Inflation’s Impact On Ad Spend Detailed In Merkle Report

The leading technology and data-driven customer experience company, Merkle, released its quarterly Performance Media Report last week.

Research from the past quarter shows valuable insights into marketers’ priorities, challenges, and performance.

With over 57% of respondents indicating an increase in paid search spend YoY, these findings are especially crucial as we face economic challenges and uncertainty.

I sat down with Matt Mierzejewski, SVP of Search at Merkle, where he provided his take on some of the most glaring stats from the Performance Report.

Prioritizing Privacy And Measurement

From the Merkle report, 45% of respondents stated that getting accurate reporting in the face of privacy regulations is a top priority in measurement.

Many companies are likely in the same boat but may not know where to start.

Mierzejewski states: “Brands are big on cross-device measurement. Apple disrupted the measurement game. Many companies are looking to build their data warehouses for multiple reasons:”

• Too much reliance on individual platforms. The more conversions are modeled in a platform, the less perfect a company’s individual measurement is.
• They’re tired of black box solutions. Brands want to be able to own or change the way they model conversions.

Mierzejewski also noted that with more brands looking to build their own reporting solutions, it changes the dependency from the platform conversion truth to their own conversion truth.

Prioritizing Audiences & First-Party Data

Looming privacy regulations have kickstarted the need for brands to create and manage their first-party data.

However, only 35% of respondents prioritize managing audiences and first-party data.

I asked Mierzejewski: “what do you see as the macro implications of so many companies waiting on this?”

He responded with a few points:

“From a digital perspective, they’re shifting towards getting their creative and messaging right.” If you’ve interacted with a brand, you’ll notice how consumer expectations have shifted.

“An implication of deprioritizing audiences and first-party data is poor customer experience.” Not prioritizing these crucial aspects of marketing will accelerate the deceleration, or further remove, the customer feeling connected to that brand.

“You have to use those unknown audience signals to your advantage to meet the expectations of consumers and beat out the competition.” For example, In-Market audiences from Google releases more signal and intent of propensity to buy. They’re allowing those signals to be in the open market.

Mierzejewski summarized: “It misses out on the opportunity for the best customers. You’ll be left competing for the worst customers!”

Paid Social Growth In 2023

An overwhelming 67% of respondents prioritized paid social more this year than 2021.

The growing number of social platforms with ad opportunities is a partial factor in increased prioritization.

When asked about what social platform would see the most growth in 2023?

“If we’re talking raw dollars, Facebook and Instagram will still win,” Mierzejewski stated.

Further, he notes: “If we’re looking at percentage growth and who to watch for, it’s TikTok.” Matt shed some light on user projections, with TikTok’s growth projected to surpass Snapchat next year.

Inflation Is Driving Faster Adoption Of Machine Learning

With inflation costs, adopting automation and machine learning may be put on the backburner.

Not according to the Merkle Performance Report.

• 41% of respondents are beginning to take action on automation and machine learning strategies
• 38% of respondents have made significant progress in their ML strategies

So, why is inflation driving faster automation adoption?

“Inflation is just one element. It goes hand-in-hand with the last few years. COVID accelerated Ecommerce and the digital world for many companies,” Mierzejewski noted. He went on to say:

“There’s greater scrutiny on the investments in companies. They are trying to beat the market and the competition. There’s pressure for leaders to be tied into the data and marketing measurement.”

Let’s not forget one of the most critical aspects: resources.

Mierzejewski finished by noting that if companies are having trouble hiring individuals, they’re trying to do more with less. They have to rely on automation to supplement the workload.

Inflation’s Impact On Advertiser Strategies

We’ve seen the stats on increased advertiser costs YoY.

We have a better understanding of what marketers are prioritizing in the future.

Amid economic factors that companies can’t control, advertisers might not know how or where to pivot their strategy. When posed with this question, Mierzejewski provided his expert opinions.

“Expect double-digit changes to ad spend.”

Whether the above statement refers to an increase or decrease in ad spend, this change is based on a mixed bag of strategy, cash flow, inventory positions, and the vertical.

“The economic pressure reminds me of 2008 – the downturn of the digital sphere. Some clients will pull back on ad spend. Others may take the opportunity on the downturn and have double-digit growth,” Matt commented.

CPCs will likely decline.

In these types of environments, CPCs are likely to go down. This could allow advertisers to shuffle dollars based on what will work hardest for them.

Matt notes, “If you can be bold, it’s the time to do it.” The decreased CPCs become a buying opportunity for advertisers with the financial capacity to spend more.

“Don’t over-pat yourself on the back.”

Mierzejewski emphasized, “Be careful on the data.” He explained that with inflation and rising costs, you may also see a natural rise in revenue.

For example, if you’re seeing a 10% lift in sales but spent 15% more in advertising or COGS, that can provide a false narrative in growth. The 10% increase in revenue may be attributed to inflation costs and, in this case, shows a decline in profitability.

Summary

The Q3 Performance Marketing Report provides invaluable data to unpack.

If you haven’t yet taken action on privacy regulations, you’re not the only one.

And while inflation, privacy, and other economic impacts can cause shifts in performance trends, they’re not the only factors.

The paid media landscape changes every day. Use this to understand how others in the space are shifting priorities and strategies and what this means for you.

You can download your copy of the Performance Marketing Report here.

A special thank you to Matt Mierzejewski, SVP of Search at Merkle, for taking the time to address these statistics and providing additional insights.

Featured Image: PopTika/Shutterstock