The Readout - July 2023

July 2023

Ecommerce strategy and insights report. Navigating Meta and beyond.

The Readout – July 2023

nestcommerce.co

In this issue

2

Introduction

3

Key trends

4

H2 strategy

11

What’s happening on Meta?

21

About the Nest Index

23

The Readout – July 2023

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Introduction

As we entered 2023, many brands were planning for the worst. Now, with peak just a few months away, the landscape is mixed but there are green shoots, with improved results on Meta. Take a deep dive into the trends and opportunities for ecommerce brands in the July edition of the Readout.

Will Ashton CEO, Nest Commerce

Projections from the start of the year that we would see a sharp reduction in consumer spending have been proven wrong. Despite this, H1 results for retailers were mixed. Many brands are still doing very well. However, the online retail boom of the pandemic years is an increasingly distant memory.

Unlike this time last year, when the environment was far more unpredictable, there is now a clear playbook for success.

While growth isn’t easy in the current landscape – it is out there for the taking.

We will explore more on this in our new H2 strategy pack.

Challenges from the macro economic situation and targeting issues mean that

3

investing in upper-funnel and creative are now essential for success online.

We’ve seen a rebound in results in EU markets, with much higher returns compared to this time last year.

Meanwhile, Meta is performing better than at any time since iOS 14. We will delve into what is driving lower media costs and improved performance on the platform later in the report – but it is a welcome respite for brands that are feeling the squeeze.

We will be hosting a breakfast roundtable on Meta strategy for Q4 on 19th July in our London office for any brands that want to discuss these results in person.

Advancements in AI are having a big impact on media buying. Nimble organisations that are open to testing have the upper-hand here compared to large agencies.

We have more confidence in performance this Q4 compared to last year, with more than a year’s worth of data since the downturn.

If the economy recovers next year, then investments made in advertising now will be even more important. Either way, there is still a working route for growing your brand.

The Readout – July 2023

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KEY TRENDS: META

4

KEY TRENDS: META

Cost of Meta ads reach a three-year low

Conversion rates have recovered since iOS 14

Meta CPM keeps getting lower and lower. After two consecutive quarters of declining CPM, it is now 41% cheaper YoY.

Conversion rates on Meta are experiencing a rebound with a 48% increase YoY. This uptick can be partly attributed to improved attribution due to Conversions API and enhanced data modelling. However, there is evidence that conversions themselves are higher too.

Advertisers are benefitting from reduced competition on the platform and a shift back to offline following the pandemic. Increased supply of impressions due to Reels, and greater adoption of broad audiences and ASC, are further reducing CPM. Combined with improved CVR, this is driving 32% lower CPA YoY.

Meta has made improvements to its algorithm since iOS 14.

Combined with an increase of deals and reduced competition, this could be driving higher CVR for the remaining advertisers.

-41%

+48%

lower CPM YoY in Q2

2021 CPM

2022 CPM

2022 CVR

2023 CPM

Jan

Jan

Feb

Mar

Apr

May

Jun

Jul

higher conversion rates YoY in Q2

Aug

Sep

Oct

Nov

Dec

Feb

Mar

Apr

May

Jun

2023 CVR

Jul

Aug

Sep

Oct

Nov

Dec

The Readout – July 2023

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KEY TRENDS: FORMATS

5

KEY TRENDS: FORMATS

Reels continues its dramatic rise

More users than ever are buying from Reels

Reels spend continues to climb QoQ, with a 27% increase in spend between Q1 and Q2. It is also an incredible 1,900% higher YoY, showing how quickly it has become a key part of advertiser’s approach to Meta.

Conversion rates for Reels increased by 36% QoQ in Q2. This means that Reels converted better than both Feed and Stories, with an 8% higher CVR when compared to non-Reels ads.

Despite more brands adopting short-form video, CPM remains low, with a 25% decline QoQ. Considering that users are spending more time watching Reels, Meta will only continue increasing impressions to the ad format. If it isn’t a part of your Meta strategy, it should be.

CTR for Reels continue to trail behind other formats, averaging 67% below other formats, highlighting the challenge in driving engagement with the format. Consequently, Reels have lower ROAS than other formats. However, this doesn’t tell the full picture of their positive impact due to incrementality.

