The 222% cost increase, attribution anarchy and other industry challenges

The digital advertising industry has always been a fast-moving beast. But the speed at which technological innovation and audience behaviour are currently evolving brings a set of increasingly complex challenges.

Consumers generally have less money now… but more choice as to where they can spend it, making it more difficult for brands and advertisers to reach – and engage with – consumers. Increasingly stringent consumer consent legislation, the loss of addressable data, skyrocketing acquisition costs and attribution hell are all making the contemporary marketers job a tricky one. Let’s take a look at the challenges we all face, and how we might combat them.

Consumers have it tough, which means marketers do too

Consumers are struggling financially at the moment, and this has a direct effect on their ability to spend. A KPMG UK study published last year suggests that 52% of consumers have cut non-essential spending, and that only 3% are spending more on non-essential items. If consumers are unable to buy, even with a great deal, digital advertising has an uphill battle in persuading people to part with what cash they have available to spend.

Exacerbating the issue is that consumer attention is spread across more channels and touchpoints than ever before. The consumer journey has transformed in recent years, and any sense of linear progress through some kind of funnel is outdated. Discovery, consideration and purchase are now multidimensional, free-flowing concepts that interact freely in both the digital space and in-store. That a significant chunk of product research is carried out online, yet 83.8% of customers buy in store, shows the scale of the challenge digital advertisers face in tracking the modern consumer.

The cost of customer acquisition is also increasing. In fact, research by SimplicityDX shows that between 2013 and 2022, the cost of acquiring a customer increased by 222%, and that rate shows no sign of slowing. As a result, higher ad prices are hitting profit margins hard, and with less targeting data available to reach consumers, advertisers are investing more into retargeting and personalised ads, which all increase the cost of acquisition.

There are many consumer-centric challenges for digital advertisers, but it’s not all doom and gloom. Innovative advertisers will successfully reach their audience. Focusing on standout creative and personal marketing channels (such as email), that speak directly to customers, is a great place to start.

Navigating the new customer journey is perhaps marketing’s greatest challenge, but understanding where consumers spend time, and making conversions possible in those places, is at the core of the solution.

Data, privacy, and the biggest tech challenge – attribution

If reaching consumers is one challenge, then tracking them is another. We live in a privacy-centric world, and it is right that people have control over their data, and are protected from unethical, illegal marketing methods.

However, recent legislation designed to provide this protection, such as the UK Digital Markets, Competition and Consumers Act 2024, has made access to addressable data and other targeting signals harder. Advertisers have to think again when it comes to the data they use to reach consumers, and work hard to persuade an audience their information is worth sharing. The loss of targeting signals is even slowing machine learning’s ability to feed algorithms and model audiences across the industry.

Attribution is a long-standing problem for digital advertisers. Privacy legislation shares a degree of responsibility for that, as does the nature of the multi-device, cross-platform world we live in. As we’ve already seen, just over 80% of customers still buy in stores. Consumers are simply harder to follow around an increasingly fragmented ecosystem, and there’s a risk of running badly aligned marketing campaigns influenced by lost insights that have no understanding of the customer’s path. The fact that 69% are also being introduced to new products weekly makes it important for brands and advertisers to stand out from the crowd.

AI, simultaneously a game-changing opportunity and a terrifying end-of-level boss, is proving a significant disruptor for the industry in numerous ways. For example, as a browsing agent, it will affect the visibility of traditional display ads, resulting in spend migrating to immersive formats inherently immune to this kind of influence, such as podcasts, video and OOH. This will have strategy, demand and cost repercussions across the industry.

Rising to these challenges won’t be easy, but brands that work hard to build their first-party data in a compliant, safe and transparent way while developing advanced attribution tools should navigate these waters with relative ease.

As always, the cream of the digital advertising industry will rise to the top, and platforms and solutions that address attribution, the customer journey and consumer privacy – while committing to producing better ad creatives – will flourish in the space.

Also published in: Martech360