Digital ad spend is declining. It’s not surprising. In times of economic uncertainty, ad spend is often one of the first things to be impacted. Looming fears of recession are taking their toll. 75% of surveyed global brands admit that evidence of economic downturn is influencing media budgeting decisions. And this is causing insecurity within the advertising ecosystem.
And, since every action has an equal and opposite reaction, ad costs are up in line with an overall global media inflation rate of 5.2% in 2022, squeezing already tight margins. According to CNBC, YouTube’s ad revenues dropped 2% in 2022 and Alphabet’s overall revenue growth dropped monumentally from 41% to 6% in just one year - a decline that Alphabet’s CFO, Ruth Porat, deems a reflection of “further pullbacks in advertiser spends”.
But slashing advertising budgets isn’t necessarily the most effective course of action. Research shows that 37 billion dollars of global marketing budgets are wasted on poor digital performance and 56% of ad impressions are never seen by consumers.
Instead of spending less, brands should be looking to ride out this period of economic uncertainty by reducing ad waste and prioritizing ad spend optimization to maintain that all important return on investment. By spending better.
We’ve put together six tips to help you with ad spend optimization. The good news is that once you understand exactly what’s causing ad spend wastage and how to spend more efficiently, the situation starts to look a whole lot better.
One of the biggest culprits for ad spend wastage is overly broad audience targeting. A blanket approach to advertising is never a good idea. But it's an especially bad idea if you’re trying to tighten budgets. Attempting to target everyone, rather than the right people, comes at a cost. It’s better to focus advertising budgets on specific audiences and target accounts.
But often the problem is even more fundamental than this. CEO of Proof Analytics, Mark Stouse, believes that a lot of wasted marketing spend is created internally. “One big example of this occurs when there are funding cuts”, comments Mark. “There is tremendous waste as assets, programs and momentum are lost. Several quarters later, the business often realizes their error, and they move to increase marketing spend again. But rebuilding the programs is very expensive”.
Instead of cutting ad spend, create an advertising strategy that works harder and has impact. Even amidst advertising inflation, a strong campaign will continue generating a healthy return on investment (ROI). The best advertising campaigns are:
In recent years the idea that emotionally driven campaigns perform better has been popularized. And whilst there is truth in this, it’s not always the case. Whether your campaign will be better served by emotion-led or rationale-led advertising depends heavily on the type of product or service being sold.
One study found that emotive messaging works best when promoting products and experiences that the consumer can observe and evaluate after purchase (buying wine, for example). And rationale messaging works best when promoting goods or experiences where usage is more difficult to measure (expert services like medical procedures, for example).
Contextual advertising involves placing ads in relevant environments, based on a web page’s content. For example, an ad about a new kitchen gadget might be published on a food blog. Advertisers reach audiences that are likely to be interested in their products based on the content they consume, even if they’re not directly searching for that product. This broadens audience reach (without reverting to the blanket approach we know doesn’t work) and increases engagement.
Research shows that high context ads are 13% more engaging than low context ads. And because contextual advertising targets content, not individuals, it also protects user privacy. Contextual advertising doesn't rely on third-party cookies which is good news since Google is planning to phase these out in Chrome by 2024. With the advertising industry moving towards a more privacy-centric approach in general, contextual advertising looks to be the most viable solution.
Targeting is an integral part of ad spend optimization. Advertising budgets should be directed towards targeted accounts and specific audiences. If content is reaching the wrong people, it’s wasted. Before launching a campaign, use first party data to set detailed targeting parameters. Some of the most effective parameters to work with include location-based presence and/or interest, the time of day your target accounts are most active, high-intent keywords or topics, demographic factors such as age, gender, or job title, behaviors and interests, and device/platform use.
Running display ads on LinkedIn for a GenZ audience present mostly on TikTok is unlikely to be effective. An audit of companies with digital ad budgets between $500,000 and $39 million found that, “across digital media channels, most digital ad spend will be wasted on Facebook at $52 million, followed by Google at $43 million, LinkedIn at $28 million, and Bing at $10.7 million”. So, choose your platforms wisely.
Once target parameters have been set, advertisers can make their dollars go further by carefully spreading ad spend out across different platforms and formats. Once again, it’s important not to fall into the trap of being too generic and spend distribution should never come at the expense of robust targeting. You still need to be clear about who you want to reach and where you want to reach them. But since customers rarely stick to just one platform, cross-platform campaigns are a must.
