Read time: 6 minutes (special edition)
I asked ChatGPT to ‘Explain performance marketing like I am 5 years old’.
And below was the response.
This is the most sought-after explanation of performance marketing.
Performance marketing is a critical reason why Digital marketing is looked at seriously in the marketing & advertising industry.
Because it drives results. And in most cases, these results are sales.
But performance marketing has had its own journey as a channel over the last 3 years.
Performance marketing in 2020 was very different from what it is in 2023. And it will continue to get more complicated.
Performance marketing is getting less efficient with every android and iOS update.
And the reason is directly linked to an increased focus on ‘user privacy‘.
Let’s be honest, we do not want apps to track how we use our phones.
And still, apps like TikTok track your keyboard swipes, which means ByteDance (the parent company of TikTok) knows what you are typing on your phone keyboard. Scary ya!
Facebook and Google are not behind.
Facebook tracks if your thumb stopped on a post on Facebook or Instagram apps (even if you don’t click on the post) and they report this data as 100% in-view impression on Facebook ads manager.
This is just the tip of the iceberg in terms of the data these apps capture.
Facebook ads are primarily based on interest targeting.
Whatever content you are engaging with on Facebook & Instagram, meta knows about it and serves you ads accordingly.
In case you are a curious soul like me, check what ‘interest data’ meta captures about you by following these steps on your Instagram account:
You are seeing ads on Instagram based on these interests.
The more you engage on Instagram, the more it will know about your interests.
And these exact interests are available for brands on Facebook ads manager to target you.
The sharper your communication, the more precise your targeting, better performance your ad will get.
But, there is a catch here.
Interest information is just one way by which meta targets you.
Now, when you are targeted with an ad, & you click on it, the behavior you demonstrate on the website’s landing page is very, very important for Instagram to determine your conversion probability and to find people like you on Instagram.
This helps Instagram ads to perform better.
So whatever action you take on a website’s landing page after clicking on an ad from facebook or Instagram is stored and reported back on the facebook ads manager platform.
If you add a product to cart on a website, then Facebook reports this as an ‘add to cart’ event.
If you purchase a product on a website from facebook ad, facebook reports this action as ‘purchase’ event on facebook ads manager.
Facebook also captures the ‘value’ which means the amount for which you transact and report the data back to facebook ads manager.
Not only this, If you use a 3rd party app, then facebook would store a cookie in your system and serve you targeted ads when you open facebook/instagram next time.
For example, if you open Flipkart on your phone and view a product, Facebook pixels on Flipkart app would capture that.
And when you open Facebook next time, you will see exact same product ad. This is also known as remarketing.
Till April 2021, Facebook/Instagram printed money by showing highly relevant ads to people.
And then things changed when Apple announced this:
Basically, apple gave the control back to users if they want 3rd party apps to track their data.
If you are an iphone user, you must have seen this one-time message when you download a new app:
An estimated 65% people click on ‘ask app not to track’ on this message.
This means the behavior of 65% of iPhone users is not tracked.
Now, if you click on ‘ask app not to track’ after downloading flipkart, Facebook will not be able to track the products you view.
Facebook will not be able to serve you relevant remarkting ads.
Facebook will not be able to prospect people like you who would go to flipkart and buy.
The most critical performance marketing link is BROKEN.
Result? –> Customer acquisition cost (the cost at which you acquire a customer) shoots up.
Why did apple do this in the first place?
Well, the below graph may blow your mind:
Apple has estimated ad revenue of $6-7B in 2023.
Apple has been scaling up its ad revenue since 2020.
And with the above update, apple will have full advertising control, eating away the pie from Facebook ads.
Does it mean performance marketers should switch to apple ads?
Not immediately. Very early days. Apple ads are nowhere close to Facebook ads in terms of targeting options and creative optimization yet.
It may catch up sooner or later but it is not even close right now.
Similarly, Google is also discontinuing 3rd party cookies next year onwards. Which will have a similar impact on Android devices too.
What do these changes mean for performance marketing?
Less tracking of user behavior will lead to less information flow to Facebook and Google.
Less information flow would mean slower optimization of campaigns.
Slower optimization would lead to Digital Marketing getting expensive.
And this is inevitable.
Already a lot of D2C brands are facing the heat of it.
