Peak season is approaching. After a relatively calm Q3, the landscape is becoming competitive again – but how much will this Q4 look like in previous years? Take a deep dive into the trends and opportunities for ecommerce brands in the October issue of The Readout.
Will Ashton CEO, Nest Commerce
Following several months of reduced competition on Meta as some retailers saw their marketing budgets slashed, competition will increase again in Q4 as brands fight to finish the year in the black.
The impact of cash constriction from VC-backed DTCs has passed. Healthier businesses are continuing to spend well, those who are struggling are not.
The rising cost of living will be seen in changing consumer behaviour – but to what extent will depend on your target audience. An additional curveball this year is that Black Friday coincides with the World Cup, making the environment even more competitive.
Intent to purchase will pick up early, continuing a trend seen in previous years.
This makes October a useful indicator for your Black Friday results. Despite increased bargain hunting from consumers, brands should ensure discounting is strategic and avoid a race to the bottom.
The cost of Meta is up YoY – but has been declining since it peaked in April. We expect that it will continue to decline in 2023, creating opportunities to steal market share.
Meanwhile, creative remains the best tool advertisers have for optimising performance. Investments in ad spend efficiency here will quickly pay off in higher return on investment.
This will be an interesting quarter for TikTok. Experimental ad spend is often the first hit when the economy becomes challenging. However, the channel is increasingly a mainstay in paid social strategies, as evidence emerges that it works for older demographics and brands with higher AOVs.
Companies win during recessions when they don't retreat. It is a difficult environment for planning, but results during Q4 will inform strategies for next year as consumer behaviour becomes clearer.
This quarter could define your 2023, so make sure you approach it right.
Reels ad spend and CPM have increased as Meta takes on TikTok.
The shift towards short-form video on Instagram and Facebook can be seen with significant changes in the UI of both platforms as well as advertiser behaviour.
Spend increased by 754% between Q2 and Q3, while CPM increased by 31%. Meta will only continue to push impressions to Reels, so brands should be testing here.
Reels ads still remain cheaper than non-Reels – however, the format is proving more difficult to drive engagement through.
Click-through rates are dramatically higher across other placements, with average CTR being 387% lower for Reels.
Despite cheaper CPM, this still means that CPC is 71% higher when advertising on Reels. Despite this, Meta is investing heavily in the format, so this is likely to improve over time.
click-through rate for Reels ads
Reels
More than a year since iOS 14, there are now clear strategies for reaching your audience despite lingering issues with signal noise.
Catalog ads are now the most effective strategy in driving engagement and conversion.
Strategies such as dynamic ads for broad audiences and dynamic product ads drive much more efficient performance than average, with a 44% higher CTR and 9% higher CVR than standard ads.
Investment in demo-based audiences has grown significantly, with spend increasing 56% YoY and 16% QoQ.
The result of this is better engagement and higher efficiency, with a 72% and 125% lower CPC compared to interest and lookalike audiences respectively.
Despite lower CVR for broad audiences, reduced traffic costs mean they drive higher efficiency and are more scalable.
Conversion rates for video ads were 9% lower than static ads in Q3 – closing the gap from a 33% difference in Q2.
As the popularity of short-form video continues to grow, brands are unlocking video ads to deliver better results.
Performance is largely driven by feed and stories rather than Reels for now, but audiences are increasingly responding to these ads as user behaviour changes.
'Quality' messaging delivered the highest return on ad spend and average order value in Q3. In the current landscape, consumers are willing to spend more for purchases that last.
'Sale' messaging also delivered much higher ROAS. As we enter Black Friday, brands should test different creatives involving sales to stand out from the pack.
Meanwhile, 'sustainability' messaging delivered the highest conversion rates, delivering results for eco friendly brands.
We surveyed our audience of ecommerce industry insiders for their planned marketing spend for next year.
Across most channels, the majority of brands planned to either maintain their spend at similar levels to 2022 or increase it.
In particular, brands surveyed planned to increase TikTok spend, with 85% increasing their budget. Meanwhile, 39% of brands planned to increase their Meta spend, with 31% reducing spend.
The biggest shift for advertising on TikTok in Q3 came during the platform's commerce keynote speech, where the platform announced an overhaul of its current formats, with video shopping ads launching to replace various previous formats.
This is TikTok refining and streamlining its ecommerce offering, with more integrated dynamic and catalogue features, which should also help advertisers manage creative volume.
85%of brands plan to increase TikTok ad spend in 2023
Although typical TikTok creative remains more authentic and unfiltered than other platforms, we are seeing both paid and organic content become more polished, as creators and advertisers better understand TikTok’s editing tools.
The platform’s editing offering has also evolved, with stickers, polls and countdowns among new options available.
A newly popular ad style we have seen emerge is the use of comments as stickers on ads, as a direct way to answer a question in the video or demonstrate how to use a product.
This is what TikTok is all about, brands interacting with their customers and building communities.
Ruby Broad, TikTok Specialist, Nest Commerce
CPM declined 11% QoQ,
increased significantly by 45% YoY.
expected during the summer. The US is an outlier and CPM increased by 18% QoQ here as its economy remained more competitive.
declined slightly by 2% QoQ, while it has increased by 38% YoY. Similar to CPM, the US saw the largest increase in CTR with a 48% rise QoQ and 68% YoY, showcasing stronger consumer appetite in this market.
CPC decreased by 9% QoQ, with a moderate increase of 5% YoY. This shows how important improving CTR is for combatting higher CPMs. Creative remains the most effective tool for driving down CPC.
TikTok offers scale at reduced costs... for now
TikTok offers scaling traffic with less competition than Meta. Performance is improving, with new formats and improved targeting.
Increasingly, TikTok is delivering results for older demographics and brands with higher AOV.
Costs are only likely to go up. That means brands should be working out how to crack the platform now while it is cheaper.
Intent to purchase will pick up earlier than ever in Q4
Consumers will be looking to make savings this year and that means they will be looking for bargains. This means more sales, and earlier sales, from brands.
Intent to purchase was already starting earlier in previous years. We saw a 37% increase in clickthrough rates two weeks before last Black Friday.
Keep a close eye on your engagement as you enter November, as the rise in click-through rates happens quickly.
In Q3, Nest Studio creative delivered a 45% higher conversion rate, as well as a 72% higher return on ad spend and a 90% lower cost-per-acquisition, when compared to brand-produced creative.
In the current environment, your media buy needs to be as efficient as possible. Creative is your best lever for this.
To helps brands achieve here, Nest Studio is available as a standalone service for creative production and optimisation.
Meta is on the offensive after a challenging start to the year and has lots of planned updates to how the platform works.
Advantage+ shopping campaigns are being rolled out, which use AI to eliminate the manual steps of ad creation with the aim of improving ROAS. Meta is also likely to invest further in discovery commerce such as Shops to reduce the impact of signal loss, as well as increasing impressions for Reels.
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.
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 79% of total spend in Q3 assigned to prospecting campaigns.
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