The best way to approach spend allocation is to identify the platforms where you have the most organic reach then divert some spending towards repurposing top-performing content into different formats. That could be paid ads, social media ads, video ads, audio ads, or even in-game advertising. Consider new formats. If you know that your audience spends time streaming music, listening to podcasts, or gaming online then audio advertising is one of the latest advertising mechanisms that you might want to consider.
Despite the advertising slowdown, many small businesses have found that TikTok is yielding positive results and 78% of small businesses using TikTok say they’ve realized a positive ROI through advertising on the platform. But it’s also important to think beyond the big players. If you know your customers are active on Reddit then make sure you’re on Reddit. The rest is simple. Scale up on the platforms that convert best and reduce spending on those that don’t.
Research shows that automation can decrease cost per lead by nearly 20% and cost per click by 9%. Automated advertising platforms like Demand Side Platforms (DSPs), ad attribution products, and anomaly detection services are equipped with features to help advertisers optimize ad spend, track ad value metrics, and flag up anomalies in campaign data.
DSPs like OneView, mediaMath, and The Trade Desk help advertisers and media buyers acquire ad space more economically on the back of automated ad spend optimization features like real-time bidding, budgeting strategies, inventory selection, advanced user targeting, real-time analytics, and reporting features. Another option is to use a dedicated ad management tool to automate various aspects of a campaign. Tools like Adstream, Smartly, and AdRoll measure the success of campaigns and use measurement and attribution to identify the most lucrative growth opportunities.
Decentralized advertising allows advertisers to exchange and bid on ad space within decentralized micro-exchanges communicating within a wider network. Decentralized advertising follows the same concept as decentralized currencies. Power is distributed among participants in exchanges that run on a blockchain.
A decentralized advertising model allows advertisers to continue buying ads programmatically from a wide range of publishers but with the absence of a central authority or intermediary body. Proponents of decentralization believe it affords marketers greater privacy, transparency around spending (decentralization eliminates untraceable costs), and can reduce ad spend lost to fraud - an enticing promise bearing in mind that digital ad fraud costs in the United States reached 81 billion dollars in 2022.
Decentralized advertising ecosystem, Adshares (ADS), consists of a blockchain, ad settlement protocol, and ad servers to manage and place campaigns. Medium describes the platform as a “three-layer complete solution for ad tech”. The vision is to simplify blockchain adoption within adtech, make buying ads more transparent, and facilitate the placement of ads within Web3 apps and the Metaverse. Since Adshares’ integration with the data union SWASH, ads can now be informed by zero-party data (data that customers proactively share with a business), which bodes well for advertisers looking for cookieless alternatives to targeting.
In their search to improve return on ad spend, adtech companies should also consider where cost savings can be made around one of their biggest expenses - infrastructure. Many are led to believe that the most cost-effective infrastructure solutions lie with the hyperscale cloud providers. And it makes sense. Hyperscale cloud comes with minimal barriers to entry, pay-per-usage plans, and quick provisioning. But often these aren’t the solutions offering the best balance between network quality and affordability.
The reality of pay-per-use models like these is that, more often than not, you end up paying a premium for what you need. And as your resource demand increases, it’s easy to start haemorrhaging money. Instead of achieving flexibility, companies find themselves locked-in to services that are financially unsustainable.
Nobody wants to change infrastructure provider. But by shopping around to see what else is out there, including options for reducing spend on baseline compute needs with dedicated hosting, you can save serious money. Infrastructure-as-a-service from bespoke hosting providers comes with predictable costs, increased transparency, and far better levels of technical support. Through a full or partial migration to bespoke adtech server hosting, companies can find a better balance between spend and performance.
When the economy shows signs of instability, ad budgets are usually the first thing to go. But slashing budgets isn’t necessarily the solve-all option it seems and often businesses find that the decision causes more problems than it solves long-term. From making use of automation and contextualized advertising, to investigating the new world of decentralized advertising, there are tools at your disposal to help you spend more efficiently. Instead of panicking at the first sign of crisis, finding ways to ensure return on ad spend is a more sustainable approach. And that means eliminating waste. 10 billion dollars is wasted every year on video ads that are partially in-view. The solution? Spend better. Trim the fat and prioritize targeted, contextual ads spread out between high-performing channels.
