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It is not only spending on raw materials, transport and labor that is increasing. Retailers are also facing rising costs for digital advertising. 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 Apple’s privacy changes and controversial on Facebook’s practices, more and more consumers are turning away from Facebook applications, which include Instagram and WhatsApp. Or they turn to new ones, like TikTok.
This change is causing brands to fear that an online marketing blitz is not reaching the right customers. Some even fear alienating consumers by being on certain social media sites.
“When Covid arrived it affected everyone differently, but for a lot of brands it created a really serious tailwind,” said Brian Berger, founder and CEO of men’s clothing brand Mack Weldon. “For this period of nine months [in 2020], we were all back in the great days of being able to really operate … to be in the right place at the right time. “
There was a leak of major advertisers at the start of the pandemic last March out of channels like Facebook, he said. Businesses, including hotels and airlines, were either trying to save money during an uncertain time or avoid setting the wrong tone with their ads during a health crisis. Companies that have continued to market products have been able to get the best real estate advertisements online for a lot less money. But this dynamic was suddenly interrupted at the start of the year.
“Then 2021 begins and the vaccines start rolling out, people start to feel more comfortable and life starts to get back to normal again,” Berger said. “And we were back where we were in 2019, overnight. The rates are back. The competition is back.”
Impact of Apple’s privacy changes
The coup de grace came when Apple in April Made privacy changes that impact how apps can track users. Since then, many consumers have given up on popular app tracking, which means businesses are collecting less information about users’ daily habits and interests. As a result, it becomes much more difficult for advertisers to effectively target Internet users.
“When Apple rolled out its new changes and new operating system… overnight, it really rocked the entire digital marketing space, including Facebook,” said John Merris, CEO of Solo Brands , in an interview. “I cannot stress enough that it is essential for brands to truly have this direct, one-on-one 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 make it difficult to tailor ads to shoppers.
“Every day it seems like the ad technology space or the digital marketing space is changing,” said Merris, who runs a company that has externally inspired products like Solo Stove, Chubbies and Oru Kayak. “And you hear a lot from consumer brands that are extremely concerned, or are already seeing huge challenges in acquiring new customers online because of these changes.”
Facebook usage will drop
Meta, formerly Facebook, is currently under close scrutiny after a whistleblower, Frances Haugen, a former product manager, released a mine 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 positions on social issues, said in a Twitter post on October 28 that it was continuing to boycott Facebook after removing all of its paid ads from the company last June.
“This decision has affected our business and the environment [nonprofit organizations] that we support – whose campaigns benefit from the social media amplification that we fund and run, ”Patagonia said. “But we have learned to adapt. We are smarter in the way we develop our community as a result of this advertising ban. “
The company did not elaborate on how it had adjusted. Representatives for Facebook and Patagonia did not immediately respond to a request for comment.
A Patagonia store is one of many stores geared towards outdoor enthusiasts in Telluride, Colorado.
Robert Alexandre | Archive photos | Getty Images
According to Polly Wong, president of full-service marketing strategy firm Belardi Wong, Facebook’s problems have become an even bigger headache for direct-to-consumer brands compared to traditional retailers. That’s because a lot of them got their start with creative Facebook ads that lead customers to their websites, rather than relying on lots of stores.
“There is no doubt that the vast majority of DTCs [direct-to-consumer] brands are growing their business on Facebook, with Google second, “Wong said.” But right now more than half of our customers see Facebook underperforming. “
Belardi Wong’s customers include eco-friendly footwear brand Allbirds, bedding maker Parachute, menswear company Buck Mason and dozens of other direct-to-consumer companies, according to its website.
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 the years to come. Time spent on the platform for adults over 18 is expected to be down 3.3% in 2021 from 2020 levels, eMarketer said. He predicts that it will drop another 1.8% from 2021 to 2022, and fall another 0.7% in 2023.
“As people have returned to their normal lives… going to restaurants and the gym and traveling, there is less screen time. And less screen time, in fact, means fewer impressions.” , Wong said. “And when there are fewer impressions, but there is still a huge marketing demand, the price of those impressions goes up. There is 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 tracked the 50% CPM increases on Facebook, she said. And the company predicts that CPMs could rise an additional 50% on top of that this holiday season.
More and more retail brands are testing large-scale direct mail catalogs, podcasts and TV campaigns to diversify their marketing mix, Wong said. Brands are also trying to leverage celebrity support. And these may end up being cheaper alternatives in this environment, she said.
Sportswear brand Vuori sees stores as a marketing channel. He plans to open about 100 in the United States over the next five years, after receiving a $ 400 million investment from SoftBank’s venture capital fund. Brands like Allbirds and eyewear maker Warby Parker are also planning to accelerate their store’s growth.
“When you run for the first time [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 can actually be a lot. more profitable… thanks to a store. “
Product touting “ready to ship”
But part of the move away from digital advertising can be transient. Snap suggested it was. The social media company told analysts in a conference call in late October that some retailers were pulling out of Snapchat marketing because they had to temporarily cut costs or didn’t have enough products to sell.
“We have heard from advertising partners in a wide variety of industries and geographies that they are facing headwinds in their business related to disruptions in global supply chains as well as labor shortages. labor and increasing costs, ”said Jeremi Gorman, Commercial Director of Snap. “We expect some of these customers to choose to slow down their marketing spending.”
Chocolate maker Hershey and consumer products giant Kimberly-Clark both cut spending in the third quarter and cited supply chain issues as examples. Companies face higher raw material costs and in some cases have not had enough products to meet demand.
Other retailers are tweaking the message of their ads to reflect the position of their inventory. Berger said Mack Weldon added “ready to ship” messages to its pre-holiday marketing materials to remind consumers that items are readily available and in stock.
“We have a global supply chain and we are not immune to problems,” Berger said. “We had a lot of travel related stuff during the holidays. But we anticipated a lot and were able to implement back-up plans for various types of marketing campaigns, depending on the delays. “
According to Wong, many companies belong to one of the two camps. Either the retailer has enough products to sell, but may be out of stock before Black Friday, so they encourage buyers to buy early. Or, the retailer waits for the goods to arrive, so the company waits until then for the marketing blitz.
“We actually have a few clients, unfortunately, that we couldn’t pull the trigger early enough,” Wong said. “There are actually catalogs going home for some of our customers where half of the products are not even available in the catalog.”
Fix: Poshmark shares closed almost 29% lower Wednesday. An earlier version distorted the day.