The ROAS Crash: How the digital advertising industry is on the verge of collapse

Growson Edwards, Cofounder,  CIPIOGrowson Edwards, Cofounder, CIPIO
Paid ads don’t work like they used to. Put another way, return on ad spend (ROAS) is crashing.

This trend was on the rise before the recent global pandemic. But as health concerns, brick-and-mortar closers, and regional lockdowns forced people to migrate their social lives to virtual environments, paid ad effectiveness decelerated faster than everyone expected. (Add to this the recent iOS consumer privacy updates and retirement of third-party cookies, and most remarketing strategies come to a screeching halt.) Digital ads are too expensive. Additionally, impressions are less effective. Smart Insights noted that more than 99% of paid display ads failed to make an impact. These numbers explain why some of the biggest PPC spenders (Uber, Chase, eBay, etc.) have radically reduced their digital ad spend in the last two years.

So what is the alternative for reaching new audiences? That answer is human-powered brand marketing powered by brand communities.

It comes as a shock to no one that word-of-mouth and brand advocacy outperform paid ads every time. All marketers know this. What has changed is that organic marketing is easier to nurture and leverage more than ever before. Furthermore, social media platforms are investing in consumer recommendations where any user can easily inspire and motivate others to make smarter purchases.

In a 2021 global study that surveyed nearly 30,000 consumers, Nielsen found that 88% of people trust recommendations from people in their social circles before “adding to cart” and “checking out.” Taking these trends into account, it’s easy to see how influencer marketing and brand advocacy programs are here to stay and receive consistently higher investments year-over-year.

A strategy of connecting and engaging people builds relationships. At CIPIO, we are learning that consumers are more than happy to build relationships with brands that invest in that connection and engagement. There’s no relationship in traditional advertising - just the marketing equivalent of “preaching at” buyers.

“In addition to having to think about challenges like brand growth and ad avoidance, marketers need to increasingly focus on building trust with consumers.” - Nielsen, 2021 That said, we’d all be fools to say that paid advertising is going away.

When it comes to ROAS, marketers are getting smarter about where, when, and how often they incorporate paid ads. But the growing ineffectiveness of paid advertising demonstrates that marketing mixes are under major reconstruction.

21st Century marketing is socially-driven and collaborative. You can’t tell buyers what to do anymore. Instead, marketers must listen, engage, iterate their product, and feed brand communities from within their customer base.

The best customer acquisition strategies are born out of surging brand loyalty and excitement. This approach is more affordable, effective, and sustainable.

Founders at CIPIO recently published a 3 point Guide to help marketers activate organic growth. While this manual is fairly extensive, the premise is simple:

1. Identify your most loyal customers
2. Score/rank those customers by their level of influence
3. Establish community influencers as brand community leaders
4. Equip your community influencers to create, share, promote, and grow your community
Of course, an organic marketing approach to diversifying ad spend is simple but not always easy. For most brands, it requires them to shift their mindset and examine new tools. But the good news is that activating brand communities with the help of real, relevant, and reachable influencers is affordable and remarkably potent.

Putting brand fans in the driver seat of your marketing has a profitable trickle-down effect on your marketing mix.

First, brand communities remove barriers and increase social proof. Feedback and support from your customer base is immediate, and your organic marketing receives an instant injection of positive responses from new audiences.

Second, word-of-mouth grows whether you’re spending money or not. One viral brand mention from an authentic social post can do the work of thousands of dollars in ad spend.

Third, organic marketing performance informs your ad spending. Repurposing a popular post into a paid ad reduces ad creation costs and guarantees a better response from new audiences you target online.

Yes, the ROAS crash is real. Seasoned marketers are in a mad dash to divert resources toward initiatives that will boost earned media value and word-of-mouth growth. But in the end, a world in which retail grows out of meaningful social interactions is one where products serve niche audiences and promote improved qualities of life. Brands can embrace this reality and expand their vision beyond their products and build communities of eager customers. Seen from this perspective, the ROAS crash is a wonderful thing that will not only help marketers spend wisely and build stronger relationships with members of their target audience.
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