Digital Marketing Has Changed: 3 Things CP Companies Need To Do To Adapt – Advertising, Marketing And Branding

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The COVID pandemic led to an overnight shift in demand from brick-and-mortar to online: In the second quarter of 2020
E-commerce sales increased 44% YoYand consumer goods companies (CP) competed to develop a digital-first strategy.

Many were underprepared and ill-equipped for competing retailers who had been around for decades. They have met challenges ranging from defining the ideal product range how to choose the best
operating model. However, they first found easy ways to buy sponsored product placements from major digital players like Amazon and Google Shopping.

Many of the operational hurdles have now been removed, but a growing challenge is emerging: the effectiveness of digital marketing is declining. Add to that the growth rate of e-commerce noticed 10.8% in the third quarter of 2022well below the growth rate of 49.7% in the third quarter of 2020. Calming growth has seen rival retailers vying for limited digital space, which three companies (Meta, Amazon and Google) captured 65% of digital advertising spend in 2022. It’s a falling yield strategy.

To maintain market share, CP companies need to rethink their digital marketing strategy, from key performance indicators (KPIs) to ad allocations and talent. Here we look at the key levers CP e-commerce players can use to turn the tide in their favor.

1. Update KPIs according to the margin

Common marketing performance KPIs like cost-per-acquisition (CPA) or the annoyingly misnamed ROAS (return on ad spend, but not a true measure of return) are flawed. They do not give a true picture of profitability, nor do they allow companies to maximize overall profits. Regardless of digital tactics, understanding actual margin is crucial to ensure ads can be optimized.

For example, one cosmetics customer was surprised to find that after we adjusted his costs to determine the true contribution margin of his online sales, he had lost money on almost every sale in a premium segment – he had thought it was highly profitable. The company was simply spending far more on advertising than it could afford, unaware of the hidden costs.

Working with your finance department to combine advertising costs with others (e.g. different shipping costs, return rates) is critical to guiding your marketing effectiveness tactics.

2. Impose better guard rails on your agency

Digital media agencies tend to be a good think tank for many advertisers and a key arm in campaign execution. CP companies rightfully use them to avoid having to build a full-fledged digital advertising team in-house.

The problem is that agencies’ incentives never quite match those of their clients. Since each account has a limited amount of time to ensure that it remains profitable on its own, agencies typically resort to meeting the baseline target they are given (e.g. a 5 or 500% ROAS). If a seemingly innocuous trick can help them hit their goals this quarter with minimal effort, then why not?

For example, they may increase branded search spend to show “results.” Because this search type comes from people primarily searching for the brand (e.g., “woolite”), it benefits from higher CTR and conversion. It’s also much cheaper per click than search performance on “non-branded” searches (e.g., “gentle detergent for wool”). However, these brand searches do nothing to increase a brand’s reach. This approach is a lower funnel tactic that, if overused, gives a false impression of performance.

Impose strict and sophisticated guidelines on your agency as part of your supplier management strategy. This is key to making sure your valuable media dollars aren’t wasted.

3. Make a commitment to attract the right talent

Most likely, the team that got you here won’t be able to get you there. When we evaluate the marketing capabilities of different companies, we often find skill gaps.

Marketing for consumer products has traditionally been an upper-funnel activity. Success is often defined by engagement and long-term brand impact, rather than daily and accountable revenue.

In contrast, managing digital marketing for e-commerce requires an entirely different level of analytical scrutiny, accuracy, and speed of execution. It requires a different expertise. Not necessarily better. Just different.

Committing to hiring the talent you need to be successful is critical. This is of course true if you manage your digital marketing in-house, but also if you hire an agency. Without a skilled overseer, your agency lacks leadership and oversight and may well fall for one of the simple shortcuts mentioned above.

Luckily for e-commerce companies that are short of skilled workers, the recent slowdowns in hiring and firings could present an opportunity to secure some serious clout.

Find a strategy that clicks

When supermarket shelves were empty in 2020, CP companies that could withstand digital retail easily conquered an emerging market. As the consumer grows weary of an online marketplace that limits results and buries organic product placements under an avalanche of sponsored placements, CP companies need to develop a more sophisticated ecommerce marketing strategy.

Whether you choose direct-to-consumer, Amazon-centric, or another approach, a well-targeted strategy will prevent you from wasting your ad dollars. While the digital landscape is unbounded, consumers ultimately want to know exactly where to go.

This is the fourth part of our six-part e-commerce series. read this Introductory macro article here,
Our take on structuring the eCommerce operating model Hereour assessment of the assortment challenges Hereand stay tuned for upcoming issues as we explore the five pillars of the AlixPartners framework.

The content of this article is intended to provide a general guide to the topic. Professional advice should be sought as to your specific circumstances.

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