The previous few years have seen some highs and lows in digital marketing, particularly in the realm of social media. When the epidemic struck, businesses and consumers alike resorted to online platforms as a last resort. The pandemic was the final straw that pushed the needle too far in the direction of the decline of in-store consumer contact that digital channels had been slowly but surely eroding for decades. Almost every aspect of business, from marketing to customer service to product discovery to purchase to after-sale care, has moved online.
One immediate effect was a dramatic increase in the price of online advertising. Customer acquisition costs (CAC) during lockdowns were as much as ten times higher than in 2019. Recent research, such as that conducted by SimplicityDX, indicates a 222% increase in CAC by 2022 compared to that observed in 2013. According to Twilio Segment, in 2021, the cost of acquiring a client in the fashion industry was $129. Furthermore, 57% of fashion retailers saw growing CAC as a danger to achieving sales targets.
The DTC’s Digital Con Game
It all started in 2019 with Casper’s S-1 disclosure. Over $300 was spent on advertising (mainly digital) for every client acquired by the direct-to-consumer “personal sleep solution” brand, with an average order value of $800. Because of this, Casper lost more than $150 on every mattress it sold. Everyone who followed the emergence of DTC digital darlings understood that they prioritised growth in market share and customer base over profits, but I don’t believe anyone, especially not for such a high-profile digital darling, recognised how awful it was.
The epidemic rapidly worsened when it began. These digital-only firms, who had previously dominated the social media sector, now found themselves in a lot fiercer fight for consumers’ online attention, and at a considerably bigger price per customer, which was already quite near to unsustainable for quite a few.
Deleted Apple Cookies Bring an End to Online Tracking
Apple then released iOS 14.5, which informed users that corporations were tracking their movements across different apps and required them to provide their express consent to this practise.
Opt-outs of monitoring ranged between 85.5 and 95% in 2021; adoption was gradual at initially since users had to update their operating system and then access applications before they started querying them about tracking. Meta, Facebook’s parent company, recently cautioned investors that cross-app tracking on Apple iOS, which powers more than half of smartphones in the United States but far from all of them, may cause the social media giant to lose $10 billion in revenue in 2022.
According to Meta’s data, even while CAC is still rather high, the efficiency of that expenditure is decreasing dramatically as a result of user opt-outs. Gartner tried to soften the blow by saying that opt-out rates will drop to “just” 60% by 2023, mostly due to consumers’ growing aversion to non-targeted advertisements. Other monitors, meanwhile, suggest that by 2022, opt-outs had levelled out at about 75%.
No other company has had an effect of this magnitude. Google has promised a similarly open and opt-in experience in the future, although with a wait. In the end, the same high CAC for less effect will prevail.
Crises in Social Media
And then there’s the recent focus on how social media is changing our culture. The Facebook Papers reveal the algorithms that fueled anger and rabbit-hole radicalization into conspiracy theories, as well as research revealing the platform’s deleterious influence on youths’ mental health.
What is the current state of the social media industry? The year 2022 saw a staggering number of layoffs in the technology sector, and Meta was at the top of the list. Since Musk took over, Twitter has lost at least half of its top 100 advertisers (though some may have come back in December). The United States government has just banned TikTok from all government-issued smartphones, and legislation is currently being considered in Congress to prohibit the app nationwide (my daughter would be devastated).
What’s more intriguing, and potentially bad news for firms’ reliance on digital advertising and social media, is how this may affect brands. The “Visions Report” from 2022 was produced by Future Commerce, a “retail media research startup” that claims to have conducted some highly insightful research. Sincerity requires me to admit that I felt the report might have benefited from a voiceover to help tie everything together, but I can attest that it is well worth your time nonetheless. The authors make the important point that political radicalization is not the only target of the radicalization rabbit hole; capitalist institutions are also under danger.
A “typical” chain of events would go something like this: “I discovered a wonderful price” leads to “You can find great deals too,” which leads to “Corporations are greedy,” which leads to “We’re not buying what you’re selling — and we’re changing the world because of it!”
If you think it’s far-fetched, consider that, for one, some individuals still swear that the Earth is flat even though they know better. Second, be on the lookout for growing anti-consumerism attitude; this trend was already developing before the epidemic and has only gained steam since. There’s a rising school of thought that consumption is bad for you in every way: emotionally, environmentally, and financially. There can be no retail without consistent customer spending.
As a brand, what should you do?
Many companies were reluctant to completely abandon traditional media channels after seeing the first success of digital advertising. They had good reason to be concerned; when they cut down on TV ads, for instance, the accompanying increase (at the time) in digital ad expenditure didn’t generate enough new business to counteract the loss in old media. Not sure whether you still get mail-out ads but I do.
And now that businesses have found a new drug in digital advertising, they have no idea what to do about its diminishing effectiveness, potential for destruction, or even implosion. They have no choice but to spend. Moreover, other solutions are few. The recent craze for Retail Media Networks smells like an attempt to find any solution at all, and it’s exactly what advertisers have been looking for.
To risk sounding like a venture capitalist who is knee-deep in a direct-to-consumer investment, I think we need to get back to fundamentals. Customers are useless if you can’t keep them, and while there has been a lot of worry about CAC, customer retention figures may appear even worse, with as many as three-quarters of buyers often making only a single purchase. Since mattresses aren’t something people buy very often, Casper became a symbol of the “buy once, sleep forever” mentality.
Then, of course, there are the shops. Before the rise of online shopping, traditional brick-and-mortar establishments were responsible for all new client acquisition. Simply said, that could have happened nowhere else. As any business owner knows, a customer acquired in-store often has higher retention and lifetime value than an internet customer. And, hey, the conversion rate in physical stores is around ten times that of online businesses. However, many businesses have lost sight of the importance of strategically positioning physical locations during the client acquisition process.