+27%

+8%

increase in Reels ad spend QoQ

Reels spend QoQ

Q2 2022

higher conversion rate for Reels ads vs non-Reels ads

Conversion rates by format (Q2 2023)

Q3 2022

Q4 2022

Q1 2023

Q2 2023

Reels CVR

Stories CVR

Feed CVR

The Readout – July 2023

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KEY TRENDS: AUDIENCE

6

KEY TRENDS: AUDIENCE

Brands spend more on interest audiences

Catalog ads deliver far higher engagement

Spend for interest-based targeting has increased by 41% QoQ and 22% YoY. These ads delivered better ROAS than other audiences, with 9% higher ROAS than broad and 44% higher than lookalike.

Although we’ve seen a decline in CTR QoQ for most objectives, catalog ads bucked this trend with a 21% increase QoQ.

One theory is that, as interest behaviour is on platform, Meta is more accurate at targeting here. Many brands have also shifted their strategies to broad since iOS 14, meaning CPM is 71% more expensive for broad when compared to interest. Additionally, there is a powerful opportunity with interest to deliver more relevant creative.

+41%

Q3 2022

Additionally, dynamic ads for broad audiences and dynamic product ads are powerful for overcoming issues with signal noise. This combination of high engagement and conversions mean that catalog ads delivered 52% higher ROAS QoQ.

+21%

increase in spend for interest audiences QoQ

Interest-based ad spend per quarter

Q2 2022

Consumers are becoming more price savvy, so catalog ads are a powerful way to showcase deals to your audience.

higher CTR QoQ for catalog ads

Catalog vs Conversions vs Awareness CTR (Q2 2023)

Q4 2022

Q1 2023

Q2 2023

Catalog CTR

Conversions CTR

Awareness CTR

The Readout – July 2023

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KEY TRENDS: AD CREATIVE

Video ads keep driving better results With the increasing popularity of Reels and changing audience behaviour, we have seen a gradual improvement in performance for video ads over the past four quarters.

Advertisers are changing their strategies in response, and we are seeing 53% higher spend YoY for video ads in Q2, with a 55% lower CPA YoY and a dramatically 84% higher ROAS YoY. It’s important your ads have video’s strengths in mind. Your creative should include a hook, as well as engaging transitions and USPs.

+84%

higher ROAS YoY for video ads

Video ads average ROAS per quarter

Q2 2022

Q3 2022

Q4 2022

Q1 2023

Q2 2023

NEST STUDIO OPTIMISED AD FOR CREW CLOTHING

The Readout – July 2023

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KEY TRENDS: AD CREATIVE NEST STUDIO OPTIMISED AD FOR DECATHLON

Strong creative delivers 61% lower CPA Adoption of Nest Studio has increased by 122% YoY, as brands increasingly embrace paid-social-first creative. The results speak for themselves.

In Q2, Nest Studio-produced creative saw 31% higher CTR and 32% higher CVR, in addition to 33% lower average CPMs, when compared against brand-produced creative. This translates into 49% cheaper traffic costs and 61% lower CPA. Investing in creative clearly goes a long way in driving efficient spend.

-61%

CPA for Nest Studio creative vs brand-produced creative in Q2

Awareness spend per quarter

Q4 2021

Q1 2022

Q2 2022

Q3 2022

Q4 2022

The Readout – July 2023

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KEY TRENDS: GOOGLE

KEY TRENDS: GOOGLE

Google CPMs are now higher than Meta

Three creative trends for Google

Unexpectedly, the cost of Meta started falling throughout the first half of 2023, pushing average CPMs to a level 8% lower than Google’s in June, as aggregated data from Nest reveals.

PMax has effectively levelled the playing field for media buying on Google. Consequently, creative is now more important to stay competitive.

Simultaneously, we’ve seen a steady climb in Google CPM, with a 34% increase between January and June. Rising competition on Google is likely due to strategies shifting to DR and lower-funnel.

YouTube remains Google’s best channel for reaching new audiences. Instead of recutting TV ads, any creative you deploy here should be YouTube-first. There is an opportunity to leverage the delay to skip ads when planning the hook for your ad.

