AnalyticseCommerce advertising predictions for 2023

eCommerce advertising predictions for 2023

How brands can leverage some of the key trends for 2023 to drive success in the ecommerce space

As the ecommerce industry continues to grow and evolve, it is crucial for brands to stay up to date on the latest trends and technologies in order to stay competitive.

In this article, I will explore the top six predictions for the year ahead and discuss how brands can leverage these trends to drive success in the ecommerce space.

Summary:

  1. TikTok will continue to grow as an alternative ad channel, but costs will rise accordingly
  2. Meta will remain the de facto ad platform of choice for driving ecommerce sales at scale
  3. Increased scrutiny will be applied to high-performing Performance Max accounts
  4. Pinterest will cement its status as a top-of-the-funnel channel and attract more customers outside of home furnishings
  5. High-performing brands will differentiate themselves by indexing to top-of-funnel ads
  6. Independent ad measurement will become the norm for D2C brands

Tiktok: rising growth, and costs

TikTok, the social media platform known for its short-form video content, has exploded in popularity in recent years and is expected to continue its growth as an alternative ad channel.

Data shows investment in TikTok is growing faster than any other digital platform. The returns from the platform are also very strong, outperforming other growing properties like YouTube, and it is second only to Reddit for paid social platforms in delivering new customers.

Figure 1 –Balance of new customers driven by different channels measured. Data from a State of ecommerce Advertising Report for Q1.

This growing focus on TikTok is a trend unlikely to stop – brands looking to diversify beyond Meta and Google and boost their return on ad spend (ROAS) figures will continue to allocate more of their ad budgets to the platform.

However, as demand for ad space on TikTok increases, so too will costs for advertisers. In 2022, TikTok ads are a no-brainer for almost every ecommerce brand spending over $50k/month on paid media.

This year, with costs likely to rise, it will not be enough to simply get on the pitch and start spending – optimization strategy will become key to making the platform yield at high return.

One way for brands to maximize their ad spend on TikTok is by creating high-quality, engaging content that resonates with the platform’s audience. Creative remains a key source of differentiation on the platform – TikTok’s Dave Morrisey gives some excellent advice on how to make this happen in a recent webinar.

Meta will remain the de facto ad platform of choice

Meta, a leading ad platform for ecommerce brands, is expected to remain the go-to choice for companies looking to scale their online sales in 2023. Its sophisticated targeting and optimization capabilities, and massive cross-generational reach, make it the top choice for ecommerce brands looking to reach and convert their ideal customers.

In 2022, we saw Meta spend fall 12% as advertisers looked to tighten their belts in worsening economic circumstances. The reasons for this are very clear – as a channel which relies on delivering value through impressions, Meta’s self-reported results have seriously struggled since the introduction of Apple’s iOS 14.5 update in 2021.

This is true for almost all impressions-based channels, which now underreport their sales in their analytics platforms (see below), but as the most high-profile example, Meta has suffered the biggest knock in consumer confidence.

Although confidence in Meta is at a 5-year low, data clearly demonstrates that the ROAS Meta drives are very high considering its scale. As brands move towards advertising at the top of the funnel, and Meta continues to release new ad formats and upgrade their product, quality will shine through, and we expect to see the platform continue to be the platform of choice for ecommerce advertising at scale.

Figure 2-  ROAS by Paid Social platform measured showing that Meta delivers a massive ROAS considering its scale. Data from a Q4 State of ecommerce Advertising Report.

Performance max accounts subject to increased scrutiny

While 2022 was a strong first year for Google’s Performance Max property, we expect to see increased scrutiny of the role it plays in driving customers.

While early reported results have been very positive, research shows that much of this is ‘good optics’ rather than increased performance. By blending the reporting of brand and generic pay-per-click (PPC), a common rookie error that gives very inflated ROAS figures, Google is presenting a generous picture here.

Other tactics, such as moving the high-performing Smart Shopping format from Paid Shopping into Performance Max, is another optical change that will make little difference to the overall revenue delivered by most brands buying these ads. This adjustment has also heavily cannibalized Paid Shopping – data shows it moved from the highest-performing large marketing channel at the start of the year to one of the lowest by Q4.

