Why Marketing is Getting More Expensive and What to Do About It

October 19, 2021
Author
Kathryn Quinn
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Categories Marketing Research

Post updated with refreshed data from initial publication in 2019

Before we dive into what’s happening in direct marketing these days, let’s do a quick review of the classic marketing funnel. Revenue generated on your e-commerce platform is a result of the traffic you generate, the conversion of that traffic, and the average order size purchased by your customers. If you know how many marketing dollars you spend to generate transactions, you can directly tie the dollars spent to the resulting transactions. As a rule of thumb, the goal is to spend the least number of dollars to drive the greatest return. 

Google is getting more expensive

If you use Google keywords to drive sales on your website, you’ve probably noticed by now that branded keywords are getting more expensive. Merkle reported that as of Q2 2021 CPC increased 35% year-over-year (although last year CPC declined by 21% in the first full quarter within the pandemic).1

As CPCs (cost-per-click) rises, return on marketing spend declines, and the more money you have to spend to achieve the same revenue return. This is because each time CPCs rise, you either have to spend more money to generate the same level of traffic as you did previously or capture web traffic from new sources. Either way, money spent to drive the same behavior (buying in advance) that you created before goes up. CPCs are constantly changing, which makes it hard to predict revenue output when spending marketing dollars to drive direct sales.

Why is this happening? According to Merkle, there have been adjustments to Google’s algorithm that controls the paid search auction, as well as increased competition for online ads as businesses get more sophisticated.

Email is getting less effective

Great emails used to be the marketing tactic that made you stand out from the competition and created buying behavior from your customers. But now, consumers get so many emails curated “just” for them, that it’s hard to set apart your brand from the many others landing in your customers’ inboxes. Simply put, emails get lost in the shuffle because people are overloaded. For example, in a survey, 51% of recipients claim to have canceled email subscriptions because they are receiving too many emails.2

Consumer expectations for email are increasing, and quality is becoming more important than quantity. Due to higher standards across many major ISPs (internet-service-providers), emails sent out to underqualified subscribers may end up in spam rather than reaching an inbox. If you’re spending time and money to craft an email campaign, getting it into the inbox of your customer is a critical first step.

Social is No Longer Free

Once upon a time, social media was essentially considered “free” advertising. The reality today is that social media strategies need to be staffed (by you or your team), and ads need to be paid/boosted. There is no way to get around it – whether you do it, or you hire an agency to do it, money needs to be spent. Paid ads aside, the time spent to manage a social media strategy alone costs time (and time = money).

Additionally, organic reach essentially no longer exists on social media. You are probably already familiar with Facebook’s advertising strategy – you have to pay if you want to engage with your target audience. Organic reach of content published on brands’ Facebook pages has been declining for quite some time. In 2018, Facebook began “shift ranking to make News Feed more about connecting with people and less about consuming media in isolation”, resulting in fewer consumers seeing your organic content.3 

Although spend on Facebook increased 68% year-over-year in Q2 2021, impression growth did not follow the same pattern, up only 14% year-over-year, suggesting increased competition and CPM on the channel.1 Additionally, as the amount of content flooding Facebook has risen, each individual post, from both businesses and individuals, simply get less reach, on average. In turn, each post doesn’t elicit the same purchasing behavior from customers that it once did. 

What to Do About It?

This may seem like a grim outlook on the state of marketing, but anyone who tells you that direct sales are free is telling a tall tale. As direct marketing gets more complex, you may need to adjust your strategy, diversify it, and consider options that deliver a consistent, predictable return on marketing spend, including third parties (assuming there is price parity between your website and those of your partners). More often than not, the cost to market via a third party, whether it’s Booking, Expedia, Getyourguide, Tripadvisor, Klook, Liftopia.com, etc, is consistent and predictable, complementing a more uncertain direct marketing strategy well. In the end, whether someone buys on your website or buys via a third-party, money will be spent to drive the purchase, so finding the most efficient, effective, and low-cost way to do it will be the key to success. 

1Merkle’s recent Q2-2021 Digital Marketing Report

2https://blog.hubspot.com/marketing/why-consumers-subscribe-to-email

3https://blog.hubspot.com/marketing/facebook-organic-reach-declining