Online brands urged to go 'full funnel' or risk grim Q4

Ecommerce brands could be paying a high price for adopting a defensive summer strategy, as those who have prioritised digital brand building through the year are starting to reap the benefits ahead of a potentially record-breaking peak season.

So says the quarterly Nest Commerce’s The Readout, derived from aggregated advertising data provided by Nest’s portfolio of ecommerce clients, which covers 40+ online shopping brands, managing over £100m of media spend annually.

The report reveals a surprising uptick during the summer for brands investing in digital brand building alongside immediate sales, so-called “full funnel performance”. Revenue was up by 15% quarter on quarter for this group of retailers, setting them up for a strong Q4. Usually, Q2 to Q3 is a slow period for online retail, with performance picking up again in Q4.

This contrasts with an 18% reduction in revenue for performance-only strategies, with defensively minded brands over relying on bottom-of-the-funnel channels like search.

Both cost per impression (CPM) and conversion rates (CVR) are spiking sooner than ever in the quarter, meaning brands need to be ready to scale performance ads quickly to capitalise on demand when conversions jump in mid-November, the report states.

Average CVR was relatively flat throughout the summer following a challenging few months for online retail, but it is now improving after a strong September. This trend is continuing into October, which is up 13% month on month from September. All indicators point towards a strong Q4.

After initially rising above 2023 levels, Meta CPM dipped in July and stayed low before, again, rising in September. Acquisition costs were even lower quarter on quarter, and cost per acquisition (CPA) was down by 26%.

Looking at the pattern of data from previous years, the report’s authors are predicting a potentially record breaking Black Friday weekend. Between the 2022 and 2023 events, there was a 26% increase in Meta return on advertising spend alongside a 58% increase in spend.

The report’s authors also pose the question as to whether brands are missing out on the Reels opportunity. Competition remains low despite the channel’s efficiency. There has been a 30% QoQ fall in Reels CPM, versus a 13% QoQ increase for non-Reels.

The growth of Tik Tok as an advertising platform also continues apace with a 144% year on year increase in spend reported. Creative volume has been key for brands scaling effectively.

Meanwhile brands which have implemented a co-ordinated cross-channel ads strategy on Google and Meta have seen a significant boost in efficiency. By shifting more spend to upper-funnel Meta ads, these brands have captured increased demand on Google, resulting in a 125% increase in return on ad spend.

Nest CEO Will Ashton said: “After close to five years of negative headlines about the state of online retail: two things remain consistently true: every year, peak performs and ecommerce grows. Yet, this summer, fear has gripped many in the market. A fear-driven strategy often manifests in overreliance on bottom-of-the-funnel channels like search, a recipe for failure.

“As we enter this critical quarter, brands that are winning today are focused on a full-funnel approach social-first, with continuously rotating creative. They are reaping the rewards of their strategic approach as the awareness they have built up results in hard won revenue.

“Even for those who haven’t planned extensively, there are still steps that can be taken to improve performance and maximise returns, but they must act now.”