We recommend adopting a full-funnel performance approach to combat rising costs, leveraging Display, Discovery and YouTube.

-8%

lower average CPM for Meta in June

Google CPM

Jan

Feb

Mar

Creative best practices on Shorts are similar to TikTok and Reels.

This creates a lower barrier to entry for brands already delivering strong results from short-form video on these platforms.

Meta CPM

Apr

May

Many advertisers are underestimating YouTube Shorts. Google announced in February that Shorts generated 50 billion daily views, compared to 140 billion daily views on Reels.

Jun

9

The Readout – July 2023

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KEY TRENDS: SURVEY

10

KEY TRENDS: SURVEY

Did brands perform as expected in H1?

31% of brands surveyed use measurement tech

We surveyed our audience of ecommerce insiders to find out how brand’s expectations for H1 performance compared to reality.

As part of our survey, we asked brands which measurement solutions they use to track attribution.

Despite economic uncertainty, 76% responded that performance or bottom-funnel objectives met or expected expectations in H1, compared to 64% for brand or upper-funnel objectives.

Unsurprisingly, 100% of surveyed brands leveraged last click/ GA as one of their measurement tools, as the simplest solution.

Meanwhile, 64% leveraged platform proxies, while 35% implemented customer reported attribution.

Looking forward, 68% of respondents intended to invest in new marketing channels in the next 12 months, showing the importance of channel diversification in a competitive environment.

+68%

of brands surveyed plan to invest in new marketing channels

For more comprehensive measurement, 31% leveraged measurement tech, and 3% had implemented MMM.

+31%

of brands surveyed use measurement software

Which measurement solutions do you use for your brand?

Results from our survey Ecommerce Marketing Survey of 120+ paid social advertisers

AOV month on month

BETTER

Last click/GA

WORSE LESS THAN 2%

MORE THAN 10%

WORSE

BETTER AS EXPECTED

CAC management/ % of revenue Customer reported Platform proxies

5-10%

AS EXPECTED

Tech

2-5%

Apr 21 Have brand upper-funnel Have performance and lower-funnel What and percentage of your ad spend is invested in creative? performed well for you in H1 2023? performed well for you in H1 2023?

MMM

Jul 21

Oct 21

Jan 22

Apr 22

H2 strategy pack

The Readout – July 2023

H2 STRATEGY

A winning international strategy derisks economic instability As the economic climate in the UK remains uncertain, an increasing number of brands are looking to scale internationally.

Two of the most attractive markets are the US and EU. The most common mistake brands make is to try to enter the US gradually with no strategy. With much higher advertising costs, you will blow your budget in no time.

Strategies that work for entering the US market include: targeting either the East Coast or West Coast; a city-by-city approach starting with bigger cities across the country; carrying out market research to discover areas with similar demographics to your current customers; and an omnichannel strategy where you open stores or pop-ups where you are targeting.

The EU is a very different beast – with a diverse cultural landscape and distinct consumer behaviours. Having the right cross-border and localisation strategies is crucial. For instance, it is possible to enter most EU markets without a localised website or payment methods, but this is not the case in the single market’s two biggest nations: Germany and France.

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The Readout – July 2023

nestcommerce.co

H2 STRATEGY

We recommend upper-funnel tactics at every stage of growth Since the onset of the internet, performance marketing has allowed for highly targeted marketing campaigns – and is behind most brand’s online growth. However, iOS 14 greatly impacted targeting, narrowing attribution windows and reducing the quantity of tracked conversions.

In an environment where quick results are few and far between, ROI has to be measured differently, and this has led many marketers to return to brand.

Upper-funnel tactics are a powerful opportunity to drive incremental reach and generate new customer demand. We suggest a growth strategy that leverages full-funnel activation alongside brand solutions.

Managed correctly on Meta, cheaper traffic achieved through investment in brand will feed into your retargeting campaigns, resulting in cheaper CPA. The wider and less competitive audience size, in addition to additional learnings, allow the algorithm to learn faster. Brands that continue to only invest in performance will limit their growth and will see increased CAC.