Mamaearth makes Rs.2.4 by spending Rs.1 on ads. (This metric is known as ROAS)
Sugar cosmetics have ROAS numbers in a similar range.
Plus these brands have other costs as well (operations, employee salary, overheads, etc), which slips their numbers in the negative (loss), questioning their survival in long term.
Many D2C brands are getting negative results from performance marketing now.
Which means they are making less than Rs.1 by spending Rs.1 on ads. Alarming!
So what does a performance marketer needs to do in 2023 to survive?
Look at the bigger picture.
As a performance marketer, one is responsible to make money.
If you can’t make money in the first transaction, make it in the 2nd or 3rd or 4th or nth transaction within a defined timeline.
But you will have to drive repeat purchases.
Your D2C business has no future if there is no repeat.
Even if you are making money today in the 1st transaction that a user does on your website, it may change very soon with the above updates.
As a marketer you need to do 3 things to adapt to this change:
- Sharp focus on collecting first party data. Make your own data.
You can collect first-party data in the form of browser push notification subscriptions, emails & phone numbers.
The more data you collect, store & use, the less dependent you will be on ads.
Give reasons for people to subscribe to your newsletters and do engagement based + promotional emails on them.
Email is still one of the strongest conversion channel.
If you ask me to choose between 1M Instagram followers and 1M first-party email IDs. I will choose the latter.
Great emails have open rates upwards of 30% and CTR of 4-5%. And conversion rates vary between 1-2% depending on the category and product pitched in the email.
Let’s say you have an email base of 1L users. Every email can give you 1500 users on the site that have high intent.
If I compare getting 1500 users on the website from emails v/s Google ads for a fashion business.
Estimated numbers would look like this.
Email is truly an underrated channel to drive ROI.
2. SEO is more important than ever.
I have covered accessing SEO opportunities in detail in Newsletter #02. If you want to give it a read, you can find it here.
While SEO can take some time to give results but there has not been a better channel to drive conversions or sales.
Invest time in shortlisting keywords that will drive informational intent traffic and transactional intent traffic on your website and invest in it.
Typically SEO conversion rate is 2-4x of overall website conversion rates.
Today SEO is no less than a moat for a D2C business.
3. Chalk out a clear repeat purchase plan.
You should have a communication and product pitch planned once a customer subscribes to your notifications or if they sign up by giving you their phone numbers or email ID or both.
For example, if your brand provides doctor consultations on Diabetes. Chalk out what you want to pitch post-doctor consultation. Consultation to medicines, medicines to lab tests, lab tests to a more comprehensive, yearlong Diabetes package.
Every user touchpoint should be defined along with KPIs.
If you are in the e-commerce business, begin with segmenting your data. Use this tempelate:
Registered users- Ones who have subscribed to your notifications, emails or have signed up with their phone numbers.
Consideration users- Ones who have signed up, and are also visiting your website/app but are not buying.
1-time shoppers- Ones who have shopped once but are not coming back to shop the 2nd time
1+-time shoppers- Ones who have shopped more than once.
You need to have communication planned out for each of the above segments. You can create these segments on tools like Webengage, clevertap, moengage, netcore.
If you have a call center team, integrate and use calling as a way to establish touchpoints with users.
For example, you can arrange for a feedback call from your call center after 1st transaction by a customer and ask for a testimonial if they like your service.
Performance marketing in 2023, will go beyond running ads and driving efficiency from it.
Even if you are paying a premium to acquire a customer and not making money in the first transaction. You should know in how many transactions will you be able to get the money back in the system and eventually be in positive.
Hence, having your own first-party data to reduce the dependency on ads, acquiring customers organically with SEO, and having a clear plan of action for the segmented base is the scientific & sustained way of running an e-commerce business in 2023!
That’s it for today, folks!
Our 120th batch for A to Z of digital marketing LIVE Masterclass is starting soon.
GOOD NEWS! We are running an early bird offer of 60% off.
Applicable to first 3 signups only.
You can grab your seat from here: Book seat for A to Z of digital marketing LIVE Masterclass.
In this masterclass, I will talk in detail of how you can be more job ready for performance marketing or how your business can grow with less dependence on ads apart from various other relevant topics.
By the way, I listed 4 ways of using ChatGPT to 10x productivity for marketers. Check it out here.