The Readout - April 2023

Will Ashton CEO, Nest Commerce

Similar to last spring, brands face a challenging ecommerce landscape, and consumer behaviour remains unpredictable. Brands are responding to the tough economy with very different strategies, and this is leading to wildly different business results. Pandemic favourites like Made.com have collapsed, while other brands such as Nest clients ME+EM and Reiss keep growing.

What’s behind the winners and losers?

Some brands have responded to the crisis by running sales for far longer, driving down basket sizes despite costs increasing. Meanwhile, many brands are overinvesting in bottom-of-the-funnel channels like Search and feed-based ads.

Make no mistake: this is a race to the bottom.

Brands that are thriving in the current environment have this in common: a solid brand and product strategy. They know who they are selling to and how to drive desire in that audience.

Although inflation is slowing in Europe, brands should hedge their bets with an international strategy that derisks global instability. In particular, the US market is holding strong.

We are noticing significantly improved results from Meta, starting in the weeks prior to peak. We expect that improvements in statistical modelling and data signals are driving improved performance. Another factor is strategic. Across our portfolio, we are deploying a full-funnel strategy, driving incremental growth and reducing CAC.

TikTok still offers cost-effective reach and performance. Even if it gets banned, training your team in producing short-form video and managing TikTok campaigns is strategically useful for Reels and YouTube Shorts.

Whether the landscape becomes brighter in the second half of the year – or not – the decisions you make around marketing investment now will shape your brand’s future for years to come.

One year on from the start of the slowdown, ecommerce looks very different. The gulf between brands that have adapted to the new landscape, and those lagging behind, keeps growing wider. Take a deep dive into the trends and opportunities for ecommerce brands in the April edition of the Readout.

Cost of advertising on Meta plummets

During Q4 something unexpected happened: CPM plummeted in the weeks prior to peak. There were a few causes – brands pulling out of the auction, Advantage+ campaigns driving broader demand, and strategies shifting to top-of-funnel. We predicted that Meta costs would stay low into Q1, and this is precisely what happened.

CPM started to sharply increase in spring 2022, which shows no sign of happening this year. In fact, average CPM is 25% lower YoY between March 2022 and 2023, and has been declining WoW.

What’s behind soaring Meta conversion rates?

Average CVR was up by 63% YoY in Q1, a welcome relief in a tougher environment with fewer consumers in market.

This boost can be partly attributed to Meta’s enhanced statistical modelling providing a more accurate picture of attributed conversions. Another factor is strategic, with higher investment in upper-funnel objectives leading to better performance.

Additionally, longer sales may be driving up conversion rates, which may be impacting margins for some brands.

Growth of Reels shows no sign of slowing down

Following a dramatic surge in Reels advertising in Q3 2022, investment in the format shows no sign of slowing down.

Reels spend increased 2% QoQ, which is impressive considering this quarter follows the highly competitive peak season. Meanwhile, Reels spend is up 3,077% YoY since brands started experimenting with the format this time last year.

CPM remains affordable, with a 53% lower cost than non-Reels.

+3,077% increase in Reels ad spend YoY

Reels spend per quarter

Audiences are buying more from Reels

Reels conversions now trail non-Reels formats by just 12%, showing that when a consumer clicks an add on Reels, they are engaged to purchase. However, click-through rates are 65% lower when compared to non-Reels, highlighting that the primary challenge with Reels lies in attracting engagement.

A positive sign that audience behaviour is changing is a 44% QoQ increase in CTR, likely due to improved creative alongside consumers becoming more used to engaging with Reels ads.

-12% conversion rate for Reels ads

Reels vs non-Reels CVR (Q1 2023)

KEY TRENDS:

Awareness ads remain popular despite QoQ fall

Investment in awareness campaigns has remained significantly higher YoY, although it naturally peaked during peak. Spend is considerably higher YoY, although it fell by 25% QoQ.

This shows a consolidation of upper-funnel tactics across our portoflio of advertisers outside of the competitive Q4.

Traffic costs remain far lower than conversion ads, with 71% cheaper CPC. We expect this trend to accelerate as the year continues.

