It seems like everyone is talking about advertising in ChatGPT.
Historically, marketers advertised in new media properties, like the first issue of a magazine — remember them? — or a new website.
But with ChatGPT, I’m not sure there’s a first-mover advantage in advertising early.
Open AI is adding new functionality that will provide value to marketers, like the recent addition of Cost-Per-Click Advertising priced in the $3 to $5 range (vs. the initial $60 CPM), and the conversion tracking pixel, which are being tested with selected marketers. Given the pace of announcements from the company, I’m expecting quite a few more changes in the coming months. Beyond these changes are the learnings that are being gained from the early marketers and retailers. That’s why I’m recommending to our clients to take a wait-and-see approach regarding advertising in ChatGPT. In a few months, everyone will be smarter regarding what works and what doesn’t on ChatGPT.
That said, I’m not convinced that I’ll recommend to our clients to run ads in ChatGPT for the Q4 holiday shopping season.
For the record, I spend a lot of time daily in LLMs (ChatGPT, Perplexity, Claude, Grok, Gemini, as well as dedicated solutions like Gamma, notebook LM, and more). I’m a big believer in LLMs for search and discovery, even for the coming Q4 holiday season, because the user’s intent is the focus of the conversational exchange with the LLM. That’s why marketers need to make sure that their brands appear in as many relevant conversations across all of the leading LLMs.
Remember the Ecommerce Hype from the Early 2000s?
The reason I’m less excited about advertising in LLMs goes back to the early 2000s, with the rise of the dot-coms. Many predicted that this would result in the closure of some malls and physical stores as shoppers turned to online channels for shopping.
Now, 26 years later, only between 19% to 27% of Q4 holiday shopping occurs via digital channels. Though that’s nothing to sneeze at, it highlights the importance of physical shopping, which wasn’t readily apparent to analysts in the early 2000s.
We now understand that the physical store is the center of the omnichannel shopping experience.
LLMs Rising
I expect LLM usage to grow significantly this Q4 holiday season, and that growth should continue over the coming years as shoppers turn to them for research, discovery and comparison. I’d expect the high conversion rates experienced last year to drop, as more consumers turn to LLMs to start their shopping journey. But the increase in conversions should more than offset the decrease in conversion rates.
LLMs will increase their importance to retailers as more retailers develop AI agents to provide customer service and send users through the conversion funnel to the retailer, like IKEA. The Swedish retailer’s AI bot Billie answers 47% of customer queries since it was introduced in 2021. Following the success of Billie, IKEA retrained 8500 call center employees to work as interior design advisors, generating more than $1 billion in revenue in their first year of operation.
The reason that the physical store still commands the lion’s share of retail sales is because most consumers crave the in-store experience. Data shows that the strong intent from the conversational nature of conversations with LLMs drives search and discovery traffic to the brands and retailers that have done their homework and appear in relevant LLM queries.
As retail media and commerce consultant Kiri Masters recently wrote, “When everything else becomes abstract and chronically online, the physical store becomes more valuable, not less. For many people, shopping remains a third place, something to do, a form of discovery and inspiration.”
So for your Q4 holiday shopping campaigns, retailers should focus on the channels that are currently delivering conversions, from social media to DSPs and the open web. And they should also do the work to ensure that their products and/or services appear in all the leading LLMs when prospects conduct relevant conversational queries.
