It’s a new year – and a new landscape for ecommerce. The events of 2022 took the industry by surprise, but brands that have adapted their strategies should have performed well in Q4. Take a deep dive into the trends and opportunities for ecommerce brands in the January edition of the Readout.
Will Ashton CEO, Nest Commerce
Despite continued tremors in the wider economy this year, ecommerce is likely to continue to grow as consumer behaviour shifts online – and strong results in Q4 are a good sign of this trend.
That means brands will need to maximise online channels to maintain profitability.
We are now seeing more conclusive evidence that Meta is returning stronger results than in the initial period following iOS 14. A combination of lower in-platform costs driven by competitors pulling out of the auction and improved conversion rates led to much higher returns this Black Friday. We expect costs on Meta to drop even further this year, making the channel even more efficient.
TikTok is going from strength to strength, and we are seeing the platform deliver strong results for brands targeting older demographics or higher AOVs. If you do not already have a strategy for TikTok, you should be developing one now before platform costs rise.
With a new year comes new marketing budgets. Your brand should be looking for efficiency instead of wholesale cuts, especially in channels where you reach new customers.
One area where improved investment delivers much higher ROI is creative. If your creative is not working for you, then your brand could be wasting a huge percentage of your paid social budget.
We expect to see an increased investment in social branding. It is much cheaper to reach your target audience with video on paid social compared to TV and directly feeds back into retargeting.
There are now clearer signs of what works – and what doesn’t – compared to when the slowdown first hit ecommerce. Success in Q4 is a good signifier that your strategy is working, so don’t lose focus this year.
In the weeks prior to peak, after being higher YoY for most of 2022, CPM dropped beneath levels seen in 2021, and has stayed lower since. While CPM did increase week-on-week during Black Friday, it was to less extreme heights than in 2021.
This decline is likely due to a combination of lower competition due to brands pulling back from the auction, strategies shifting to top-offunnel, the proliferation of Advantage+ shopping campaigns driving a broader spread of demand, and Meta adding new inventory for Reels.
Conversion rates started to increase dramatically around the same time period that CPM fell, and again, has remained high since. On Black Friday itself, we saw a 47% higher CVR YoY, driving 44% lower CPA and 71% increased ROAS.
We expect that this is due to improvements in statistical modelling and data signals driving improved performance and reporting. An additional cause may be changing consumer behaviour as more shop online due to the rising cost of living.
Spend on Reels increased by 18% QoQ, and a massive 4000% YoY, as the trend towards short-form video accelerated in Q4. Although CPM has jumped 115% YoY on Reels, the format remains 39% cheaper compared to non-Reels, with similar CPMs to TikTok. Short-form video is proving to be more engaging than the traditional feed and therefore more difficult to draw consumers away through advertising. That said, there are strategies that work with Reels.
Conversion rates are now just 15% lower on Reels compared to non-Reels formats, showing strong intent and how the placement delivers for social commerce. The key to making this strategy work is to understand where Reels fits in the funnel and having the right creative.
With lower CPMs, Reels presents an opportunity for awarenessbased activity. Lofi creative is essential to the success of shortform video and provides more subtle product discovery.
Investment in upper funnel objectives on Meta such as brand awareness or traffic increased by 298% QoQ and 179% YoY in Q4. This growth been fueled by a combination of brands looking to drive more efficient spend and changing marketing strategies since iOS 14.
With 56% lower CPM when compared to conversions ads, these strategies are a powerful way to get your brand in front of your potential future best customers in a more competitive landscape.
Catalog ads remain the best strategy for targeting your audience. By focusing more on in-platform signals to guide optimisation, dynamic ads for broad audiences and dynamic product ads can overcome issues with signal noise.
The end result is far higher engagement than other formats.
Click-through rates for catalog-based ads were 126% higher than conversions ads and 121% higher than awareness ads in Q4.
We surveyed our audience of paid social advertisers to find out what percentage of their budget was invested in creative.
Interestingly, there was a polarisation between brands spending either a very small percentage of their budget, with 39% spending less than 2%, or a significant amount, with 23% spending more than 10%.
With great creative driving down CPA, investing in creative is a key area for driving efficient results this year as the ROI is significant.
It comes as no surprise that Sale/Offer messaging outperformed all other messaging in Q4, with 38% higher than average CVR.
In the highly competitive peak season, Black Friday specific creative reliably delivered higher conversion rates compared to other messaging which stood out less than usual in the feed.
