The fight for customers. Why Google Ads and Facebook are becoming more expensive.
Online advertising is becoming more and more expensive. No matter wether Facebook Ads or Google Adwords - due to the increasing competition, the fight for new customers is getting harder and harder. And above all more expensive. Compared to the previous year, Facebooks CPC is 92% higher, while Google 2018 even pays 117% more on average.
Why is that? There are many answers to this question, but in the end the rising costs are a deliberate part of the system. Fundamentally, Google Adwords and Facebook Ads are based on an auction system. The more valuable clicks there are to distribute, the higher the bids will be because more players are fighting over the traffic. Supply and demand.
Just a few years ago this was not a problem, but the market is now saturated and small and medium-sized companies in particular cannot compete with the massive advertising budgets of Amazon, Otto, Zalando and Co. The situation becomes particularly critical when the price for fresh traffic no longer justifies the benefit because the increase in customers is lower than the rising costs. Pay more for less performance. This is exactly the scenario we are experiencing right now.
Nevertheless, most online shops blindly follow the principle "a lot helps a lot" and trust that more traffic will automatically bring more customers. There is, believe it or not, 92 times more investment in traffic acquisition than in the care of existing customers and visitors. The result: more traffic, less conversion. With so-called primary traffic, on average only 3.3% of all sessions lead to a successful purchase, while 96% of all customers "just take a look", but never buy.
This is why successful brands and retailers focus not only on increasing their traffic, but especially on increasing their customer lifetime value. This ensures that even high acquisition costs are compensated by each customer in the long term. A typical example of this is secondary traffic. This is characterized by significantly higher conversion rates, larger shopping baskets and a stronger connection to the shop. This includes, for example, returning customers or customers who visit the shop on personal recommendation. It is quite clear: If you have already bought something in a shop and were satisfied, it is obvious to come back next time. Interestingly enough, the experience of friends is almost equivalent to buying one's own. Personal recommendations are therefore much more valuable than previously assumed.
So, where does it all lead? Facebook, Google et al. are unlikely to change anything about their model. Why should they? It works. Ultimately, one should not forget that on the other hand, it's all about sales and profit. Advertising revenues are the only relevant source of income for these companies, and they need to be protected and expanded. And with declining user numbers, there is only one way: to increase prices.
Successful brands are opting out of this eternal race for primary traffic and are position themself more broadly. They know that the road to success is not a sprint, but a marathon and focus on optimizing the things that deliver real added value: by actively mobilizing their own customers, like Tupperware did in the 1950s. Long before influencer marketing and Instagram shopping was even an issue.
The very moment Tupperware turned selling into a fun and social happening, the unstoppable success came. When you spend a nice afternoon with a glass of bubble wine and your friends start stocking up with new bowls, cans and futuristic salad spinners, it's extremely difficult to go home completely empty-handed.
What has transformed Tupperware into a billion-dollar company doesn't just work offline. Instead of going on a customer safari with Google and Facebook, you should enable your customers to open groups directly in your shop and invite friends, family, colleagues and neighbours. Because your customers know best who should get to know your shop.