Higher prices, weaker targeting push companies to rethink digital ads

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Digital advertising prices are rising, forcing businesses to rethink their overall marketing strategies.

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why it matters: At the same time that digital ads are becoming more expensive, harder to target, startups are creating huge barriers to entry for digital-native brands trying to find their first customers.

By numbers: Advertising costs on Facebook are up 33% compared to the third quarter of 2019 (before the pandemic), as measured by CPM, or cost per thousand impressions.

  • According to proprietary data provided by performance marketing firm Tinuity, Instagram CPM grew 23% over the same period, and Google’s cost per click (CPC) also grew 23%.
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What happened: This is another example of how the pandemic has changed how we do business, and how we live our lives.

  • Advertisers pulled back at the start of the pandemic, but then lockdown life turbo-charged the transition to all things digital – so as the economy reopens this year, advertising dollars naturally got there in greater force.
  • Competition for ad space is now causing prices to skyrocket.

What are they saying: “NS [digital advertising platforms] There are a lot more competitors than before,” Andy Taylor, VP of research at Tinuity, tells Nerdshala. “For most advertisers, pricing is by far the highest value.”

  • A VP of e-commerce at a direct-to-consumer beauty brand tells Nerdshala that digital ads are now at least 50% more expensive on a per-click or per-impression basis than in January.
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Intrigue: As advertising costs have risen, the power of consumer targeting on social media has suffered — thanks to a recent iOS update from Apple that prioritized data privacy.

  • “Facebook and Instagram CPMs are going through the roof right now – and their targeting has historically been very weak,” says the e-commerce executive.

Effect: Seeing rising prices and declining return on investment, some brands have recently begun to shift more of their advertising budget to other venues, such as streaming TV, traditional TV, and even direct mailing.

  • The cost of those options has also gone up, but the growth rate is more in line with historical levels, the executive says.

what to watch: If prices remain high, the impact on startups that need to acquire their first round of customers could be significant. The era of ease may be coming to an end for digital-native consumer-facing companies like Warby Parker and Allbirds.

  • “For startups, this is a really tough time. A lot of them have historically relied heavily on social platforms to track their business. They usually have lean marketing budgets, and you don’t need those investments. But returns are required,” says the e-commerce executive.

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