Home / Opinion / Columns /  War for digital customer and the boom in ad prices

As more and more brands chase customers online in the hope of persuading them to buy their products, the cost of digital advertising and customer acquisition is seeing a sharp increase. Darpan Sanghvi, founder of The Good Glamm group that owns a clutch of sustainable direct-to-consumer beauty brands, unequivocally states digital advertising costs have soared by about 50% on marketplaces in the last 18 months. “The cost of driving traffic to your direct-to-consumer (D2C) website has also jumped by 25% as this is driven by Google and Facebook," said Sanghvi, explaining that it’s become very expensive to be seen on or sell online.

Digital agency Social Panga’s co-founder Himanshu Arora confirms the trend. He attributes the crazy spike in customer acquisition cost to the more recent transformation of the digital ecosystem. Five to six years ago, only the tech or new-age brands and online businesses such as MakeMyTrip or Trivago used digital media to advertise, he said. Uptake of digital advertising was slow, but then came covid-19, forcing both brands and consumers to go online. The launch of D2C or internet-first brands across product categories saw an explosion, said Arora.

Free availability of capital for startups meant that they could burn cash to acquire customers. “With many brands chasing growth at any cost, digital advertising rates spiked," said Shankar Prasad, founder and chief executive officer at D2C vegan beauty brand Plum. Additionally, as shoppers moved online, legacy brands too raised their expenditure on digital media.

Consequently, demand started outstripping supply, causing digital media inflation. Google and Facebook, which auction advertising on their platforms, saw the bidding wars intensify, escalating costs for all those who want to advertise or sell online.

Pratik Gupta, co-founder, Zoo Media, which owns creative digital agency FoxyMoron, argues that far too many brands in a category are chasing a limited number of customers adding to the costs. He believes the online customer base has not grown much after the initial lockdown-led spikes. “Hypothetically speaking, my cost of customer acquisition for a particular category on a big marketplace has jumped from Rs50 to 125. It has increased because the number of people buying consistently on that marketplace has not skyrocketed," he said.

Data on actual online shoppers in India is hard to come by, though several reports claim it is sizeable. A Statista report estimates India’s internet users at 658 million, with active e-commerce penetration of nearly 77%.

However, based on experience, Plum’s Prasad said his estimates are more modest. The customer base, anyone who has ever shopped online, is closer to 150 million. “This includes even those who may have just bought a railway ticket once," he explained. Somewhat regular shoppers online may be closer to 100 million. “However, the number of avid online shoppers is much lower than 100 million," he said.

Even the go-to beauty marketplace Nykaa, for instance, has about 21 million monthly average unique visitors in FY22, according to the company and a Jefferies report.

Last but not the least, digital advertising costs will rise further as more platforms (Apple and Google, to begin with) give up cookies to protect customer privacy. A cookie is perhaps the easiest way of getting information on a customer.

If you are visiting a publisher’s website, the cookie in your browser follows you and reports your internet behaviour to the publisher, FoxyMoron’s Gupta explained. “Over a period of time, based on your browsing history, the cookie builds a persona of you. Publishers and platforms share this data with advertisers for better targeting. However, as this tracking becomes rare, such data will become more expensive," he said.

Advertising on digital will become inefficient and more expensive if all cookies are removed, Prasad said.

Digital marketing experts have divergent views on whether advertising costs in digital will dip in the near future. As startup funding dries up, there will be a correction in digital marketing costs too, Prasad said.

However, Arora doesn’t see these costs plateauing any time soon. He cites the example of the digital media rights of the Indian Premier League fetching more than the TV rights in a recent auction. Digital consumption will only go up. “What brands can do is to stay focused and stop leakages," he said.

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