We also saw that text-only ads focusing on discounts drove strong results in Q4, with 41% higher CVR and 18% higher ROAS.
The key selling point for TikTok is low cost, high reach – but how did that look in the most expensive period of the year, Black Friday to New Year?
Across UK traffic activity, TikTok CPM was at either half or less than half of Meta CPM.
As 2022 came to a close this cemented TikTok’s status as the channel for brand investment, allowing us to reach the highest number of people with 53% cheaper CPM during the period.
TikTok CPMs were relatively stable throughout peak but started to decline in the period following Christmas, dubbed ‘Q5’. Meanwhile, CTR increased, driving much more efficient traffic activity, with 31% lower CPC than the December average.
As the platform matures and CPMs increase, brands should make sure they adopt seasonal strategies to take advantage of opportunities like this period, as it is definitely undervalued by advertisers on TikTok.
“Brands who do this will win in the long term.
It requires courage, it requires bravery, and it requires an open-minded CFO and board who are going to back you and support you.”
Watch the full interview here.
“Although overall consumer confidence looks gloomy in the UK, these figures are very much averages. 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 lowerincome consumers who have been more impacted by inflation.
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.
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.”
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."
“All
Bronwen Foster-Butler, Chief Marketing Officer at Finisterre
“I expect to see an increasing polarisation of the consumer this year.”Ian Whittaker, MD and Owner at Liberty Sky Advisors
“We are already seeing this trend play out already, with some brands like Reiss coming out of the pandemic stronger than ever with an expanded product range, and others like Made.com banking on their pandemic growth continuing and eventually going into administration. With compounding supply chain issues, this divergence will only continue.
Marketers should also realise the responsibility of their role. We have so much scope to shape what people think is desirable, what people want to wear, and what people want in their homes. By giving sustainable brands an unfair advantage, we can reduce the impact of our sector on the climate.”
Watch the full interview here.
“Ecommerce suffers from customer experiences that are pretty routine, and there is a real opportunity to make online shopping more exciting. D2C brands have been slower to adopt the advantages of this strategy compared to multi-channel brands. The conversation around brand versus performance at the moment is a signal of this but many have this all wrong. Really, everything is brand, and everything is performance.
Most brands should be spending more on creative this year. The return on investment here more than pays for itself, while brands who aren’t prioritising creative are likely wasting huge amounts of their paid social budgets.”
Watch the full interview here.
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CPM CPM initially increased in the first half of Q4 but fell in the weeks leading up to peak. CPM is now lower YoY, particularly in the UK. However, the US remains more expensive than other regions, and is up 38% YoY.
CTR CTR reduced 2% QoQ and 5% YoY. Although this isn’t a significant decline, it may be due to increased discounting making it more challenging to drive engagement. More ad spend shifting to Reels is likely also a factor.
CPC CPC increased both YoY and QoQ, mostly driven by a decline in click-through-rates. The key lever for improving CPC remains investment in creative – which not only improves CTR, but also reduces CPM.
Creative is your best bet for driving efficient performance on paid social in 2023
In Q4, Nest Studio creative delivered 57% higher CTR, 48% cheaper CPA and 19% higher ROAS when compared to brand-produced creative.
Performance brand is crucial for affordable CAC
In the current environment, cost-effective marketing is more important than ever.
In a recent study, we found that investment in just 10% of traffic activity alongside performance activity drives 28% lower CPA on Meta.
Find out more in our full report.
Brands won’t be able to ignore TikTok this year
Will 2023 be the year that brands holding out finally launch on TikTok?
With reduced marketing budgets, there are risks in adopting a new channel.
On the other hand, with an evolving audience, more sophisticated products and more brands advertising on the platform, it’s likely that TikTok will finally become more expensive.
One thing is for certain: brands can’t keep avoiding taking a position on TikTok.
In the current environment, every penny of media spend matters. That’s why efficient creative is so important.
Meet Nest Studio. To fill this gap in the market, we now offer campaign management as well as standalone creative that is native to Meta or TikTok.
This year could be a turnaround for Meta
2022 was a challenging year for Meta, but there are some green shoots that things may be turning around for them.
Recent affordability and improved conversion rates will help brands remain loyal to the platform – and its focus will likely be on further improving its algorithm this year.
Following a series of tests for Advantage+ campaigns, we are seeing stronger results from our existing strategies.
The Nest Index is a paid social 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.
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 78% of total spend in Q4 assigned to prospecting campaigns.