How retail marketers can side-step the CPA crisis created by Shein and Temu
Recent disquiet voiced by retail brands about the impact that dominant players like Shein and Temu are having on competition in the sector have also highlighted the specific impact they are having in raising the CPA in ad auctions, leading to a CPA crisis.
As these huge players pile spend into Paid Media channels on platforms like Facebook and Google, other players are finding themselves locked out from the space and are finding it increasingly difficult to compete. However, there is hope on the horizon for challenger brands that can step out of the zero-sum game that is currently pushing CPAs up unsustainably at the bottom end of the marketing funnel. But only if they can use AI-driven and cookieless solutions to find better opportunities upstream.
Read on to find out how as we consider:
- Why retail brands are concerned about Temu and Shein
- Why Paid Advertising auctions are a zero-sum game
- How an unhealthy lower funnel focus is making things worse
- Changing the game – by moving up the funnel
- Reducing CPAs by 46% for a large televised shopping channel with AI-driven attribution
Why retail brands are concerned about Shein and Temu
To set this up in context it is useful to consider the growth that both brands have experienced recently.
- Take Shein, for example. If you go back to 2019 it was a sizeable player in the retail ecommerce market with revenues of $3.15bn. But the pandemic turbocharged their revenues, with an incredible 620% growth in sales (to $22.7bn) between 2019 and 2022 – and projections are that this will rise to $60bn by 2025.
- Temu is on a similarly stellar trajectory with revenue growth of 94% year on year and sits at $16bn in 2023.
These huge revenue figures give both platforms the financial muscle they need to dominate in their space. And this has led to other retailers calling them out in two key ways:
- Firstly, they claim that the sheer scale of their operations mean it is almost impossible to compete with the new players on price, due to the economies of scale and reach that they now have
- But secondly – and more importantly for our analysis – Josh Silverman, CEO Of Etsy, has claimed that Shein and Temu are almost single-handedly having an impact on the cost of advertising in the sector as competition for space increases
So, why do the actions of Shein and Temu matter for retail marketers as they struggle to maximise the impact of their marketing spend? And what can they do to combat the competitive pressure they find themselves under?
Why Paid Advertising auctions are a zero-sum game
The heart of the problem lies in the way that retail marketers increasingly compete for, and buy, advertising space. Particularly on major platforms like Facebook Ads and Google Ads.
Space is secured by effectively bidding to place ads on the network and, behind the scenes, the platform dynamically decides what ads show, when and at what cost to the advertiser. In theory, and according to players like Facebook, this type of approach creates value for individuals and advertisers alike. But the practical application of this is slightly different.
The auctions themselves are a zero-sum game with winners and losers in equal measure. As winners win bids and secure ads they effectively lock other advertisers out of what is a finite amount of ad space – and also drive costs up. It is a principle that is inherent in other marketing channels too like SEO where as much as 60% of the clicks available on a page are hoovered up by the first 3 listings on the page.
The issue is clearly visible in the case of Paid Advertising in retail ecommerce. Where players like Temu and Shein have the financial clout to simply outbid their retail competition and deny them the advertising space. The uncomfortable truth for the competition is that they don’t care about the efficiency of spend or the cost of acquisition.
For advertisers who are dialled in on keeping metrics like CPA and CAC realistic, and under control, the problem seems insurmountable. And as Forbes has pointed out, marketers focused on acquisition are fighting a constant battle against the trend with some Facebook CPAs increasing by up to 89%.
How an unhealthy lower funnel focus is making things worse
So, the financial clout of retail e-commerce giants like Temu and Shein is an issue for retailers looking to get products in front of customers.
This is a problem that is being exacerbated by what is quite an unhealthy focus on the lower part of the funnel – something that is partly driven by the preferences of the large ad platforms. Traditional ad reporting on platforms like Facebook and Google has relied on cookies as a means to track and assess the effectiveness of the ads being placed on their networks. The problem is, and as our work with clients continues to show, cookies – and attribution approaches like First and Last-Click do a particularly poor job of tracking complex cross-device and cross-channel journeys. This is due to limitations in the cookie/pixel tracking approach that result in them only seeing a small part of the customer journey. As shown below.
The end result?
The big platforms stick to providing measurement and reporting at the lower end of the funnel (the bit they can ‘see’) which over-emphasises the impact of lower funnel activity like re-targeting and other lower funnel media (and ignores impact further up the funnel). Which then perpetuates the cycle of increasing competition for space and driving CPAs up even further.
Changing the game – by moving up the funnel
So, how do retailers step outside of what is a zero-sum game -and a ‘perfect’ market – at the lower end of the funnel?
Consider this in the context of the Google ‘See/Think/Do/Care’ model. The Do (or Conversion) stage of the funnel is where a huge proportion of spend is focused due to the reasons laid out above. CPAs are high, competition is through the roof – and it is a race to the bottom.
The answer is to move into what is a more ‘imperfect’ marketplace further up the funnel. Where advertisers can take advantage of lower CPAs and a less competitive auction environment.
To achieve that you need to be able to ‘stitch’ the user journey together to spot lower CPAs in display, paid social etc. In the See and Think phases. This is what the Corvidae platform does by using AI and Machine Learning to provide a clearer view of what is – and isn’t – working in your marketing mix.
This is already giving brands in the retail sector the type of unfair advantage they need to compete effectively with retail marketing Goliaths like Temu and Shein.
Reducing CPAs by 46% for a large televised shopping company with AI-driven attribution
So, what does that look like in practice?
Take the example of a large televised shopping channel based in Germany. They were looking for an attribution solution to replace their existing ‘Last Click’ reporting in a GDPR-compliant manner. Being fully aware of the impending removal of third-party cookies, they engaged with Corvidae as a truly cookieless attribution solution.
Using Corvidae we were able to effectively rebuild their analytics data to produce anonymised customer journey paths that were three times the length of journeys in the existing analysis.
By feeding these extended journey paths into Google Ads it was possible to:
- highlight ad auctions that drove conversions which previously had been identified as wasted clicks
- create a more accurate picture of campaigns that were having an impact on conversion further up the funnel
And the results were significant with:
- a reduction in Customer Acquisition Cost of 46% for Google Ads activity by replacing cookie-based journeys with Corvidae conversion journeys
- An increase in ROAS of 86%
- A reduction in CPA of 34%
Finding cheaper retail CPAs with Corvidae
Corvidae, our patented cookieless attribution solution, is ideally placed to meet the challenges that ecommerce retailers are facing right and will enable you to:
- sidestep the impact – of brands like Schein and Temu at the bottom end of the funnel
- reduce the cost of your CPAs – by identifying opportunities in media like display and paid social
- broaden your marketing reach – and catch the attention of buyers much earlier in the buying journey
- do all of this in a cookieless way – that is GDPR compliant ‘out of the box’
Need to learn more? Why not discuss your acquisition and attribution challenges with one of our experts today?
