A new study conducted by shopping experience platform SimplicityDX has found that the cost to acquire new customers has risen by 220% since 2013, with sellers losing 29 USD for every customer acquired, as opposed to 9 USD.
Further research reveals customer acquisition costs have jumped by 60% in the last five years alone.
Targeting challenges and ease of market entry have contributed to the rise in customer acquisition costs
- Although the challenges of COVID have slowed, and brick-and-mortar stores have reopened, eCommerce sales are still growing. This means that direct-to-consumer (DTC) competition is rising. eCommerce growth is expected to reach $5USD trillion in 2022.
Whilst it’s easier than ever to enter into the eCommerce sector, it’s created a steep increase in competition. The eCommerce industry expects to grow by $11USD trillion between 2021 and 2025.
- Online businesses are spending more on ad platforms, fostering a fiercer than-ever paid marketing environment. As a result, companies are beginning to close the gap between organic and paid marketing spending.
- Tracking has become more difficult. Privacy laws and the threatened death of third-party cookies will make it even more difficult to target ads. Marketers will have to increase their ad budget for much less of a return. A recent study found that cost per click for paid search ads has increased by 15% from January to July this year alone.
In addition, the app tracking transparency feature on the new iOS 14 now asks users for approval to track their online activity when installing apps on their phones.
Why are targeting limitations such a big deal for eCommerce stores?
Online businesses are feeling the crunch of targeting limitations because, for so long, they’ve dedicated most of their marketing budgets to their paid channels.
For typical eCommerce businesses, it’s common for 25-40% of overall revenue to come from organic search, with the remaining coming from paid search.
But if you look at marketing budgets, your paid search teammates will easily spend $1-2 million (sometimes a lot more) on paid search, while you’re only spending $50,000 on your organic channel.
Why are eCommerce businesses only spending a fraction of their budget on organic search when it makes up 40% of their revenue? Because so far, organic search has been considered a cost centre.
It’s hard to justify budgets for this channel because performance takes time, and whatever efforts you put towards the channel can’t be attributed easily. With paid search, you can clearly see what ROI your ads are generating, and you know where and how to focus your budget.
Given the recent threats to tracking limitations, online businesses can no longer rely on the black box of Google and other advertising tools to hit KPIs. They must innovate and develop long-term SEO strategies to thrive in the current market.
Rising cost-per-click on ads are sending ROAS into decline
The cost-per-click (CPC) for online advertising has been steadily rising. There are several reasons for this trend, including increased competition for ad space, changes in ad targeting algorithms, and more consumers tightening their belts in the cost-of-living crisis.
As more businesses turn to online advertising to reach their target audiences, the demand for ad space has increased, driving up prices. Additionally, platforms like Google and Facebook frequently update their algorithms, which can impact the effectiveness of targeting strategies and cause CPC to fluctuate.
Increasing CPC and subsequent diminishing ROAS was was a topic explored more than once at the 2023 eTail Australia conference. In fact, Kim Zorn, Global Performance Director for popular online fashion retailer Princess Polly stated the company’s CPC has increased from $0.44AUD to $1.44AUD on their Google Shopping ads since last year.
To ensure they get the most out of their ad spend, online retailers must establish an effective SEO strategy that targets longtail keywords and improve landing page experiences, as well as continuously optimise product feeds, test and optimise campaigns and use negative keywords.
Online retailers are focusing more on site experience to attract customers organically
According to several studies conducted by Marketing Charts, online competition and tracking limitations have forced online retailers to refocus on site experience and attract customers organically in the hope of beating rising customer acquisition costs.
When asked what site experience upgrades have the most potential to drive growth, 61% of digital marketers said page personalisation. This figure correlates with other recent reports that indicate eCommerce conversion rates increase the more personalised page views that take place. In addition to page personalisation, online retailers also see an opportunity in on-site search and guided navigation to support their sales growth objectives.
Online shoppers say search is the most critical factor in a great shopping experience. Their biggest frustrations are irrelevant product results (28%) and the inability to find the products they’re searching for (24%).
Balancing the scales between paid and organic channels can reduce your customer acquisition cost by 60%
Despite the uncertainty created by current economic challenges, increased competition and ad tracking limitations, 41% of companies plan to increase their spending across paid and organic marketing.
An increase in paid spend could be forced, as marketers need to spend more on ads to make less. But, as uncertainty from paid ad targeting grows, increasing spend on your organic channels can help to spread risk.
Although, historically, organic marketing has been considered a “long game”, online businesses shouldn’t discount the channel but look at it through a different lens.
Create your own marketplace
Marketplaces continue to be one of the most effective ways to sell products online, but 44% of businesses struggle to compete on pricing and control the customer experience.
Creating your own “marketplace” of products on your site will eliminate competition, give you complete control of UX and display more of your products in the storefront window. Importantly, it would also take your reliance off third-party data, safe proofing your digital strategy for targeting limitations in the years to come.
You can do this for every channel:
Google Shopping: display multiple matching products for long tail search terms above and below the hero product.
Organic search: display multiple matching products for any given long tail term on one page, adding dynamic internal links to similar products at the bottom of the page. You could arrange products in grid or list view.
Google ads: display multiple matching products in grid or list view on all your Google ad landing pages.
Creating a marketplace experience on your website will help to get new customers to your site who know what you want but don’t know or search with your brand name.
Hone in on niches
Morgan Browne, VP of Growth Marketing at Shopify, says, “The brands that speak to everyone speak to no one. Whether brand differentiation means what the brand stands for, the way the product is made, or the way they engage their audience, consumers are looking for differentiated experiences and brands they can connect to.”
Online businesses that hone in on niches by focusing on high-intent long tail keywords will help attract new customers who are ready to buy.