Have you heard that Apple started restricting the use of cookies? It might not have meant much to you as a merchant, but the bottom line is that online advertising is skyrocketing in price.
In 2020, Apple made the bold decision of restricting the usage of cookies. The idea behind it was simple; "Fewer cookies = More privacy". On paper, this seemed like a great move by Apple. Everyone appreciates a little more privacy. So why were Facebook, and other advertising platforms so against this move? Lawsuits were being issued at neck-breaking speed. At one point even the US congress had to step in. Why?
Advertising cost is skyrocketing in price
Before we can dive into why the cost of an advert is rapidly increasing, we need to understand the pricing model of these advertising platforms.
It's an auctioning system
When you create an ad on Facebook, Instagram, Google or any other marketing platform, you're essentially telling the platform; "Hey! Here is some money, spend it wisely and get the most amount of visits or leads".
In turn, the platform will analyse what's its user base is doing at a certain point in time, and at certain intervals, it will create an internal auction. When this auction starts, some code will run on your behalf. This code acts as your auctioning expert, for simplicity sake, we'll call it Joe. Joe notices that the auction is about showing an Ad to a potential customer, so it goes ahead and starts bidding. Your competitors also have their bidding experts bidding for the same ad spot. After a matter of milliseconds the auction is over, Joe won the bid, and after charging you a small commission your ad is shown.
When your ad is shown, it's called an "Impression".
The price of ad spots changes constantly
As you might have realised already, the price of each ad spots changes with every auction. It depends on how many bidders there are. But this is not very effective. If we had to pay based purely on competition, the bidder with the higher budget would squash startups on every occasion. In turn, if startups couldn't compete, they would stop running ads.
Do you see where we're heading?
If the advertising platforms lost all the startups and small brands, their revenue would tank (approximately a loss of 60-70%). Fortunately, cookies were the answer to such a problem. Essentially, the advertising platforms could use cookies to collect vast amounts of information and create much more specific auctions.
Remember our example of earlier where Joe was bidding for you? Now imagine if the auctioneer also said; "This user visited this site, is interested in that...". Now Joe could make a much more informed decision. Because Joe can make a more informed decision, he would bid less but get more leads. The same would happen to the other bidders. This created an ecosystem of much more cost-effective auctions for everyone.
So why is the cost increasing?
If by now it's still not clear, let's quickly re-iterate.
- Cookies = More data
- More data = Joe can bid more effectively
- More effective bids = Less competition
- Less competition = Better prices
Now, what happens when we cookies out of the equation? Joe goes back to bidding against the giant brands, with much bigger budgets, and for him to be competitive, he needs to bid higher and higher.
To put it in perspective; The price of Facebook has doubled 4 times in the last 12 months! That means if you were spending $1 per day, now you're spending $16 for the same reach!
The solution?
Super smart folks at Facebook and Google are already thinking of new ways to limit the effects of this problem. But in the meantime, the prices of online ad spots keeps increasing. So we need alternatives.
1. SEO - Search Engine Optimisation
SEO essentially enables you to drive more traffic to your online shop by ranking higher on Google. This is a great long-term strategy and by far has the highest ROI. However, it may take years to see results from SEO.
2. Organic Marketing
Posting on Social media, guest posting on blogs, live tv appearances, and other methods will drive traffic to your site. If done right they are also helpful to build a lasting brand. But if you're new to digital marketing, these methods could eat up the vast majority of your day.
The real solution
Ok, we've rambled on enough now. What is the real solution to the increasing cost of digital marketing?
Loyalty Systems
Loyalty systems allow you to capture leads and guarantee a percentage of return customers for essentially nothing. Most loyalty systems follow one of 2 models;
- Active opt-in - The users have to opt-in to the loyalty program by registering for it
- Passive opt-in - The users are rolled in if they perform a specific action such as registering or checking out
Rewards & Discounts
Most merchants use the customer database to send rewards and discounts. This is a great way to promote your business however, once the information is collected, it can be used for a multitude of things.
Why Loyalty is so powerful?
Once you have a loyalty system in place, you're in full control of the data. Meaning you don't need to bid for the ad spot, but instead, send it directly to customers which are already interested in what you have to say.
This marketing system drastically reduces cost which translates to much higher ROI.
What is Lifeboat doing about loyalty systems?
By now you're probably convinced. Loyalty systems are going to be an essential part of digital marketing, but before leaving this article let us share a bit of important news.
In September 2021 Lifeboat is going to release a full-blown loyalty system for your online shop, and it will be free! We understand that such systems are going to have a drastic impact on your revenue, so we had to give it to you.
The loyalty system in Lifeboat will be featuring any functionality you'd find with any other loyalty system and some;
- Assign points for;
- Registering
- Subscribing
- Completing checkout
- Birthday
- and more...
- Brand your points with a catchy name
example: Brownie Points - Give out discounts based on points earned
example: Get a free product for every 500 points earned
Conclusion
With ad costs skyrocketing we need an alternative to online advertising. Loyalty systems might just be the answer for your online store, and as a bonus, Lifeboat is launching its loyalty system for all of its merchants, for free!
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