How eCommerce Brands Can Solve Rising Customer Acquisition Costs
New customer acquisition for eCommerce is hard, and it’s only getting harder.
Even before advertisers and marketers had the rug pulled out from under them by Apple (more on that later), capturing conversions was increasingly challenging.
For example, research by Recur found that customer acquisition costs (CAC) increased by 60% from 2014 to 2019. And in 2018, HubSpot found that more than 70% of consumers don’t trust sponsored ads on social media.
Even though it’s an ongoing problem, customer acquisition has skyrocketed to the top of many eCommerce brands’ list of challenges recently. But why? And what can be done about it?
Why Are Customer Acquisition Costs Rising?
In a word, data. Or rather, the lack of it.
When Apple updated its iOS to opt users out of app tracking in April 2021 — and only about 5-15% of all iPhone users chose to opt in — advertisers lost a massive amount of buyer information virtually overnight.
Without identifying data, marketers who bought ads on platforms like Facebook and Instagram can’t know if the right message reached the right people, or whether an iOS click led to a conversion.
Further, the lack of accessible data also means that clicks are only remembered for seven days, which essentially cripples most attribution models.
Adding to the List
The iOS update wasn’t the first attempt to rein in the availability of user data, and it won’t be the last.
Before Apple stepped into the fray, the California Consumer Privacy Act (CCPA) and the GDPR (GDPR) in Europe reduced access to consumer data and changed how marketers can identify prospective customers.
And all signs point to more privacy restrictions in the future, not less.
Earlier in 2022, US Senators proposed a bill called the Banning Surveillance Advertising Act that would prohibit targeting based on “protected class information, such as race, gender, and religion, and personal data purchased from data brokers,” essentially preventing tech companies from using personal data for targeted ads altogether.
And Google has long teased the end of third-party cookies, which is also expected to take full effect in 2023.
Where Are Customer Acquisition Costs Rising?
Each tech platform is dealing with the reduction of user data in different ways.
Meta (Facebook & Instagram)
Advertisers who relied on Facebook and Instagram’s algorithms to do much of their heavy lifting have been hit hardest by these privacy changes.
As mentioned above, the data from Apple users is essentially gone, which means that the platforms can’t target specific users who are likely to click or convert with any confidence. Real-time reporting and campaign optimization are severely limited, and Facebook and its marketers are basically guessing as to what will work and what won’t.
These challenges are almost universal for marketers. According to Revealbot data, Facebook’s average cost per lead (CPL) has more than doubled from January 2020 to June 2022, climbing from $6.24 to $13.40 in that span. Instagram has shown a similar CPL jump.
Both Facebook and Instagram are leaning further into eCommerce solutions that keep you in the app to make purchases, but even attributing those purchases correctly can be difficult. Facebook is even floating the idea of “Basic Ads” that willingly avoid personal data to stay compliant with the growing regulatory structure.
In short, acquisition costs on Meta platforms are rising, tracking is a mess, and there’s no surefire solution on the horizon.
As mentioned above, Google’s big leap into user privacy is planned for 2023, when the company says that it will stop supporting third-party cookies or using them to collect user data.
The longer lead time has given both the platform and its users the opportunity to test different approaches to cookie-free advertising. In 2021, Google announced a "Privacy Sandbox" where advertisers can test a variety of tactics.
So far, the most promising is the Federated Learning of Cohorts (FLoC) tracking model, which clusters large groups of people who share interests and uses on-device processing to keep a person’s web history private.
Google says FLoC can drive at least 95% of the conversions per dollar spent in comparison to cookie-based ads, but it’s not yet clear if this is an effective alternative or just one more underwhelming option for struggling marketers.
TikTok is a relative newcomer to the social media scene but has scaled quickly as one of the only real threats to Meta’s social dominance. Like Instagram, TikTok has launched an in-app checkout platform that integrates with Shopify called TikTok Shopping.