The development of automated delivery formats such as Performance Max and Meta’s Advantage+ is a major emerging trend as ad platforms seek to boost performance following a wave of privacy-related challenges.

While these have been feted by some, they have also met stiff resistance – partly from agencies, who see them as a threat to their revenues, and partly from marketers who are understandably reluctant to adopt yet another black box function.

The measurement of these emerging formats will be key for attribution platforms and brand-side marketers alike in 2023.

 Pinterest will cement its status as a top-of-the-funnel channel

We expect Pinterest, the visual discovery platform, to solidify its status as a top-of-the-funnel ad channel in 2023. While traditionally popular with home furnishings brands, I am seeing Pinterest attract – and excel for – brands from other verticals as well.

Data shows Pinterest plays a higher-funnel role than Meta – brands should consider diversifying into the platform to drive initial awareness and interest in their products and services.

Pinterest’s user base is highly engaged and actively seeking out new products and ideas, making it a valuable asset for brands looking to get their products in front of potential customers, and crucially it is consistently the best-performing channel for ROAS when measured.

2023 could be the year it follows TikTok into achieving the early stages of mass adoption.

Figure 3 – Relative ROAS of different Paid Social platforms when measured. Data from a Q4 State of ecommerce Advertising Report.

Indexing to top-of-funnel ads will differentiate those at the top

2023 promises a tougher market than most D2C brands have ever faced – tougher even than 2022, which saw high-profile losses, particularly in the UK market which has been affected by the triple-whammy of Brexit, supply chain issues from the war in Ukraine, and the ongoing impact of Covid-19.

In these times it is tempting to batten down the hatches and reduce marketing budgets, which is the pattern we saw beginning to play out throughout 2022.

This has a knock-on impact on marketing mixes, too. When measuring using Google Analytics or Meta Ads Manager, both very bottom-of-funnel-focused platforms, it is tempting to strip budget away from the hard-to-measure brand and awareness campaigns and redistribute it towards channels where the relationship to revenue is much easier to demonstrate.

My data shows this is an error. Brands spending across the full marketing funnel, with as much of a focus on demand generation as capture, consistently have the healthiest marketing mixes. While focusing on just bottom-of-funnel ads may seem like an easier and safer decision, it is a short-term play, and the best-performing brands will differentiate themselves by bravely investing across the full funnel.

Figure 4- Difference between bespoke marketing measurement platforms and Meta Ads Manager reporting throughout the funnel. Data from Q1 State of ecommerce Advertising Report.

Independent ad measurement will become the norm for D2C brands

Our last prediction is one that may concern businesses using GA as a source of truth. With Universal Analytics set to stop tracking in July 2023, brands are busy setting up GA4.

Significant challenges await this summer – as well as onboarding a new and complex system, marketers using GA as a source of truth will also have to contend with the loss of year-on-year data in the platform, as there is no option to integrate UA data into GA4. Although frustrating, this is a blessing in disguise.

As above, the most successful brands in 2023 will be those advertising at the top of the funnel, and in channels like TikTok which GA struggles to measure. Typically, marketing measurement systems can integrate data from GA3 and GA4 to provide a consistent view – and remodel it to incorporate the role of upper funnel ads and impressions. Adopting such solutions will open doors that GA has been keeping firmly shut.

We expect brands to continue to move away from in-platform measurement on platforms like TikTok and Meta too. It has been almost 2 years since Apple’s iOS 14.5 update, and there are still only limited signs of a recovery of ad platform measurement.

Marketers would observe on further inspection using marketing measurement platforms, that almost every channel that relies on delivering impressions to generate revenue is underreporting its performance, whereas all the click-based channels are overclaiming. Alongside the challenge of consistently generating high-quality creative, measurement is a challenge that just will not go away.

Figure 5– Difference between marketing measurement console reports and platform-reported sales by channel. Data from a Q4 State of ecommerce Advertising Report.

For brands, the impact is massive. Impressions-led media and top-of-funnel advertising are key to reaching new audiences – not to mention maintaining competitive advantage in a worsening market. Spending blind is unlikely to keep being an option, and more and more brands will turn to independent measurement to validate their cross-channel spend.

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