Why retail brands are concerned about Shein and Temu<\/strong>\u00a0<\/h3>\n\n\n\n<\/div>\n\n\n\nTo set this up in context it is useful to consider the growth that both brands have experienced recently. <\/p>\n\n\n\n
\n- Take Shein<\/a>, 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<\/a>, with an incredible 620% growth in sales<\/strong> (to $22.7bn) between 2019 and 2022 \u2013 and projections are that this will rise to $60bn by 2025. <\/li>\n\n\n\n
- Temu<\/a> is on a similarly stellar trajectory with revenue growth of 94% year on year<\/strong> and sits at $16bn in 2023. <\/li>\n<\/ul>\n\n\n\n
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: <\/p>\n\n\n\n
\n- 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 <\/li>\n\n\n\n
- But secondly – and more importantly for our analysis \u2013 Josh Silverman, CEO Of Etsy, has claimed that Shein and Temu are almost single-handedly having an impact on the cost of advertising<\/a> in the sector as competition for space increases <\/li>\n<\/ul>\n\n\n\n
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?\u00a0\u00a0<\/p>\n\n\n\n
<\/div>\n\n\n\nWhy Paid Advertising auctions are a zero-sum game<\/strong>\u00a0<\/h3>\n\n\n\n<\/div>\n\n\n\nThe 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. <\/p>\n\n\n\n
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<\/a>, this type of approach creates value for individuals and advertisers alike. But the practical application of this is slightly different. <\/p>\n\n\n\nThe 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 \u2013 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. <\/p>\n\n\n\n
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\u2019t care about the efficiency of spend or the cost of acquisition. <\/p>\n\n\n\n
For advertisers who are dialled in on keeping metrics like CPA and CAC realistic<\/a>, 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%<\/a>.\u00a0<\/p>\n\n\n\n<\/div>\n\n\n\nHow an unhealthy lower funnel focus is making things worse<\/strong>\u00a0<\/h3>\n\n\n\n<\/div>\n\n\n\nSo, 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. <\/p>\n\n\n
\n![\"\"](\"https:\/\/corvidae.ai\/app\/uploads\/2024\/02\/1.png\")
<\/figure><\/div>\n\n\nThis is a problem that is being exacerbated by what is quite an unhealthy focus on the lower part of the funnel \u2013 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 \u2013 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. <\/p>\n\n\n\n
The end result? <\/p>\n\n\n\n
The big platforms stick to providing measurement and reporting at the lower end of the funnel (the bit they can \u2018see\u2019) 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.\u00a0<\/p>\n\n\n\n
<\/div>\n\n\n\nChanging the game \u2013 by moving up the funnel<\/strong>\u00a0<\/h3>\n\n\n\n<\/div>\n\n\n\nSo, how do retailers step outside of what is a zero-sum game -and a \u2018perfect\u2019 market – at the lower end of the funnel? <\/p>\n\n\n
\n![\"\"](\"https:\/\/corvidae.ai\/app\/uploads\/2024\/02\/2.png\")
<\/figure><\/div>\n\n\nConsider this in the context of the Google \u2018See\/Think\/Do\/Care\u2019 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 \u2013 and it is a race to the bottom. <\/p>\n\n\n\n
The answer is to move into what is a more \u2018imperfect\u2019 marketplace further up the funnel. Where advertisers can take advantage of lower CPAs and a less competitive auction environment. <\/p>\n\n\n\n
To set this up in context it is useful to consider the growth that both brands have experienced recently. <\/p>\n\n\n\n
- \n
- Take Shein<\/a>, 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<\/a>, with an incredible 620% growth in sales<\/strong> (to $22.7bn) between 2019 and 2022 \u2013 and projections are that this will rise to $60bn by 2025. <\/li>\n\n\n\n
- Temu<\/a> is on a similarly stellar trajectory with revenue growth of 94% year on year<\/strong> and sits at $16bn in 2023. <\/li>\n<\/ul>\n\n\n\n
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: <\/p>\n\n\n\n
- \n
- 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 <\/li>\n\n\n\n
- But secondly – and more importantly for our analysis \u2013 Josh Silverman, CEO Of Etsy, has claimed that Shein and Temu are almost single-handedly having an impact on the cost of advertising<\/a> in the sector as competition for space increases <\/li>\n<\/ul>\n\n\n\n
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?\u00a0\u00a0<\/p>\n\n\n\n
<\/div>\n\n\n\nWhy Paid Advertising auctions are a zero-sum game<\/strong>\u00a0<\/h3>\n\n\n\n
<\/div>\n\n\n\nThe 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. <\/p>\n\n\n\n
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<\/a>, this type of approach creates value for individuals and advertisers alike. But the practical application of this is slightly different. <\/p>\n\n\n\n
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 \u2013 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. <\/p>\n\n\n\n
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\u2019t care about the efficiency of spend or the cost of acquisition. <\/p>\n\n\n\n
For advertisers who are dialled in on keeping metrics like CPA and CAC realistic<\/a>, 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%<\/a>.\u00a0<\/p>\n\n\n\n
<\/div>\n\n\n\nHow an unhealthy lower funnel focus is making things worse<\/strong>\u00a0<\/h3>\n\n\n\n
<\/div>\n\n\n\nSo, 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. <\/p>\n\n\n
\n<\/figure><\/div>\n\n\nThis is a problem that is being exacerbated by what is quite an unhealthy focus on the lower part of the funnel \u2013 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 \u2013 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. <\/p>\n\n\n\n
The end result? <\/p>\n\n\n\n
The big platforms stick to providing measurement and reporting at the lower end of the funnel (the bit they can \u2018see\u2019) 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.\u00a0<\/p>\n\n\n\n
<\/div>\n\n\n\nChanging the game \u2013 by moving up the funnel<\/strong>\u00a0<\/h3>\n\n\n\n
<\/div>\n\n\n\nSo, how do retailers step outside of what is a zero-sum game -and a \u2018perfect\u2019 market – at the lower end of the funnel? <\/p>\n\n\n
\n<\/figure><\/div>\n\n\nConsider this in the context of the Google \u2018See\/Think\/Do\/Care\u2019 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 \u2013 and it is a race to the bottom. <\/p>\n\n\n\n
The answer is to move into what is a more \u2018imperfect\u2019 marketplace further up the funnel. Where advertisers can take advantage of lower CPAs and a less competitive auction environment. <\/p>\n\n\n\n
- Temu<\/a> is on a similarly stellar trajectory with revenue growth of 94% year on year<\/strong> and sits at $16bn in 2023. <\/li>\n<\/ul>\n\n\n\n
![\"\"](\"https:\/\/corvidae.ai\/app\/uploads\/2024\/02\/3.png\")
<\/figure><\/div>\n\n\n![\"\"](\"https:\/\/corvidae.ai\/app\/uploads\/2024\/02\/image.png\")
<\/figure><\/div>\n\n\n