The Outside View: Marketing Costs and Complexity in a Digital World

In the brick-and-mortar era, retailers knew exactly who their competitive set was. The malls drove traffic to their stores, enticing retailer window displays attracted customers to cross their lease-line and the resultant cost of marketing for most mall-based specialty and for big box retailers was often less than 2 percent of total sales.   Marketing spend was simpler, more efficient, easier to measure and much less costly. With the rapid growth of digital retail, the universe of competitors has become endless and consumers have much less attention span given the “always-on” nature of their digital devices and the endless barrage from influencers, Instagram and Facebook feeds, retailers and their friends.  The result of all this is that marketing must work harder to reach customers. The cost of digital marketing is much higher depending on a retailer’s e-commerce penetration as a percentage of its total sales and most digital spend is controlled by Google, Facebook and Amazon, leaving retailers with little ability to negotiate rates. Retailers now rely heavily on performance marketing to drive traffic to their digital channels. This is a relatively new and rapidly growing form of digital marketing in which advertisers (aka, “retailers” or “merchants”) pay marketing companies (aka, “affiliates” or “publishers”)

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