Online retailers' bet on advertising
In response to escalating competition, online retailers worldwide have bolstered their advertising budgets in recent years to distinguish themselves from competitors and captivate customer attention. In 2022, Amazon's advertising costs reached approximately 20.6 billion, almost double its spending in 2020. This upward trend is also evident among other e-commerce giants. For instance, the Chinese multinational Alibaba Group saw its advertising spending increase nearly threefold during the same period. Similarly, the leading online marketplace in Latin America, Mercado Libre, experienced a growth of over two-thirds in its marketing expenditures, reaching close to 1.3 billion U.S. dollars.Furthermore, as online retailers allocate more resources to advertising, they must carefully select the most suitable ad formats and channels to achieve their marketing objectives and effectively reach their target audience. On average, online retailers utilize three digital advertising channels. While advertising on search engines remains essential, with more than nine out of ten retailers employing this channel, social networks have emerged as a crucial marketing channel. In 2022, social media surpassed e-mail and organic search as primary channels for promoting marketing content.
More than ads: social media and influencers
Initially, social networks served as highly efficient advertising channels for marketers to reach specific audiences based on their interests, demographics, and behaviors. However, these platforms have evolved by integrating e-commerce functionalities into their interfaces, blurring the boundaries between social media and online shopping. Online retailers have witnessed the benefits of increased exposure and awareness while minimizing costs, as reflected in the evolving cost per thousand impressions (CPM) over recent months. However, intense competition has led to a decline in click-through rates (CTR), indicating reduced user interaction with ads on these networks and thus negatively impacting campaign performance.To break through this barrier, merchants have ventured into new realms of creativity, increasingly relying on influencers to capture and retain user attention. In 2023, more than a third of marketing agencies and brands allocated over a third of their marketing budgets to influencer marketing. Between 2017 and 2023, influencer marketing grew sevenfold, estimated to exceed 21 billion U.S. dollars. By partnering with influencers, brands not only harness their large following but also tap into relatable content that resonates with their audience, thereby impacting purchasing decisions.
Capitalizing on consumers’ feedback
In contrast to social media ads, user-generated content (UGC) - such as reviews, ratings, photos, and other forms of feedback - gives consumers a sense of genuine opinions and experiences. A 2022 study revealed that when visitors encounter UGC on e-commerce sites, the likelihood of their visits resulting in purchases increases by an average of 3.8 percent. Even more noteworthy is the remarkable 102 percent increase in conversions following interactions with UGC. Inherently more engaging and captivating than plain text, imagery is a significant purchase stimulus, boosting conversions by approximately 104 percent. Star ratings also influence customer perception and decision-making. Based on the product landing page (PDP), visits experience a higher increase when surpassing the four-star threshold. Therefore, it is not to underestimate the power of word-of-mouth and user-generated content in a world saturated with advertising.
