Introduction
Many clients and agencies are experiencing a rise in cost per click (CPCs) on Google and Facebook. This trend has made it more challenging for businesses to maintain profitability and achieve their advertising goals. At the same time, Temu, an emerging player in the e-commerce sector, is becoming a growing threat to established businesses. According to the Digital Marketing Institute (DMI), Temu spent a staggering $1.5 billion on PPC ads in 2023, highlighting the intense competition in the digital advertising space. This significant investment by Temu not only underscores the competitive pressures but also signals a shift in the advertising landscape where new entrants with substantial financial backing can rapidly disrupt the market. The combination of rising CPCs and the aggressive strategies of new competitors like Temu necessitates a reevaluation of traditional advertising approaches, compelling businesses to explore innovative strategies and metrics to stay ahead.
Rising CPC Costs on Google
Cathal Melinn, Managing Director of Wolfgang Digital, has noted that the increase in CPC costs on Google is largely beyond the control of advertisers. He explains, “Costs have increased outside of our control. It’s Google’s proprietary system – they are charging based on whatever criteria/new technology they have in the mix.” This statement underscores the frustration many PPC agencies feel as they grapple with rising costs without a clear understanding of the underlying factors.
The Changing Landscape of ROAS
Traditionally, marketers have relied heavily on the metric of ROAS (Return on Ad Spend) to measure the effectiveness of their PPC campaigns. ROAS is calculated by dividing the revenue generated from advertising by the cost of the advertising. For example, if a company spends $1 on PPC advertising and generates $5 in revenue, the ROAS would be 5:1. While this metric has been valuable in demonstrating the value of advertising efforts, there is a growing realization that focusing solely on ROAS can stifle business growth. This is because a singular focus on ROAS often leads to short-term thinking, where the primary goal is to maximize immediate returns rather than investing in long-term brand building and customer acquisition strategies.
Moreover, ROAS does not account for the broader impact of advertising efforts across different channels and touchpoints. It ignores the synergistic effects that integrated marketing campaigns can have on consumer behavior and brand perception. For instance, a TV ad or an influencer campaign might not generate immediate sales, but it can significantly enhance brand awareness and create a favorable impression that drives future conversions. By focusing exclusively on ROAS, businesses risk missing out on these valuable long-term benefits. Furthermore, an overemphasis on ROAS can lead to an overly cautious approach to advertising spend, where businesses are reluctant to invest in higher-cost channels or experimental strategies that could yield substantial rewards over time.
Expanding Beyond ROAS
In response to these rising costs, marketers are encouraged to adopt a more holistic approach to measuring success. Instead of focusing exclusively on ROAS, businesses should consider a range of metrics that reflect the overall health and growth of their brand. This shift in thinking is essential for navigating the complexities of modern digital advertising.
One trend that has emerged is the importance of looking beyond the immediate results of paid search accounts and considering the broader revenue perspective for the brand. This approach aligns with long-standing practices in programmatic advertising, where the impact of marketing efforts is evaluated across multiple channels. Whether it’s a bus stop ad, a PPC ad, an Instagram ad, or a TV ad, each touchpoint contributes to the overall receptiveness to the brand.
The Power of Upper Funnel Advertising
To drive growth and gain market share, more brands are investing in upper funnel advertising. The “Is PPC Still Worth It?” podcast from DMI highlights that clients are realizing the limitations of focusing solely on bottom-of-the-funnel activities. By expanding their efforts to include upper funnel strategies, businesses can create awareness among new users who are not yet familiar with their brand.
Programmatic advertising, in particular, offers significant opportunities for brands to reach new audiences and build market share. By targeting net new users through TV, audio, podcast, display, and native advertising, companies can generate awareness and drive future bottom-of-the-funnel searches. This comprehensive approach ensures that marketing efforts are not confined to a single channel or metric.
The Growing Threat of Temu
While businesses navigate the complexities of rising CPC costs and evolving advertising strategies, Temu’s aggressive spending on PPC ads cannot be ignored. The company’s $1.5 billion investment in 2023 underscores its commitment to capturing market share and challenging established players in the ecommerce space. For businesses to remain competitive, they must be proactive in their advertising efforts and continuously adapt to the changing landscape.
