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It’s not just spending on raw materials, transportation and labor that’s on the rise. Retailers are also facing rising digital advertising costs. The challenge is: will it be worth the extra money?
Last year – and especially during the holiday season – social media platforms like Facebook have been very effective in reaching consumers stuck at home, scrolling aimlessly on their smartphones. But this year, between Appleexchange confidentiality and the lesson controversial more than Facebook, more and more consumers are avoiding Facebook’s apps, including Instagram and WhatsApp. Or they turn to new ones, like TikTok.
This change has brands worried that an online marketing blitz won’t reach the right customers. Some even worry about alienating consumers by being on certain social media sites.
“When Covid arrived it affected everyone differently, but for many brands it created a really serious tailwind,” said Brian Berger, founder and CEO of menswear brand Mack Weldon. “During this nine-month period [in 2020]we were all back to the glorious days of being able to really exploit…being in the right place at the right time.”
There was a leak from the big advertisers at the start of the pandemic last March on channels like Facebook, he said. Businesses, including hotels and airlines, were either trying to save money during uncertain times or avoid setting the wrong tone with their ads during a health crisis. Companies that continued to market products were able to get the best online ads for much less money. But this dynamic came to a sudden halt at the start of the year.
“Then 2021 starts and the vaccines start rolling out, people start to feel more comfortable, and life gets back to being more normal,” Berger said. “And we were back to where it was in 2019, overnight. Rates are back. Competition is back.”
The final blow came when Apple in April made privacy changes impact on how apps can track users. Many consumers have since opted out of being tracked by popular apps, which means companies collect less information about users’ daily habits and interests. Consequently, it becomes much more difficult for advertisers to target internet users effectively.
“When Apple rolled out its new changes and operating system…overnight, it really shook up the entire digital marketing space, including Facebook,” said John Merris, CEO of Solo brands, in an interview. “I can’t overstate how critical it is for brands to really have that direct relationship with customers by interacting and transacting with them on their own websites.”
Merris said a number of retailers are increasingly concerned about how the changes are making it difficult to tailor ads to shoppers.
“Every day it seems like the ad tech space or the digital marketing space is changing,” said Merris, who runs a company that owns outdoor-inspired products like Solo Stove, Chubbies and Oru Kayak. “And you’re hearing a lot of consumer brands extremely worried, or already seeing huge challenges in acquiring new customers online because of these changes.”
Meta, formerly Facebook, is meanwhile facing scrutiny after a whistleblower, Frances Haugen, a former product manager, released a wealth of damning internal documents. Among other things, the documents shed light on Facebook’s handling of hate speech and its impact on users’ mental health. This has led at least one retailer to reconsider its presence on the social media platform.
Sporting goods company Patagonia, known for its bold stances on social issues, said in a Twitter post on Oct. 28 that it was continuing to boycott Facebook after it pulled all of its paid ads from the company last June. .
“This decision has affected our activities and the environment [nonprofit organizations] we support – whose campaigns benefit from the amplification of the social media we fund and run,” Patagonia said. “But we have learned to adapt. We are smarter about how we grow our community as a result of this ad ban.”
The company did not explain more specifically how it adapted. Representatives for Facebook and Patagonia did not immediately respond to a request for comment.
A Patagonia store is one of many stores catering to outdoor enthusiasts in Telluride, Colorado.
Robert Alexander | Stock photos | Getty Images
According to Polly Wong, president of full-service marketing strategy firm Belardi Wong, Facebook’s issues have become an even bigger headache for direct-to-consumer brands than traditional retailers. That’s because many of them got their start through creative Facebook ads that directed customers to their websites, rather than relying on whole swaths of stores.
“There is no doubt that the vast majority of DTCs [direct-to-consumer] brands are building their business on Facebook, with google being second,” Wong said. “But right now, more than half of our customers see Facebook underperforming.”
Belardi Wong customers include eco-friendly shoe brand all the birdsbedding maker Parachute, menswear company Buck Mason and dozens of other direct-to-consumer companies, according to its website.
An analysis by market research firm eMarketer found that users in the United States are expected to spend less time browsing Facebook this year and in years to come. Time spent on the platform for adults over 18 is expected to drop 3.3% in 2021 from 2020 levels, eMarketer said. He predicts that it will fall another 1.8% from 2021 to 2022, and another 0.7% in 2023.
“As people have gone back to their normal lives…going to restaurants and the gym and traveling, there’s less screen time. And less screen time, in fact, means less impressions,” Wong said. “And when there are fewer impressions, but there’s still huge marketing demand, that drives up the price of those impressions. There’s more competition from advertisers for the same impressions.”
CPMs, a marketing term used to refer to the price of 1,000 ad impressions, are skyrocketing, Wong said. Over the summer months, Belardi Wong was tracking 50% increases in Facebook CPMs, she said. And the company predicts that CPMs could still increase by another 50% during the holiday season.
More retail brands are experimenting with direct mail catalogs, podcasts and large-scale TV campaigns to diversify their marketing mix, Wong said. Brands also try to leverage celebrity endorsements. And those may end up being cheaper alternatives in that environment, she said.
Sportswear brand Vuori sees stores as a marketing channel. It plans to open about 100 in the United States over the next five years, after receiving a $400 million investment from Soft Bankventure capital funds. Brands like Allbirds and eyewear maker Warby Parker are alike plotting to accelerate the growth of their store.
“When you first cast [a brand]it may be cheaper to acquire a customer through social advertising or through paid search,” said Vuori Founder and CEO Joe Kudla. “But when you’ve acquired your millionth customer, it could actually be a lot more. profitable … thanks to a store.”
But part of the move away from digital advertising may be transitory. Break suggested it was. The social media company told analysts on a conference call in late October that some retailers are roll back marketing on snapchat because they have to temporarily cut costs or because they don’t have enough goods to sell.
“We have heard from advertising partners across a wide variety of industries and geographies that they are facing headwinds in their businesses related to disruptions in global supply chains as well as labor shortages. implementation and rising costs,” said Jeremi Gorman, Chief Commercial Officer of Snap. “We expect some of these customers to choose to slow down their marketing spend.”
chocolate maker Hershey and consumer products giant Kimberly Clark both cut spending in the third quarter and cited supply chain issues as examples. Businesses are facing higher commodity costs and in some cases have not had enough product to meet demand.
Other retailers are tweaking their ad messaging to reflect their inventory positions. Berger said Mack Weldon added “ready to ship” messages to its marketing materials ahead of the holiday to emphasize to consumers that items are readily available and in stock.
“We have a global supply chain and we’re not immune to problems,” Berger said. “We had a lot of things related to the holiday move. But we anticipated a lot of it and were able to implement contingency plans for different types of marketing campaigns, depending on the delays.”
According to Wong, many companies fall into one of two camps. Either the retailer has enough products to sell, but may sell out before Black Friday, encouraging shoppers to buy early. Or, the retailer waits for the goods to arrive, so the company waits until then for the marketing campaigns.
“We actually have a few clients, unfortunately, that we couldn’t pull the trigger on soon enough,” Wong said. “There are actually catalogs going home for some of our customers where half of the products aren’t even available in the catalog.”
Fixed: Poshmark shares closed nearly 29% Wednesday. An earlier version incorrectly indicated the day.