-25% reduced investment in awareness ads QoQ

Catalog ads drive far higher engagement

2022 saw a gradual increase in the cost of catalog ads driven by a wider adoption of the strategy, with CPM up 9% YoY.

Engagement has increased, with CTR up 14% QoQ and 30% YoY. This increase goes against a general trend of falling engagement.

Consumers browsing for deals is likely fueling higher CTR for catalog ads. Despite wider trends shifting towards awareness, catalog remains a useful strategy for driving high intent traffic.

+14% higher CTR QoQ for catalog ads

Video ads now deliver cheaper acquisition

Video ads now offer much cheaper customer acquistion than in 2022.

We are now seeing 35% lower CPA YoY for video ads, driven by lower CPM and higher CVR. Video ads are more engaging than static ads, and work best if you have a story to tell.

How to tackle creative differs significantly between video and static ads. Essential elements include: a strong hook in the first three seconds, snappy and engaging transitions, overlays with your USPs, and a clear and enticing CTA at the end of the video.

-35% cheaper CPA YoY for video ads

Video ads average CPA per quarter

Brand ad spend grows faster than performance

Reflecting the shift in objectives towards upper-funnel, brand ads were our fastest-growing format in Q1 2023, with ad spend increasing by 158% YoY and 6% QoQ.

Creative differs significantly for brand objectives compared to direct response ads. Lifestyle and brand ads often do not feature specific products, instead selling your brand itself to your audience.

Ensuring your ad creative is tailored to your objectives remains important as strategies shift.

70% of brands agree: Google efficiency is

down

We surveyed our audience of ecommerce industry insiders to find out whether Google has become more expensive and less efficient for their brand – and 70% responded agreed that this was the case.

What’s driving soaring CPMs on Google? Our view is that marketers are under pressure to show efficiency through last click attribution, leading to them overinvesting in retargeting on Google. This in turn is increasing auction costs.

In this landscape, it’s evident that measuring beyond last click is a clear competitive advantage.

+70%

of brands responded that Google is becoming less efficient

What works on Google has changed in recent years due to diminished data-visibility and increased automation. Yet, many brands are still running their campaigns based on an outdated playbook.

Audiences can now be much broader than they used to be, as Google’s algorithms’ ability to identify intent has developed significantly. First-party data is crucial, as Google now needs high volumes of the right data to power automation. Predictive modelling is becoming more important for conversion tracking to overcome visibility issues.

Meanwhile, you need to look beyond retargeting to get the best value from Performance Max. YouTube and Display are crucial for growing your audience.

YouTube Shorts is going from strength to strength. Ads that deliver strong results on TikTok and Meta, will perform here.

Creative is increasingly important on Google. With reduced targeting, this is now your best lever for finding your audience.

Head

You need a full-funnel Google strategy in 2023

Jake Turner,

of Search, Nest Commerce

“In lift tests we performed with Nest client Finisterre, we found that shifting just 10% of the budget from prospecting with a performance objective to prospecting with a traffic or brand objective drove a lot of incremental conversions. So, that’s leveraging traffic to drive performance.”

Watch the full interview here.

Arnaud B. Betourne, Head of Strategy at Nest

“New brands that are prospecting and going after new audiences need to be realistic. Even if an audience is desperate for a product like yours, it’s highly unlikely that they will convert the first time they are exposed to a new brand. As high as the buying intent may be, you still need to build and work on brand awareness before you are able to convert.

Although overall consumer confidence looks gloomy in the UK, these figures are very much average. Wealthy consumers will continue to do well driven by a combination of higher asset values and wage inflation amongst the professional classes, while the government is likely to step in to support lower-income consumers who have been more impacted by inflation.

That said, this impact is very hard for brands to evaluate, making it difficult to know how much to invest in their creative and advertising. The solution is to broaden the entire attribution window beyond seven days, to month-on-month, quarter-on-quarter, year-on-year. Additionally, it’s a mistake to look at one platform in isolation.”

Now is actually a really good time to invest when it comes to marketing. At the moment, consumers are a lot more willing to accept price increases than they were in the past. Meanwhile, in an environment where consumer behaviour is fluid and open to change, there is a potential risk that brands who cut back will lose ground.

Watch the full interview here.

"I expect to see an increasing polarisation of the consumer this year."

