaign-by-campaign basis.

  Initially this drove short-term e-commerce sales, but Adidas started to see brand fade and weaker growth. Through marketing mix modeling, Adidas discovered that brand advertising (emotional campaigns, brand content, etc.) was actually generating 65% of its sales. The over-emphasis on digital performance was leading to under-investment in what was truly driving consumer choice.

  
  

  Armed with this data, Adidas rebalanced its spend towards brand – and as a result, saw improvements in overall sales effectiveness. The CMO of Adidas reported that brand campaigns (like their creative “Impossible is Nothing” revival) not only lifted brand metrics, but also made their digital spend more efficient.

  
  

  This turnaround highlights that even for large brands, re-investing in brand building can revive growth and fix rising CAC issues. Adidas acknowledged that neglecting brand had caused diminishing returns, and that restoring the balance has been key to sustaining sales momentum.
  

In conclusion, performance-heavy ecommerce brands can escape the CAC valley of death by making brand strategy a core part of their growth model. The data shows customer acquisition costs have risen sharply, but also that loyal customers and strong brands ultimately drive superior ROI.

Building brand equity – through trust, storytelling, community, and customer experience – increases customer lifetime value and lowers the effective cost to acquire each customer over time. 

The comparative analyses indicate that a blend of brand and performance marketing yields the best results: brand investment feeds demand into the funnel, while performance marketing harvests it efficiently. And the case studies demonstrate in practice how brand-building efforts (from influencer communities to word-of-mouth to rebalanced ad spends) helped companies like Gymshark, Allbirds, Airbnb and Adidas achieve scalable growth despite CAC pressures.

For any DTC or ecommerce business entering that perilous CAC plateau, the imperative is clear: shift from a pure acquisition mindset to a brand + retention mindset. 

By doing so, you not only reduce your dependence on paid channels but also create a self-sustaining engine of customer loyalty, organic acquisition, and pricing power.

In a world where everyone is bidding up performance ads, brand is the enduring differentiator that can keep your CAC in check and your growth curve pointing up and to the right...

Sources:

1. SimplicityDX Press Release (July 2022) – Brands Losing $29 for Each New Customer (E-commerce Profits: Rising Acquisition Costs | SimplicityDX) (E-commerce Profits: Rising Acquisition Costs | SimplicityDX)

2. McKinsey & Co. – Moving Past E-commerce to NeXT Commerce (2023) (Moving past e-commerce to NeXT commerce | McKinsey)

3. L.E.K. Consulting Executive Insights (Nov 2022) – Fighting Rising DTC CAC (Fighting Rising Direct-to-Consumer Customer Acquisition Costs | L.E.K. Consulting)

4. Cappasity/CommerceNext Survey (2023) – Rising CAC post-iOS14 (How rising CAC impacts retailers. Most retailers say customer acquisition… | by Cappasity | Cappasity Blog | Medium)

5. VWO / Bain & Co. – Customer Retention Stats (2025) (30+ Powerful Customer Retention Statistics and Insights | VWO) (30+ Powerful Customer Retention Statistics and Insights | VWO)

6. Rivo Loyalty Report (2023) (Rivo | 6 Shocking statistics about the importance of DTC brand loyalty) (Rivo | 6 Shocking statistics about the importance of DTC brand loyalty)

7. Edelman Trust Barometer (2019) (Brand aid - Retail Merchandiser); Colling Media (2025) (Why Your Marketing Strategy Needs Brand, Demand, and Performance Ads)

8. CroudX Blog – Why Performance Marketing Alone Won’t Save Your Brand (2023) (Why performance marketing alone won't save your brand) (Why performance marketing alone won't save your brand)

9. Mark Ritson – “No such thing as performance branding”, MarketingWeek (2024) (There’s no such thing as ‘performance branding’ marketing)

10. Colling Media (2025) – Why Brand Marketing Matters (Why Your Marketing Strategy Needs Brand, Demand, and Performance Ads) (Why Your Marketing Strategy Needs Brand, Demand, and Performance Ads)

11. MarketingWeek – on Gap, TripAdvisor re-focusing on brand (Why Your Marketing Strategy Needs Brand, Demand, and Performance Ads)

12. Medium (Harvey Hodd, 2022) – DTC CAC “out of control” (DTC state of play: The battle against rising CAC (2022))

13. LinkedIn (D. McCarthy, 2017) – Blue Apron unit economics (A Detailed Look at Blue Apron’s Challenging Unit Economics ) (A Detailed Look at Blue Apron’s Challenging Unit Economics )

14. LinkedIn Post – Gymshark growth via influencers (2023) (GymShark grew from $0 to $128Mn, thanks to influencer marketing | Rajesh Kankaria posted on the topic | LinkedIn) (GymShark grew from $0 to $128Mn, thanks to influencer marketing | Rajesh Kankaria posted on the topic | LinkedIn)

15. SAGE Business Case – Allbirds and word-of-mouth (2021) (Business Case - Allbirds | SAGE Publications Inc)

16. IndieHackers – Airbnb CEO on 95% traffic with no marketing (2020) (Airbnb cuts marketing 95% and sees... no traffic loss? - Indie Hackers) (Airbnb cuts marketing 95% and sees... no traffic loss? - Indie Hackers)

17. Colling Media (2025) – Adidas case and 60/40 rule (Why Your Marketing Strategy Needs Brand, Demand, and Performance Ads)