Also like Instagram, however, users are automatically opted out of TikTok tracking on Apple devices, and creative assets can burn out quickly. And as more brands start advertising on the platform, current customer acquisition costs will only go up.
Further, while there’s value to be had in TikTok’s audience, its ad tools are still relatively new. The platform is still developing ways to monetize its audience effectively, and ad auctions and performance can be volatile as a result.
Also, TikTok’s ownership is based in China and the app lacks some security measures that make it susceptible to bad actors and regulation changes.
Unlike the social media channels above, which use ads as a gateway to product sales, Amazon is a product marketplace first and an advertising platform second.
That said, a lot of the same challenges are affecting customer acquisition on Amazon. Advertisers are playing in an increasingly crowded marketplace and attribution is not always as transparent as vendors would like.
Also, like TikTok, Amazon has struggled to ramp up the infrastructure ad buyers want to find winning ad combinations and track performance at a granular level.
How eCommerce Brands Can Prepare for a Successful Future
Given that the opportunities for effective marketing are drying up across all of the major social media and eCommerce platforms, what’s an advertiser to do?
Lots of brands and agencies are pivoting to customer retention and a focus on lifetime value, which is smart and important for sustaining success. After all, one Harvard Business School study found that improving customer retention rates by just 5% can increase profits by as much as 95%.
But if you really want to future-proof your eCommerce store and keep a steady stream of new customers coming in, there are two big marketing ideas that you’ll also need to embrace:
- Diversity, and
Diversify Your Marketing
Before all of these privacy restrictions and algorithm updates, you didn’t have to worry as much about the diversity of your ad spend.
If Facebook was working for your brand, great — just put your ad budget into Facebook Ads and tweak as needed to keep the numbers moving in the right direction.
If Google Ads were your thing, great — there’s no reason to try something else if it’s working, right?
These days, however, that’s out the window. More than anything else, the iOS updates and looming restrictions have introduced uncertainty and volatility into these marketplaces.
If you want to maintain growth, you’ll need to look for your audience everywhere. Facebook, Instagram, Google Ads, TikTok, other social channels, organic search, and more — all of them should be on the table as you grow your brand and audience in this new landscape.
That’s only one piece of the puzzle, however. You can’t just advertise on these channels and expect to get the same results that marketers were getting when data was easy to come by.
If you really want to get ahead, you need a marketing channel of your own.
Owning Your Marketing Channel
Today, the most effective way to reach both new and existing customers is on their smartphone screens.
And the easier you make it for them to click, the better.
So, if you really want to market to your audience effectively, you can use your newly-diversified marketing to send traffic to your very own mobile eCommerce app.
These days, creating your own app is easy, and it can pay off in a number of ways.
First, you learn more about your prospects and buyers when they take action in your app than when they click on an ad on another platform.
Second, you can tie each user to more first-party data, making it easier to target them with specific ads and promotions.
And speaking of ads and promotions, you can send users who have your app unlimited push notifications to recommend products, share sales information, and nudge would-be buyers who have abandoned their carts.
Push notifications in particular can help you mitigate customer acquisition costs. Unlike SMS messages, they’re free to send to anyone who has already downloaded your app. And they’re harder to ignore than emails, which often languish unopened in a user’s Promotions tab.
By owning your marketing channel with a mobile eCommerce app, you’re basically building your own sales ecosystem. In other words, you don’t just have one shop in the mall, the whole mall is yours.
Final Thoughts on Rising Customer Acquisition Costs & Solutions
Many eCommerce trends point toward a more challenging future for customer acquisition.
Expanded privacy restrictions, a crowded eCommerce marketplace, and volatile metrics are creating a perfect storm that could squeeze some sellers past the breaking point.
That's why marketing diversity and ownership will only become more important as time marches on.
By establishing your brand as a valuable, standalone eCommerce marketplace, you'll have the authority and infrastructure you need to keep new customers coming in, monitor their activity, and keep them buying over time.