Squeezed retailers are losing margin to wasteful online expenditure – and they don’t even know it

In recent years, retailers have faced a relentless squeeze on their margins. The impact of inflation has driven up the costs of goods, rent on stores and warehouses, and energy bills. Furthermore, supply chain disruptions caused by ongoing global conflicts, and a cost-of-living crisis, have further tightened budgets. These challenges are well-known to retailers. However, there’s a significant and often overlooked cost that is increasingly eroding their margins: the wastage of digital marketing spends. Performance-based advertising models, such as pay-per-click (PPC), have historically been favoured by retailers for their ability to align marketing expenditures with measurable outcomes. However, the rise of AI-enabled AdTech and “blackbox” algorithmically-powered management platforms have introduced a new challenge of the mass wastage of ad spend. We’ve identified this trend through our work with clients in the retail sector, and one major contributor to this wastage is the way products like Google’s Performance Max or PMax encourage advertisers to do the bare minimum in terms of optimisation. PMax, designed to simplify the ad management process, can frequently lead to suboptimal ad placement, as advertisers are encouraged to trust the AI to make decisions on their behalf. But this hands-off approach frequently results in inefficient targeting and wasted budget. Tools like PMax often encourage a “set-it-and-forget-it” mindset, where advertisers do not conduct the regular, necessary optimisation to ensure their ads are reaching their target audience. One of the main outcomes of poor optimisation of ads can frequently lead to suboptimal ad copy, users being taken to poorly performing landing pages or on incorrect user journeys diminishing the likelihood of the consumer taking the action you want them to (which is often the conversion). Ensuring the best possible ad is shown to the right audience requires more effort and fine-tuning than many realise. Without comprehensive data analysis and regular optimisation, ad targeting becomes inefficient. This results in ads being shown to the wrong audience or in less-than-ideal contexts, leading to lower conversion rates and higher costs. Effective ad management requires deep insights derived from robust data analysis – with many retailers lacking the tools or expertise required to analyse their data comprehensively. To combat wastage and improve ROI, e-commerce retailers need to adopt smarter strategies and technologies. Leveraging advanced data analytics and algorithm-driven insights can optimise ad targeting and placement in real-time and through continually analysing performance data, retailers can make informed adjustments to their campaigns, ensuring they reach the right audience with the right message. Furthermore, continuous optimisation and A/B testing are essential for maintaining the effectiveness of digital marketing campaigns, and retailers should regularly review and adjust their strategies based on performance data to ensure they are getting the most out of their ad spend. Developing a cohesive multi-channel acquisition and branding strategy is another crucial tactic for omnichannel retailers to avoid ad budget wastage. By ensuring that online and offline marketing efforts are aligned, retailers can create a seamless customer experience that drives higher engagement and conversion rates. In a landscape where margins are increasingly squeezed, the ability to optimise digital marketing spend can be a game-changer. Retailers need to fight harder than ever to ensure their ads are efficient and effective, reducing wastage and driving business growth in a challenging economic environment. By adopting smarter strategies and leveraging advanced technologies, retailers can maximise the effectiveness of their advertising budgets and achieve better ROI, and increase awareness of the hidden costs of wasted digital marketing spend. I’d encourage all e-commerce retailers to take a good, long look “under the bonnet” of their ad spend. They may find some scary things when they do. But it’s only by doing so that they can unlock the full potential of their marketing efforts and secure a successful, long-term future in the competitive retail market.

Squeezed retailers are losing margin to wasteful online expenditure – and they don’t even know it

By Dan Chorlton, CEO of GOA Marketing

Check out our weekly podcast: 'Talking Shop by Retail Sector'

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