With a shorter-than-usual holiday shopping season ahead, competition for share of wallet will be exceptionally fierce. In addition to the compressed retail rush, Salesforce reports that 43% of consumers are carrying more debt than last year, making the fight for attention even more intense.
As holiday bargain hunters flock to crowded malls and equally crowded online platforms, retailers will battle for visibility in inboxes, on social media and across the web. The challenge could prove even greater for smaller D2C brands as they go head-to-head with national brands like Nike and Lululemon, which, in addition to direct sales, have the advantages of name recognition and multiple distribution channels.
Ringing in a Changing Digital Landscape
D2C brands have historically relied heavily on search and social media, which have devoured a significant chunk of their marketing budgets. Nearly 70% of marketing spend has gone to these channels. However, the rising cost of customer acquisition via digital advertising – up 50% over the past two years – is forcing brands to explore new strategies. Today, D2C startups often see diminishing returns on their ad investments much earlier in their growth phase, making diversification essential.
A recent study found that over 60% of ecommerce brands were not investing in Google Ads, a sign that the digital advertising landscape is changing. Brands are recognizing that sticking solely to search engine marketing (SEM) isn’t enough to stand out in today’s crowded marketplace, especially with rising costs and the intense competition for clicks.
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Search engine marketing
Search is still a critical tool driving traffic to online stores. Whether consumers search for a “shoe store near me” or “holiday gift ideas,” it plays a pivotal role, accounting for multiple touch points along the buyer’s journey. However, the average cost per click for SEM has risen by 10% year over year, fueled by increased competition and external economic pressures like inflation.
This competition will intensify during the holiday season, and ecommerce brands are likely to see higher prices accompanied by lower conversion rates as more retailers clamor for limited inventory.
Social media
Social media platforms, once the golden ticket for D2C brands, also have become oversaturated. Consumers are bombarded with in-feed ads, leading to fatigue and decreasing engagement. The pressure to meet holiday sales targets only adds to the noise on these platforms, with diminishing returns a growing concern. Furthermore, the landscape is becoming increasingly fragmented as new players emerge and demographic audiences shift from one platform to another.
As if things weren’t frustrating enough, Gartner predicts that social media engagement could drop by 50% over the next year as more users are turned off by toxic online behavior and misinformation. In short, while it’s still an important channel to engage users, social media isn’t a panacea.
Display advertising
Display ads offer diverse targeting options – contextual, behavioral, demographic – but they’re not a silver bullet either. Banner blindness has led to declining click-through rates, and many publishers are struggling with monetization, exacerbated by the rise of low-quality Made for Advertising (MFA) sites. In the U.S., the average click-through rate for digital display ads sits at a paltry 0.10%.
Nevertheless, digital display still plays an important role in a well-rounded media strategy. Emarketer predicted that U.S. display ad spend would jump to 15.7% in 2023, reaching $163.29 billion. Despite its flaws and challenges, brands still find value in digital display as part of a diversified approach, particularly in growing awareness.
Go Where the Shoppers go for Seasonal Success
As consumers shift their digital habits, advertisers must follow where they lead. Over the past decade, mobile phone usage has skyrocketed, and users check their phones more than 50 times per day. Importantly, they spend an average of more than four hours per day using apps. This creates a massive engagement opportunity for brands during the holiday season.
Mobile transactions account for a growing percentage of ecommerce sales every year and are expected to represent 60% of all ecommerce revenue by 2028. Given the time consumers spend on apps – spanning everything from gaming to messaging – brands have a huge opportunity to engage users in a highly focused single-tasking environment.
The Gift of In-app Advertising
One key advantage of in-app advertising is the high level of engagement it offers. In contrast to the desktop, where users juggle multiple tasks across tabs, apps demand full attention. In most cases, in-app ads are shown somewhat conservatively, like TV commercials, introduced at breaks in the action.
The ad units themselves also are compelling. Video and playable formats are engaging and interactive, offering brands the full screen to convey their message with video and audio. Playable ads, once exclusive to gaming, have now expanded across categories, including retail and fintech.
In-app advertising also allows for highly granular targeting. Brands can target users based on their location, demographics and more. Leading platforms use AI to predict user behaviors and continuously optimize targeting – driving better results over time.
In-app advertising consistently outperforms other digital channels. Consider these stats, curated by Embryo, that underscore the potential of in-app ads to deliver on performance:
- Apps convert three times more product viewers than mobile websites.
- In-app ads have an average click-through rate of 0.56%, compared to 0.23% for mobile web ads.
- In-app video ads see click-through rates 7.5 times higher than banner ads.
- Ads in mobile gaming apps boast an average click-through rate of 11.4%, the highest of all app categories.
Importantly, brand safety is something of a given with in-app advertising. One reason for this is that ad-supported apps must retain users in order to drive revenue, so it’s in their best interest to deliver an engaging experience that benefits both the user and the advertiser. This virtually guarantees that advertisers won’t run into MFA-like experiences in the mobile world. The other reason is that most in-app ads offer a full-screen experience. There’s no opportunity for harmful content to appear adjacent to a brand’s message.
As the holidays approach, in-app advertising presents a powerful opportunity for brands to engage – and even delight – shoppers while diversifying their channel strategies. With consumers spending more time in apps and mobile commerce on the rise, there is a significant opportunity to get ahead of competitors with interactive, full-screen ads that have the potential to drive meaningful business results. As consumers discover just-right gifts and marketers see their year-end goals achieved, this could mean a merry and bright holiday season all around.
Paul Kennedy is AppLovin’s VP of eCommerce. AppLovin makes technologies that help businesses of every size connect to their ideal customers. Kennedy joined AppLovin in 2024 to develop the company’s ecommerce vertical. His career includes more than 15 years at LifeStreet, where he held multiple positions including Co-founder and President and VP of Business Operations. Prior to joining AppLovin he was founder of Reperch, a consultant at BlocPower and a trusted advisor at Remoov. Kennedy holds a B.A. in Economics from Northwestern University.
