In my last post, I covered what the Tech Winter means for Retail. But there was one tech topic that was so big it warranted its own article: Social Media.
Digital marketing and social media in particular have had some ups and downs over the last few years. When the pandemic shut everything down, consumers and brands alike turned to digital as a lifeline to make up for shuttered stores. While digital channels had been chipping away at the kinds of customer engagement that occurs in stores for decades, the pandemic pegged the dial all the way over. Customer acquisition, customer support, engagement, experience, triggers, selection, transactions – it all went pretty much 100% online.
One immediate result was a big spike in digital advertising costs. During the height of lockdowns, customer acquisition costs (CAC) were as much as 10x higher than 2019. More recent studies, like this one from SimplicityDX, show that CAC in 2022 is up 222% since 2013. Twilio Segment reports that fashion’s CAC was $129 per customer in 2021, and that 57% of fashion retailers reported that rising CAC was a threat to hitting their sales goals.
But there were a couple other things happening during this time that also had major impacts on digital advertising.
DTC’s Digital Shell Game
The first was Casper’s S-1 filing from 2019. The DTC “personal sleep solution” brand reported that it cost them over $300 per customer in advertising costs (mostly digital) for every approximately $800 mattress sold. This resulted in Casper losing over $150 per mattress sold. While everyone watching the rise of DTC digital darlings knew they were focused on market share and scale at the expense of profitability, I don’t think anyone realized just how bad it was– especially for such a high-profile digital darling.
When the pandemic hit, it only got worse. All of a sudden all of these digital-only brands that had dominated the social media space were finding themselves in a much fiercer competition for consumers’ online attention, and at a much greater price per customer – which was already pretty close to unsustainable for quite a few.
Apple, Cookies, and the Death of Tracking
The next thing that happened was Apple’s release of iOS 14.5 – the one that told consumers that companies were tracking them across apps and asked them to actively opt in or agree to that tracking.
It got off to a slow start, as consumers first had to update their OS and then access apps that started asking them about tracking, but then the tidal wave hit – opt outs of tracking fluctuated between 85-95% in 2021. Meta, the parent company of Facebook, warned investors that $10B in revenue could evaporate in 2022, thanks to consumers opting out of cross-app tracking on Apple iOS – which does represent more than 50% of phones in the US, but definitely is not 100%.
Meta’s numbers tell us that, even though CAC is still very high, the effectiveness of that spend is getting significantly reduced, thanks to consumer opt-outs. The news is so grim that Gartner spun it this way: opt-outs should fall to “only” 60% in 2023, mostly because consumers will somehow decide that they don’t like untargeted ads. In the meantime, other trackers show that opt-outs have flattened out in 2022 at around 75%.
That’s just Apple’s impact. Google, even though they have delayed it, has promised a similar level of transparency and active opt-in in the future. The net result will be more of the same: high CAC for less impactful results.
Social Media Meltdowns
And then there has been all the attention paid over the last few years around social media’s impact on society in general. The Facebook Papers, the studies showing the negative impact on teens’ mental health, the algorithms that drove rage and rabbit-hole radicalization into conspiracy theories.
How are social media companies faring today? Meta topped the list of the most tech layoffs in 2022. Twitter lost at least 50 of its top 100 advertisers since Musk took over (though some may have come back in December). TikTok has just been banned from US government phones and there is active consideration in Congress of banning it altogether from US shores (my daughter would be devastated).
But even more interesting – and not good news for brands’ dependency on digital advertising and social media – is how this could impact brands. Future Commerce, a consultancy billing itself as a “retail media research startup”, released a very thought-provoking analysis in 2022 called the “Visions Report”. To be transparent, I found that the report feels like it is perhaps missing a voiceover to help connect the pieces, but it’s very much worth the effort. The authors point out that radicalization rabbit holes are not limited to politics – they’re coming for capitalism too.
A potential “typical” scenario: “I found a great deal” leads to “You can find great deals too”, which easily leads to “Corporations are greedy”, which can quickly become a rallying cry: “We’re not buying what you’re selling – and we’re changing the world for the better because of it!”
If you think that’s pretty far out there, one, the world is not flat and yet there are STILL people who insist that it is. And two, keep an eye out for increasing anti-consumerism sentiment, because it was on the rise before the pandemic, which only helped it become even stronger today. There is a growing global belief that consumerism is destructive – to mental health, to the planet, to your ability to afford your life. Retail, by definition, is pretty much built on sustained consumerism.
What Should Brands Do?
When digital advertising first emerged on the scene, there were a lot of retailers and brands who held on to traditional forms of media for a very long time, mostly because they were afraid to stop spending on them. And the fears were legitimate, because when they stopped spending on TV advertising, for example, the subsequent increase (at the time) in digital ad spending didn’t drive enough traffic anywhere to offset the decline seen from the traditional channel. I don’t know about you, but I still get circulars in the mail.
And now brands have a new addiction in digital advertising, and now that they know it is seeing decreased effectiveness, and has the potential to be destructive – or implode altogether – they don’t know what to do. They can’t not spend. And alternatives are hard to find. Retail Media Networks, the latest buzz, smacks of desperation for exactly the alternative that advertisers seek.
At the risk of sounding like a VC that is hip-deep in a DTC investment, it is time to go back to the basics. There is little point in acquiring a customer if you don’t know how to keep them, and while there has been a lot of angst about CAC, customer retention statistics can look even worse – as many as 3 in 4 shoppers are typically one and done. Casper was the poster child of one-and-done – mattresses aren’t exactly a high-frequency purchase.
More and more retailers are turning to loyalty programs as a way to entice customers to stick around, while also giving retailers greater visibility into customer behavior that can counteract the loss of cookies and digital tracking. You’ll hear more and more in 2023 about “zero party data” – a play on first-party data, or data collected directly from consumers. Zero party data gives that definition some extra oomph by also tacking on that it wasn’t just “collected” but volunteered – given to a retailer or brand with the express intention that they use it for mutual benefit.
And then there are stores. Before there was eCommerce, 100% of customer acquisition happened in stores. There was no place else for that to happen. Retailers are aware that a customer acquired in a store tends to have greater retention and lifetime value than one acquired online. And hey, the conversion rate in stores runs about 10x the conversion rate of eCommerce! But retailers have lost touch with how to position stores as part of the acquisition phase of the customer journey.
It’s hard work – it’s local events and outreach and community. It is not entering a dollar value into a keyword bid and hitting enter – which is addictive in part because it’s so much easier and less effort, and it’s scalable. Making stores entertaining and a stronger part of customer acquisition is achieved one store at a time.
But at the rate things are going on social media, these back-to-basic tactics are looking better and better every day. They may not be nearly as easy to execute as the sugar hit of digital. But they have the potential to deliver more value – and lasting, lifetime value – if done right.