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The Readout – July 2023

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H2 STRATEGY

Not knowing where your customers come from is harming your brand There are many measurement solutions available to brands.

Which one is right for you depends on your level of spend.

One solution you should avoid is last click measurement, which misrepresents the reality of your customers journey and undervalues discovery channels. This will harm your growth in the long-term (and likely in the short-term, too).

For smaller brands, your best bet is a combination of platform proxies – where you adjust your in-platform KPI against statistical analysis and incrementality testing – and channel lift tests. This is what we do for our clients.

Once your brand reaches a higher level of spend, consider investing in measurement software such as Fospha. These solutions are more accurate than manual solutions, and enable you to test and scale new channels.

In addition to this, we also suggest Market Mix Modelling for a longer-term view. MMM uses historical data, marketing, pricing, market conditions to look for patterns that can power future decisions.

ILLUSTRATION OF A CHANNEL LIFT TEST

The Readout – July 2023

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15

H2 STRATEGY

Creative strategy is key to scale your brand cost-effectively Having the right creative strategy is crucial for efficient media buying. With a decline in data availability and growing reliance on Meta’s algorithm rather than manual targeting, creative has become the most significant lever brands have for optimisation and performance. Increasingly, this is true for Google, too.

Most brands now recognise this. However, this has led to creative production becoming increasingly commodified with solutions of highly variable quality. Ensuring you have the right partner here is important. After all, you will be relying on this creative to optimise the results of your ad spend.

Proximity to media buying is especially important, as your brand needs creative that is produced with the platform in mind for performance. Similarly, it’s important that your partner knows how to structure creative tests and implement those learnings.

Furthermore, understanding the role of different types of creative in different parts of the funnel is key. Whether your ad is for direct response or brand awareness, your creative needs to be tailored to your objective to deliver the best results.

The Readout – July 2023

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H2 STRATEGY

Winning on just Meta or Google isn’t enough to scale anymore For most of the past decade, Meta and Google dominated the digital ad space. However, the emergence of new channels like retail media, as well as younger demographics switching to TikTok, means that for the first time since 2014 this is fading.

Increasingly, users are splitting their time and attention between multiple channels. This brings both challenges and opportunities.

While each channel has its own barriers to entry, these are steadily diminishing as platforms automate more elements of media buying. Meanwhile, you can apply best creative practice from formats like Reels to TikTok or YouTube Shorts.

Ensuring that you are playing to the strengths of each channel, and that your strategy for each is working in tandem, is key.

This is where having the right channel diversification strategy comes into play.

Knowing which channel split is right for your brand depends on your AOV and the demographics that are targeting. That said, you should definitely be testing on other channels, especially discovery channels like TikTok, if you want to grow your brand.

NEST STUDIO OPTIMISED AD FOR REISS

The Readout – July 2023

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H2 STRATEGY

Finding new audiences is crucial to keep growing When tactics and channels that used to drive growth start delivering diminishing returns, or if your ROAS is flatlining while your CAC skyrockets, you likely have an audience diversification problem.

No matter how good your set-up is for one tactic or channel, eventually you will exhaust its potential. In a competitive environment, with fewer consumers in market, having the right strategy to find new audiences becomes crucial.

Once you have accepted your brand needs to find new audiences, there are different approaches that we suggest: • • • •

finding similar audiences on new channels widening your brand’s appeal to attract different audiences developing your product for new audiences scaling your brand into new geographies

It’s likely that you are only hitting a small percentage of your potential future audience. The opportunity here is significant, while the risk of overrelying on a single demographic is greater than ever in the current climate.

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The Readout – July 2023

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H2 STRATEGY

A long-term approach will reduce customer acquisition costs Despite recent reductions in Meta CPM, reduced engagement with online advertising since the pandemic years and a more unpredictable consumer environment means that many brands find it harder to meet their target acquisition costs.

Meanwhile, brands desperate for a quick cash infusion are overindexing in retargeting and Search, and not doing the prospecting required for sustainable growth. If this sounds familiar, it isn’t too late to turn around your brand’s fate.

