The world of paid advertising has undergone significant changes in recent years. A combination of increased legislation and a growing opt-out movement have made it more difficult for marketers to effectively target customers through paid media. In this blog post, we'll explore:
1) The mechanics of paid advertising
2) The factors contributing to the decline of paid advertising
3) What the decline of paid advertising means for marketing and sales strategies moving forward
The Mechanics of Paid Advertising: Understanding the Data-Driven Process
Paid digital advertising has evolved into a complex system that relies on the collection and analysis of data to deliver highly targeted ads to consumers. Where does the data come from? In short, from us.
The data sources used by advertisers primarily consist of pixels and cookies installed across millions of websites. These trackers monitor users' online activities, capturing movements and interactions through their IP addresses. This rich pool of information is then harnessed by ad platforms like Google, LinkedIn, and Facebook, which aggregate the collected data and create a comprehensive "model" of each user's preferences and interests.
With these models in place, ad targeting can be fine-tuned to cater to the specific tastes and buying history of each user. The key to success in this realm lies in the ability to survey and compile a detailed data profile on every individual, ensuring that the ads they encounter resonate and drive them to engage with the promoted content.
The Downward Spiral of Paid Advertising: Facing New Challenges
As the world becomes more aware of all the ways we are being monitored and tracked online, the once seemingly unstoppable growth of paid advertising is now facing significant challenges. There are two interrelated factors that are driving down the ability of online advertisers to track users as effectively as they once did.
- Increasing privacy legislation. One of the primary factors contributing to this decline is the surge in legislation aimed at protecting users' data. The Cambridge Analytica Scandal brought the issue of data privacy to the forefront, leading to the implementation of stricter regulations such as the General Data Protection Regulation (GDPR) in Europe, the UK Online Safety Bill, and potential federal legislation in the United States, including the Colorado, California, and other state laws aimed at protecting consumer privacy. We should expect to see the US and other countries following the examples of the EU and in terms of data privacy regulation and enforcement. This will likely result in further restrictions on data collection and tracking, impacting not only advertising platforms but also sales software that depends on tracking data to generate prospect information.
Case in Point: The Cambridge Analytica Scandal
The Cambridge Analytica Scandal serves as a prime example of the challenges faced by the paid advertising industry. As a result of the scandal, Facebook lost access to all of its third-party data, severely limiting advertisers' ability to target specific demographics and interests. Entire industries and customer segments suddenly became impossible to reach. For instance, realtors who relied on targeting "people looking to move" found themselves struggling to connect with potential clients, as this once valuable channel was no longer viable.
It is becoming increasingly difficult for advertisers to collect and track user data. This, in turn, diminishes the accuracy of ad targeting and leads to higher paid media costs.
The Impact of Privacy Concerns on Paid Media
The decline of efficacy in paid advertising manifests in several ways:
- Less effective media placement results in lower click-through rates, as ads become less relevant to users.
- Advertisers face higher customer acquisition costs, as channels that were once inexpensive become less efficient due to limited targeting capabilities.
- Marketers should anticipate rising CPMs (cost per thousand impressions) and CACs (customer acquisition costs) while also contending with lower CTRs (click-through rates) and increased difficulty in retargeting potential customers.
These trends signal a significant shift in the advertising landscape, demanding new strategies and approaches from marketers who want to remain competitive.
The Shift From Finding to Being Found
Marketing and sales strategies will shift in the coming years to prioritize customer needs and preferences, and the focus of marketing will move from finding customers to being found by creating indexable, shareable content that naturally attracts and engages users. Empowering buyers to discover your brand on their own terms means providing them with the tools and resources they need to make informed decisions.
Good marketing will be driven by customer education, not surveillance, emphasizing the importance of understanding and addressing customer pain points through valuable content. As data collection becomes increasingly restricted, the best marketers will be those who can effectively attract and create demand through their ability to authentically connect with potential customers. For B2B, this means creating content that customers can find at every point in their due diligence process, following these digital “breadcrumbs” back to your company.
The decline of paid advertising presents an opportunity for businesses to reevaluate and refine their marketing strategies. By shifting the focus to customer education and providing valuable content, marketers can continue to thrive in an environment that prioritizes privacy and user empowerment. Embracing these new approaches will not only ensure compliance with evolving regulations but also foster lasting relationships with customers who appreciate brands that both respect their privacy and prioritize their needs.