The Impact of Rising CPCs
The rising CPCs on platforms like Google and Facebook are driven by a combination of factors. Increased competition among advertisers, changes in bidding strategies, and the platforms’ own adjustments to their advertising algorithms all contribute to higher costs. For many businesses, especially small and medium-sized enterprises (SMEs), these escalating expenses can strain budgets and make it more difficult to achieve a favorable return on investment (ROI). This financial pressure forces businesses to be more strategic with their advertising spend, often necessitating cuts in other areas or more precise targeting to ensure every dollar is used effectively.
The Threat of Temu: A Deeper Look
Temu’s significant investment in PPC advertising highlights its aggressive strategy to disrupt the ecommerce market. This substantial expenditure indicates Temu’s commitment to quickly gaining market share and challenging established brands. The company’s ability to allocate such a large budget towards advertising puts additional pressure on other businesses to increase their own spending to remain competitive.
Temu’s rise is indicative of a broader trend where new entrants with significant financial backing can quickly alter the competitive landscape. For established businesses, this means they must be vigilant and agile, constantly adapting their strategies to counter new threats. This includes not just increasing advertising spend but also innovating in other areas such as customer experience, product offerings, and brand messaging to maintain a competitive edge.
Strategies for Success
To thrive in this dynamic environment, businesses should consider the following strategies:
Diversify Advertising Channels: Relying solely on Google and Facebook for PPC advertising can be limiting. By diversifying their advertising channels to include programmatic, TV, audio, podcast, display, and native advertising, businesses can reach a broader audience and reduce dependency on any single platform.
Invest in Upper Funnel Advertising: Creating awareness among new users is crucial for long-term growth. Upper funnel advertising strategies help build brand recognition and drive future bottom-of-the-funnel activities.
Adopt a Holistic Approach to Metrics: Moving beyond ROAS and considering a range of metrics that reflect overall business health is essential. Metrics such as customer lifetime value (CLV), customer acquisition cost (CAC), and overall revenue growth provide a more comprehensive view of advertising effectiveness.
Stay Informed and Adaptable: The digital advertising landscape is constantly evolving. Staying informed about industry trends, competitor activities, and emerging technologies is critical for maintaining a competitive edge.
Leverage Data and Analytics: Utilizing advanced data and analytics tools can provide valuable insights into consumer behavior and campaign performance. These insights enable businesses to make data-driven decisions and optimize their advertising strategies.
Conclusion
The rise in CPC costs on Google and Facebook, coupled with the growing threat of Temu, presents significant challenges for businesses and agencies in the digital advertising space. However, these challenges also create opportunities for innovation and strategic adaptation. By adopting a holistic approach to metrics, businesses can gain a deeper understanding of their overall health and growth, rather than relying solely on traditional measures like ROAS. This broader perspective can lead to more effective advertising strategies that encompass a range of touchpoints and channels, ensuring that marketing efforts are cohesive and impactful. Investing in upper funnel advertising is another critical strategy, as it helps build brand awareness and reach new audiences, ultimately driving future bottom-of-the-funnel activities and fostering long-term growth.
Furthermore, diversifying advertising channels is essential in today’s competitive landscape. Relying exclusively on platforms like Google and Facebook can limit a business’s reach and make it more vulnerable to fluctuations in CPC costs. By exploring other channels such as programmatic, TV, audio, podcast, display, and native advertising, businesses can spread their risk and tap into new audience segments. Staying informed about industry trends and leveraging advanced data and analytics tools will also be crucial for making data-driven decisions and optimizing advertising campaigns. As the digital landscape continues to evolve, businesses that remain adaptable, innovative, and strategic in their advertising efforts will be well-positioned to navigate these challenges and achieve sustainable growth. If you’d like to learn more about how to invest in programmatic advertising, we can help you navigate this complex and ever-changing landscape, ensuring that your business remains competitive and thrives in the face of rising CPCs and emerging threats.