Blended account incremental CPA with/without 10% traffic activity

28%

CPA without 10% traffic activity

Lower CPA

CPA with 10% traffic activity

Blended account incremental ROAS with/without 10% traffic activity

There are tactics that will reduce your CAC. Investing in upperfunnel objectives in tanden with performance is key, while having the right measurement solutions in place will help you steer this investment.

19%

Higher ROAS

According to aggregated Nest data, investment in as little as 10% of traffic activity drives 28% lower incremental in-platform CPA and 19% higher incremental ROAS when compared against unexposed audiences.

When it comes to brand, even a comparatively small investment will have a significant impact on CAC.

ROAS without 10% traffic activity

ROAS with 10% traffic activity

The Readout – July 2023

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H2 STRATEGY

This is your moment to ensure you have the right strategy for peak With peak just a few months away, it’s essential that you have the right approach to perform. Your brand needs to act now if you want to succeed.

Meta CPMs are at a three-year low, and conversion rates keep improving. You should take this opportunity to ensure that your creative is delivering and to test new concepts.

Shoppers start buying earlier every year, so you should take advantage of lower CPMs in the weeks leading up to Black Friday to reach customers early and build momentum.

Having a strong foundational set up that aligns with Meta best practices will mean you will deliver the best Q4 results.

Over Black Friday weekend, you should focus on maximising purchases. Your return will outpace the cost of higher spend.

We can say with more certainty this year that Meta will deliver strong results during Q4.

There is still plenty of time now to reverse bad strategy. That may not be the case come November.

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The Readout – July 2023

Want to know more?

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Discuss your H2 strategy with our team: Want to discuss the findings of the report and what it means for your H2 strategy?

Our Head of Strategy is available for ten strategy calls this month. These sessions are first-come, first-serve. You must be an ecommerce marketing leader to qualify.

Don’t miss this opportunity to discuss your H2 strategy with an expert. Get in touch today to secure your meeting: info@nestcommerce.co

Visit our office to explore the latest trends in person: We will be hosting a breakfast roundtable on Meta strategy on 19th July in our London office.

Here, we will discuss the findings of the report, and show you how to capitalise on the current opportunity we are seeing on Meta.

Find out more here

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The Readout – July 2023

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21

What’s happening on Meta?

CPM CPM continues to decline QoQ, with the UK in particular drastically lower than this time last year. The US bucks this trend, with a more resilient economy and therefore competitive advertising landscape.

Q2

Q3

2022

-29% -13%

Q4

Q1

Q2

CTR Engagement has declined YoY in the UK and ROW. This is impacting traffic costs, with CPC up in these markets. With more impressions shifting to video, creative is more important than ever for driving CTR.

Q2

Q3

2022

2023

YoY QoQ

-23% -35%

Q4

Q1

Q2

CPC CPC is up both QoQ and YoY. Despite rising traffic costs, a greater increase in conversion rates means that CPA is down 31% YoY and 15% QoQ. In other words, traffic is more expensive but has higher purchase intent.

Q2

Q3

2022

2023

YoY QoQ

+9% +11%

Q4

Q1

Q2

2023

YoY QoQ

The Readout – July 2023

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22

Market breakdown UK CPM

-37% YoY -14% QoQ

CTR

-36% YoY -15% QoQ

CPC

-2% YoY +2% QoQ

US CPM

ROW +55% YoY

CPM

-9% QoQ CTR

+120% YoY

-13% QoQ CTR

-23% QoQ CPC

-30% YoY +18% QoQ

-22% YoY -25% YoY -29% QoQ

CPC

+3% YoY +21% QoQ

The Nest Index The Readout – July 2023

nestcommerce.co

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The Nest Index is our online advertising index that draws on aggregated data from our portfolio of ecommerce clients. It’s used by our teams daily to benchmark your brand’s performance and uncover what’s working, what’s not, what you should do differently and where you need to be bolder.

40+

ecommerce brands

75%

prospecting campaigns

1.2b

impressions

The Readout – July 2023

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Our clients Nest delivers performance, brand and creative campaigns for our portfolio of ecommerce clients across all major demand generation and demand capture channels. Most of our clients run campaigns in several markets.

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