What’s Going On Out There (Week 2)?!

Mar 24, 2020 | SF News

Hi All-

It’s the end of our 2nd week of viruses in Ad land.  Time for our second edition of “What’s Going On Out There?”

I want to address two things:

  1. What are we seeing for ad performance across our clients?
  2. What do we suggest as the optimal strategy right now?

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(TL;DR: If you only read part of this email, read “Coping Strategy #1” towards the bottom)

What is ad performance like right now?

Cost Per 1k Impressions (CPM):

  • What are we seeing?
    • You can see CPM’s are down by about 1/3 over the past 2 weeks
    • Last week’s fall was faster than the week before.
  • Why are we seeing this?
    • An increase in “supply” because more people are using FB for more minutes
    • A decrease in demand, because many advertisers are cutting budgets
  • What happens next?
    • I think this trend will continue for the next week or two, and we expect the rate of decline in CPMs to accelerate.

Click Through Rate (CTR):

  • What are we seeing?
    • CTR is down nearly 20%
    • Retargeting is down a bit less than other campaign types.
  • Why are we seeing this?
    • Slightly lower customer interest in products beyond immediate necessities
    • People are on Facebook trying to distract themselves, not to shop.
  • What happens next?
    • We expect this trend will continue over the coming weeks.

Cost Per Click (CPC):

  • What are we seeing?
    • CPC system wide is down about 10%
    • CPC are down about 20% for retargeting
  • Why are we seeing this?
    • Because the drop in CPM (~30%) is larger than the drop in CTR (~20%)
  • What happens next?
    • Likely to continue for the medium term

On-Site Conversion:

  • What are we seeing?
    • On-site conversion rates have moved down VERY significantly, on average 55%
    • This is by far the largest change we have seen in the entire funnel
      • Retargeting conversion rates are down 50%
      • Retention conversion is down 67%
      • Prospecting conversion is down 31%
  • Why are we seeing this?
    •  Users are going to the sites, but they are not buying, they are not converting when they get there.
    • We are seeing a big drop in customer engagement on-site because while customers are bored and have more time, they are also distracted and concerned.
    • We are witnessing customers clicking around to burn time, not really shopping.
    • This may also be a wealth impact from less affluent customers- if you just lost all your hours at your job, you may be browsing more and buying less.
  • What happens next?
    • Again, our best guess is this trend continues
    • The wealth impact will only become more pronounced as layoffs continue and economic uncertainty mounts.

Cost of Customer Acquisition (CAC)

  • What are we seeing?
    • Overall CAC has increased 45% in the past 2 weeks
      • Up 20% in prospecting
      • Up 37% in retargeting
      • Up 200% in retention
  • Why are we seeing this?
    • This increase in CAC is being driven by this large drop in on-site conversion
    • Remember: CAC = CPC / Conversion rate.
    • We know CPC is down 10% and conversion rates are down 55%
    • So the fact that conversion rates are down much more than CPC are down means CAC is going up.
  • What happens next?
    • If advertisers don’t adapt, then we believe this trend will continue.
    • But if advertisers do adapt their strategies, we may be able to take advantage of these lower CPCs to get performance back to where we want it to be.

How can we improve performance?

Strategy #1: Take advantage of “Browsy” behavior

  • Key Data points:
    • Customers want to browse right now.
    • CPC is down, but conversion is way down.
    • People are spending lots of time on-site but are mostly just clicking around without buying.
  • What worked for one client:
    • We have an ecomm client that has been running a top of funnel “product view campaign.”
    • This campaign was originally designed to build up a lot of product views, not to encourage actual checkouts.
    • It has suddenly become a superstar!
  • Observations:
    • Remember this campaign is optimized for product views, not for checkouts.
    • As COVID-19 hit, cost per product view dropped by 2/3 (this is the “browsy” behavior we are talking about)
    • But also note that ROAS went up 8x
    • This is now one of the highest ROAS campaigns for this marketer, despite the fact that it is NOT optimizing for ROAS.
  • What this means for other advertisers:
    • Customers want to browse right now. GIVE THEM WHAT THEY WANT.
    • Use cheap clicks to get people on to the site (ie. a product view campaign, or a blog content campaign).
    • Then build an audience of product browsers
      • Harvest them now, or harvest them later (remember you have 180 days to harvest audiences, which is forever).

Strategy #2: Shift to where the performance is least impacted:

  • Key data points:
    • CAC is up 20% in prospecting
    • CAC is up 200% in retention, and 40% in retargeting
    • Counterintuitively, the better the customer group, the worse the performance.
  • Strategy suggestion
    • Your old rules of thumb about what % of budget goes to what campaign should be radically reconsidered.
    • Move budget to where performance is.
      • If prospecting is only a bit worse than normal, shift budget to prospecting.
      • If retention is really that bad, shift budget  away from retention.

Strategy #3: Try normal tools to increase conversion

  • In general, on-site conversion can be increased via:
    • Lower friction checkouts
    • Promotions
    • Limited-time offers
  • We think this may be a good time to try a systemwide promo (“March only, 20% off!”)
    • We don’t have a client who has tried a new, general promo, but we think it should work to improve conversion.

This is what we are seeing in FB/IG.  What are you seeing on your other platforms?  Any other tips or tricks to share?

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