Ads Shrinkage: The Good News and Bad News for Marketers

As global economic uncertainty affects DTC brands, major online ad platforms are bracing for advertising shrinkage.

This is a good news/bad news story.

Let’s start with the bad news. Snap, Google, Meta, and Pinterest reported dismal earnings over the last few weeks. Snap took a 28% plunge in the stock price, sending the company’s value to its lowest since early 2019; Meta shares have been declining more than 60% in 2022; Alphabet also slid 30% this year...The economic downturn and fears of a recession have resulted in decreasing declines in online advertising in recent months across the globe. The entire advertising industry is struggling to figure out what to do in a worst-case scenario.

Some brands, including Microsoft and P&G, have cut their marketing budgets as early as this summer. "I think the digital ad market crashed in September," an ad tech executive commented on Snap's earnings call over Insider, "Snap just ripped the Band-Aid off that. IPG CEO Philippe Krakowsky said on the company's third-quarter earnings call that most clients have been asking where their advertising investments should go if there's an economic downturn. According to a recent World Federation of Advertisers (WFA) study from the World Federation of Advertisers (WFA), 7 out of 10 businesses agree that 2023 budgets will be under heavy scrutiny, and one-third of them plan to slash ad dollars.

Now for the good news.

It turns out the ad industry is full of very smart people. To avoid losing business, ad agencies have been looking to demonstrate the long-term value of their services. Yes, you’re spending money now, but the argument is that doing so will drive growth and boost competitiveness over many years. (It is usually more expensive to rebuild brand credentials once they have slipped.) Here are three best practices to get started:

Tip 1: Reinforce Your Positioning

Unique value positioning may hold the key to enabling consumers to differentiate between similar products and establishing your brand loyalty, which can be essential to maintain your marketing and advertising ROI in the long term:

• 43% of consumers would spend more money with brands they are loyal to
• 65% of an average company’s business comes from existing customers

With a limited digital ad budget, organizations are looking to focus their messaging on the key value positioning. To stand out in a highly competitive market, you should not only consider the actual attributes of the product (e.g., less expensive, easy to use, or faster) but also think of how the product makes consumers feel (productive, confident, relaxed, etc.) with the recession looming.  

Tip 2: Narrow Down Target

The most crucial component of minimizing wasted ad spend is developing an in-depth understanding of your target audience to move the needle in favor of your KPIs. Your audiences also need to remember your ads for your business to grow. Narrowing down your reach allows for increasing ad frequency and driving overall ad effectiveness. For example, Facebook recommends 2 exposures per week for 10 weeks. Over that same 10-week period, TV ads require 3 to 10 exposures per week.

But what if your product is meant to span a large demographic? Then you need to adopt a "divide and conquer" strategy to understand how the product appeals to each specific persona - what are their challenges or interests? What potential solutions are they looking for? What is the typical customer journey? The ultimate goal is to deliver the most effective messaging to the targeted niche via the appropriate channels.

Tip 3: Say Goodbye to Unsuccessful Campaigns

If a certain campaign fails to meet your marketing goals or cost-per-click criteria, budgets should be reallocated toward more successful media outlets.

Say you are running campaigns on both LinkedIn and Twitter. At the end of the first week, you see that the clicks from your Twitter ads are generated by bots. You should consider reallocating funds to the LinkedIn Ads campaign if that's where your target audiences are. However, "click" is not the only factor you should consider. Marketing teams need in-depth analytics that allows them to drill down into what is really behind generating sales revenue so that they can devote more resources to these campaigns.

Tip 4: Measure Your Results Carefully

"Heavier scrutiny on ads budget" means it is time to move beyond vanity metrics, such as impressions, engagements, and clicks. To gain actionable insights into how ads drive sales, there are two major analytics challenges for organizations to overcome:

Data Quality

Data quality accounts for granularity, completeness, timeliness, accuracy, consistency, integrity, and more. Gleaning and massaging data from multiple marketing platforms can be time-consuming and resource-intensive. You need to establish scalable analytics workflows to handle the large amounts of data from various campaigns and ensure it meets the quality criteria for deeper analysis.

Outdated Attribution Models

No single attribution model can provide all of the contexts a marketing team needs to make informed decisions, which can lead to poor campaign optimizations. Businesses often use media mix modeling and multi-touch attribution to guide their advertising efforts. Yet both come with limitations.

• Media Mix Model (MMM): This model relies on statistical analysis to look back at sales over time to determine what campaigns/channels contributed to those sales. However, it does not offer insights at the individual level but requires a massive amount of unbiased historical data for accurate outputs. (When there is a shock to the system, like the global pandemic, having years’ worth of data becomes even more critical.)
• Multi-Touch Attribution (MTA): Multi-touch attribution assigns values to each customer touchpoint that leads to a conversion to decide which campaigns should be credited with the conversion and deserve additional funding to acquire more customers effectively. While the model enables in-campaign optimizations and generates consumer-level insights, it is challenging to determine which touchpoints should be weighted more heavily in driving a prospect down the funnel. For instance, in the graph below, should the Facebook ad that kicked off the customer journey get more credit for the conversion than the Google paid search ad's last touchpoint?

Final Thoughts

Advertising costs can add up quickly, and those numbers can give you profound sticker shock. However, during challenging times, those brands that optimize their ad strategies can get a long-lasting boost in sales and market share. As a famous adage says, “When times are good, you should advertise. When times are bad, you must advertise.”