How Inflation is Affecting Cost of Media & Your Bottom Line

In our September newsletter, we discussed how economic uncertainty has changed consumer behavior over the last few months (if you missed this article click here to read) – however as we get closer to the end of the year, we wanted to highlight how economic changes has affected cost of media, and latterly how you can adapt your tactics to counteract inflation in your strategy.

Inflation is Driving Changes in the Advertising Sector

In the past year, US Inflation hit a 40-year high in June, causing a difficult economic environment for most industries, especially marketers. Since early 2022, marketing platforms (e.i. Google) has seen underwhelming decelerating growth based on multiple factors – such as the slow shift marketers have seen in cost of media over the past few months. A few ways that companies have combatted this includes:

• DraftKings’ recent earnings reinforced that company’s high customer acquisition costs (CAC), causing its stock to crater.
• Some direct-to-consumer (D2C) natives have even taken to retail expansion to protect themselves against rising customer acquisition costs, while others are leaning into wholesale.
• Players like Poshmark have even been acquired after struggling with CAC while others, including Outdoor Voices, are still on the market for the very same reasons.

So let’s get to the actual numbers that showcase how your cost of media has shifted, whether you’ve noticed or not.

Cost of Media Key Shifts

Based on a Wordstream study just released last week we’ve seen the following shift in Google Ads industry benchmarks:

Additionally we’ve seen the cost per lead for Google Ads has gone up in 91% of sectors year over year. Conversion rates fell in 21 of 23 of industries, with a typical overall decline of 14%—a greater decline than last year’s, but relatively in line with 2019’s 12% decline. Below are the biggest YoY Changes in Google Ads Cost Per Lead seen across industries that we currently work in:

So what does this mean for marketers and cost… inflation and other economic uncertainty are not only affecting your cost of media, but could be a driver to lower conversion rates and leads across the board.

How Inflation is Affecting Cost of Media & Your Bottom Line

As we see it here is the primary cause of on how inflation is impacting your conversion rate – The consumer price index (inflation) is at a 40-year all time high, affecting overall consumer behavior. Economic uncertainty and inflation has shifted the perception of value for consumers, and what they perceive emotionally and monetarily to be “important” to their everyday lives to be conscious of their spending.

This shift with your consumers could be bringing down your conversion rates and driving up cost per lead – the biggest factor shifting cost of media over the last quarter. In addition to these consumer changes, advertisers and platforms are also combatting shifts in their own industry.

Inflation not only could be causing more advertisers to pull out of ad spend, causing platforms to decrease their inventory or availability, but inflation amongst other things have driven competition to an all-time high for advertising platforms.  For example search ads have continued to get more competitive every year since marketers have realized that 89% of the consumer journey begins with a search engine. In PPCsurvey’s 2022 State of PPC report, 98% of participants reported using Google Ads, versus 76% for Facebook and 64% for Instagram. The more advertisers in any given channel, the higher the competition, which leads to higher bids for fewer clicks per advertiser.

Cost of Media Key Shifts

If you’ve made it this far, and you’re wondering how as a business owner or marketer you can adapt your strategy to these shifts – remember that first and foremost inflation is somewhat temporary and there are always ways you can make your strategy more effective using a few different nimble tactics that Net Conversion uses year round no matter the circumstances.

1. Audience-First Targeting: Ensure that you are tightening your qualified audiences and you’re reaching the right audience that will most likely convert. We like to call this your AQR. Identify your addressable audience (total market for your product), your qualified audience (portion of the market you can reach) and your actual reach (percentage of the market you can realistically capture based on your budget). By planning ahead and labeling these audiences you can structure your audience-first strategy as efficiently as possible for your budget and yield your highest conversion rates
2. Omni-Channel Marketing Strategies: Cross-channel strategies are a must in today’s environment. Although paid search is the most effective channel for conversion, it has been shown to be most effective when in conjunction with other channels that enable your consumers to move down the funnel towards conversion.
3. Paid Loves Organic: An easy way you can improve your cost per click and other metrics is ensuring that your SEO/Organic strategy is also being looked at. Some marketers tend to forget that some of these metrics on Google platforms are also contingent of your Quality score (composed of factors like your keyword-ad-landing page relevance, messaging relevancy, etc)
4. Stay Up-To-Date On Your Industry: Just like the marketing landscape is ever evolving, so is your industry. New technologies and improvements might lead to consumers using other means of marketing or conversion to reach the goods/service they are looking for. Additionally some industries are more expensive and competitors than others, allowing for conversion rates to on average fluctuate more than average. This being said, it is crucial to always be up to date through market research on changes occurring to your vertical. Such knowledge will allow you to make the necessary adjustments to your strategy in real time vs. in a delayed manner.

The big takeaway: No matter how you look at this economic uncertainty, it is certain that inflation has affected your business. Nevertheless, by tightening your audience targeting, ensuring you have cross channel strategies and SEO services to support your media, and you’re up to date on marketing research you can combat inflation and stay competitive with your holiday campaigns and 2023 planning. As always, if you have any additional questions or concerns on how this can be affecting your business, please feel free to reach out to us!

Alexia George, Lead Marketing Specialist + Logan Didier, Marketing Intern

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