3 Tips to Combat Rising Digital Advertising Costs: What Merchants Can Do to Prepare

Data-driven digital advertising and marketing changed the game for merchants, largely because it enabled businesses to reach customers more efficiently and at a competitive price compared with legacy media. Yet, with digital advertising costs continuing to rise, its effectiveness declining in many cases, and with inflation expected to continue, the game is about to change again.

While controlling advertising expenditure isn't an easy task, there are strategies that will help. Before considering these, let's start with why digital advertising costs are rising. Increased post-pandemic demand has been a factor, but far more critical has been changes to device and browser privacy policies. For example, Apple's App Tracking Transparency (ATT) is a privacy framework that requires all iOS apps to ask users for permission to share their data. These changes make it more difficult for merchants to target new customers, and it requires them to have greater insight into what works and what doesn't to avoid spending more on digital advertising campaigns that yield fewer sales.

For example, because of privacy considerations, it's now far more difficult for a clothing retailer to place its ad to the right shopper. And because the retailer has yet to secure the sale, it lacks insight into important behavior the shopper may exhibit online and the clothes they might want to buy.

Big Tech to the Rescue?

One hope is that big tech companies themselves will ride to the rescue and balance the merchant’s need to apply data and analytics to perform better all while protecting consumer privacy. Recently, Mark Zuckerberg said Meta was planning to spend $39 billion on what the company calls artificial intelligence infrastructure. This investment will support predictive analysis leveraging AI to produce richer data without intruding on people's privacy.

However, the endeavor will take time to implement because the chips and hardware needed to run AI at the scale necessary are significant. This is a primary reason why Zuckerberg is investing in the metaverse. By owning the virtual reality headset hardware, Meta will ensure that a third party like Apple will not supplant the effectiveness of ad spend again.

Creating a Blueprint to Fend Off Costs

So what can merchants do? To start, they should focus on their strengths and consider the following strategies:

1. Leverage first-party data. While most don't have billions to spend on R&D, brands and retailers have a broad array of rich and detailed first-party data. This gives them a significant competitive advantage if they can leverage that data to provide them with an edge. Merchants with this data set can use their own data instead of depending on third-party platforms to make informed digital advertising decisions.
2. Double-down on storytelling. Merchants need to improve the conversion rate of consumers visiting their sites. Storytelling plays an important role here helping to make the shopping experience more personal and creating stronger consumer affinity for the brand. In fact, the best direct-to-consumer (DTC) success stories are the ones that apply syndicated content to the online customer shopping experience in an effort to distinguish themselves from the competition.
3. Execute swiftly. The speed of the customer experience is another crucial factor to consider. Merchants that deliver fast-loading e-commerce shopping experiences will be able to offset the increase in digital advertising costs with higher conversion rates and average order value.

Merchants must be nimble and meet their customers' needs across multiple channels, such  as mobile, web, social, livestreams, the metaverse, gaming environments, or in-store shopping applications. Headless and composable commerce is key to delivering an impactful experience because merchants' technology stacks are no longer boxed in with a specific vendor. Instead, well-composed stacks create the flexibility merchants need to optimize merchandising and storytelling for superior shopping experiences by leveraging the plethora of options and/or by leveraging their preferred vendor of choice.

Rather than persist with a digital advertising approach that's no longer cost effective or hope that big tech will ride to the rescue, merchants should take control of their futures. To do this, they must first look at their technology stacks, the data they have/would like to acquire, and how to create the rich experiences that customers want and expect.

Brian Anderson is the founder and CEO of Nacelle, a composable commerce platform provider that allows brands and retailers to syndicate commerce and content data to multiple heads, endpoints and channels by transforming, storing and reindexing data in real time.