Ian Whittaker, Managing Director and Owner at Liberty Sky Advisors

“Shifting just 10% of prospecting budget to traffic resulted in incremental uplift.”

“It’s highly unlikely an audience will convert the first time they are exposed to a new brand.”

Lily Thistlewood, Head of Performance Marketing at Adanola

“For some organisations, brand acts as a North Star. It’s a really helpful way for them to make decisions when it comes to things like their product, their marketing strategy and their customer experience.

In simple terms, if the purpose of advertising is about making you famous, then brand strategy is about defining what you become famous for. It should give substance to your message and advertising, it should make your advertising more productive by being really clear about what the message is, and create a message that really resonates with your customers.”

Watch the full interview here.

“Before entering the US, you should do whatever you can to understand your market and the way in which your proposition sits alongside that of the competition. That way, you know exactly where you want to play and where those opportunities are.

Physical retail is essential for brand building, much more so than other categories. There needs to be some kind of physical retail experience, be that a pop-up, for example, it doesn’t necessarily need to be an always-on physical retail investment. However, you need some sort of physical touch point around a very specific local where you’re starting to see a centre of gravity around customer acquisition.”

Watch the full interview here.

“Physical retail is essential for brand building in the American market.”

“Brand strategy is about defining what your brand becomes famous for.”

Zayn Goddard, Co-Founder at Cutler+Goddard

Natasha Billing, Brand Marketing Director and Consultant

BRAND STRATEGY

What’s happening on Meta?

CPM

Globally, CPM has decreased both QoQ and YoY, driven by a 28% decline in the UK. ROW has seen a 29% increase, as international strategies become more popular to derisk economic instability.

CTR

CTR is down both YoY and QoQ, again, due to a decline in the UK. However, a big CVR increase in the UK is counterbalancing this. Conversely, CTR has increased in the US and ROW, mitigating the impact of CPM rises.

CPC

CPC has increased YoY, largely driven by higher traffic costs in ROW, but is cheaper QoQ. The most powerful lever brands have to reduce CPC is creative, which not only improves CTR, but also reduces CPM.

Market breakdown

Opportunities

Full-funnel performance is your best way to reduce CAC

Marketing budgets are getting tighter. Plus your brand is likely under pressure to show direct results from your ad spend.

That’s why investing in upper-funnel objectives is crucial.

Creative is crucial for efficient performance

Creative is the most powerful lever you have for driving ad performance.

In an environment where every penny of marketing spend matters, that makes creative key for improving the return from your ads.

Find out more in our new report: The Reel.

AI set to make a big impact on advertising

The pace of development around AI has been impressive.

There is currently a lot of noise in the marketplace, but no doubt some of the tech will be transformative.

Nimble organisations, rather than large agencies, will be able to deliver the most value. Additionally, vertical specialism will deliver inherent value.

At the very least, your brand should be testing this technology to find use cases that deliver value.

According to our recent study, running brand campaigns in conjunction with performance campaigns leads to significantly improved results.

The key is aligning your objectives and platform to drive incremental results and measure ROI.

Find out more in our report: ‘Don’t fall behind on brand’.

Verdict still out on Advantage+ Shopping Campaigns

Meta has invested significantly into AI with Advantage+ campaigns, driving a broader spread of demand.

We suggest your brand approaches ASC with robust experimentation to work out where it fits into your media mix.

While results may vary, the solution is improving, and is certainly one to watch.

The Nest Index

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+ 80% 1b ecommerce brands prospecting campaigns impressions

Our clients

Nest’s portfolio of ecommerce clients use a range of conversion and catalogbased campaigns, and most run campaigns in several markets. They also skew towards prospecting campaigns, rather than retargeting campaigns, with 80% of total spend in Q1 assigned to prospecting campaigns.

1. What does our agency offer?

• Full-Funnel Performance Marketing

• Brand Marketing

• Creative

• Strategy

2. How can you get in touch?

Want to see how your online advertising metrics measure up? Compare your performance to your peers and discuss your strategy today, get in touch:

info@nestcommerce.co

3. How can you stay up to date?

Brands know more and grow more with Nest’s weekly ecommerce news and exclusive marketing trends. Sign up here

Change your perspective