A Performance Marketer's Diwali
"We're burning money, not on fire crackers, but on ads."
In a nutshell, Diwali is a whirlwind of buyers emptying their pockets and marketers ensuring that those pockets are emptied only at their stores, either online or offline. And with ever-increasing competition, where every brand now has the "ultimate" curated Diwali gift box, with a dhamaka and pataka of a discount, costs of acquiring these customers has gotten higher than ever before, allowing only one very specific type of business to succeed.
A THREE HORSE RACE
E-commerce businesses can be broken down into three rough categories -
(a) Small businesses, which are generally not funded, and bootstrap their way up, with limited performance marketing spends, which don't exceed more than ₹1000 per day;
(b) Large businesses, which could or could not be funded, which may or may not have a large offline presence, but care specifically more about their bottom line and profitability, and are generally built on generation wealth. They can spend upto ₹10,000 per day;
(c) Valuation businesses, which are heavily funded by venture capital money or a large pool of individual inventors, where customer acquisition is their top priority, even if it comes at the cost of their profitability. They can spend more than ₹10,000 per day comfortably, with a 1x ROI (return on advertising spend) or lower.
THE AD SPACE
Generally, the ad space is characterised by a finite buying audience that is growing at a pace slower than the pace at which newer brands and businesses are entering the ad space. And generally, for brands running ads on Facebook/Instagram or Google, the higher the spends, the higher the impressions (i.e. the instances in which a customer sees a brand's ads) as a consequence of their higher their bidding power, which then has an adverse effect on these very metrics for smaller, bootstrapped businesses or those concerned more with profitability.
And with Diwali, most brands - especially valuation businesses - exponentially increase their spends to outbid their direct competition. These businesses can afford to do as little as a 1x return on their ad spends, at a controlled burn rate of their marketing budgets, with the hypothesis that acquiring a customer now is more valuable at a higher cost of acquisition keeping that customers lifetime value in mind, over time. Over time, as this customer, or a group of customers acquired now keep ordering that product, that cost of acquisition diminishes, tending towards zero.
Theoretically, yes, the above holds true, but maintaining a customer repeat rate of 30% or higher is difficult, and involves some form of advertising, which of course costs money.
But, instead of getting caught in this rut of competing with the big money spenders, how do we bid higher on lower spends?
From what we've seen so far, it comes down to (a) your unique product offering/proposition; and (b) how well do you engage with your database of current customers, if you currently have one.
Unique product offerings when communicated effectively in ad creatives generally imply higher click through rates when a potential customer does see your ad. Higher click through rates communicates to your advertising distribution platforms that you're highly engaged with, therefore, increasing your bidding power, which translates into higher impressions per ₹1 spent.
And when it comes to capitalising on your current customer database, email and SMS marketing does the trick. These alternatives to retargeting ads are as cheap as ₹1 per email, and even lesser when it comes to SMS marketing. With these two avenues, your can AB test everything from communication, to the time of day these communications are sent, right up to various call to actions, over various campaigns.
Is Diwali going to be similar next year? A high probability "yes" is the most apt answer, given the current trends. By next year, the number of brands competing for this finite buying audience is only going to be higher, increasing the cost of acquisition further still.
Perhaps a technological curve - some new sort of marketing avenue aside from Facebook, Instagram, Google, and Amazon - could salvage the season?