In the quest for expansion, many ecommerce brands naturally turn to diversification whether through exploring new sales channels or spreading their ad spend across various platforms. While diversification can offer access to new audiences and growth opportunities, it also introduces the potential for inefficiencies that can negatively impact profitability. This white paper will explore how over-diversification can complicate results and reduce overall effectiveness, offering insights into how brands can balance growth with efficiency to achieve sustainable success.
The Pitfalls of Channel Diversification: The Amazon and .com Conundrum
A common approach for ecommerce brands is to diversify sales channels by expanding into Amazon, online retailers, and wholesale, while continuing to invest heavily in Meta ads for their own .com stores. On the surface, this seems like a logical move to increase reach and capture a broader customer base. However, this strategy carries the risk of siloing your channels, which can create inefficiencies and reduce profitability.
The Silo Effect: Cannibalising Your Own Revenue
Amazon and your .com store often cater to the same audience, yet many brands fail to integrate their strategies across these platforms. A significant portion of Meta ad spend is directed solely at promoting the .com store, while the Amazon marketplace receives little to no direct support. As a result, while sales on Amazon may increase, the revenue generated from your .com store may start to decline, as customers gravitate towards the convenience of purchasing from Amazon.
This raises a crucial question for ecommerce brands: “Is the incremental lift from Amazon worth the potential loss in .com sales?” To answer this, brands need to carefully evaluate whether the additional sales generated through Amazon justify the reduction in .com revenue.
Measuring Incremental Lift
When diversifying distribution channels, it’s essential to consider the overall impact on revenue realisation. Many brands fail to measure the incremental lift that paid media provides across all platforms, including Amazon, .com, and other retailers. Without this data, brands may be unknowingly allocating budget inefficiently, supporting channels that don’t provide enough return to justify the loss in another area.
Actionable Solution:
- Measure and Analyse: Implement systems that allow you to track and measure the impact of paid media on all sales channels. Analyse how increased investment in Amazon or other retailers affects your .com performance.
- Cross-Channel Strategy: Rather than siloing sales channels, consider an integrated approach that aligns your ad spend with the total customer journey, from discovery to purchase across all platforms.
Diversification of Ad Spend: Balancing Risk and Reward
Many brands fall into the trap of believing that spreading their ad spend across multiple platforms such as TikTok, Snapchat, or TV is essential for future-proofing their business. While diversification can open doors to new audiences, it can also dilute your overall advertising
effectiveness, particularly if it draws resources away from high performing channels like Meta and Google.
The Efficiency Trade-Off
For example, let’s say in 2023 you allocate 80% of your ad spend to Meta and 20% to Google, where you consistently see the highest return on investment (ROI). In 2024, you decide to diversify, moving 30% of your budget to TikTok, Snapchat, and TV. While these platforms may
offer growth opportunities, the return on investment is typically lower, and shifting funds away from your most effective channels can negatively impact overall efficiency.
Many brands learn the hard way that channels like TikTok or Snapchat, while valuable for building awareness, don’t perform as well in driving direct, measurable sales. Therefore, while it’s important to explore new avenues, it’s equally critical to maintain the efficiency of your existing high-impact channels.
Actionable Solution:
- Prioritise High-Impact Channels: Focus the majority of your ad spend on channels that deliver the highest return on investment. Consider smaller, controlled tests on emerging platforms, but avoid large shifts that could compromise overall efficiency.
- Track Ad Spend Performance: Use data-driven insights to track the performance of each channel and reallocate spend dynamically, ensuring that your budget is always working towards maximum efficiency.
Navigating Rising CPMs on Meta: A Path to Scalable Growth
As Cost per Thousand Impressions (CPM) rises across platforms like Meta, scaling efficiently becomes more difficult. Brands that fail to implement cost controls or carefully manage their budgets risk spending more for diminishing returns. However, there are ways to make incremental ad spend more efficient and avoid the common pitfalls of scaling.
Strategies for Efficient Scaling:
1. Set Cost Controls: Implement clear cost controls based on your performance metrics. By establishing bid caps and target cost-per-acquisition (CPA) limits, you can prevent overspending as you scale.
2. Increase Budget Strategically: Only increase your ad spend when your campaigns are performing at or above your target metrics. Avoid throwing money at underperforming campaigns in the hope that more spend will improve results.
3. Expand Creative Testing: Constantly test and iterate on your creative assets to keep ad performance high. This can help combat ad fatigue and ensure that your audience remains engaged over time.
4. Test Relentlessly: Introduce variables in your ad campaigns new formats, copy, visuals, and CTAs to improve performance. Brands like Loop have run over 5,000 live ads in their Meta accounts to stay competitive and maintain efficiency.
5. Develop a Creative Machine: Build a system that allows for rapid production and testing of new ad creatives. This will help you quickly identify what works and scale those successful creatives more efficiently.
Actionable Solution:
- Creative Testing Framework: Develop a structured framework for creative testing that allows you to continually refresh your ads. By consistently testing new ideas, you can stay ahead of creative fatigue and ensure that your ad spend remains efficient.
- Incremental Spend: As you increase your ad spend, focus on making small, data-driven adjustments rather than large, sweeping changes. This helps you maintain efficiency while scaling.
Conclusion: Efficiency First, Diversification Second
While diversification is often viewed as a critical component of growth, over-diversification can introduce inefficiencies and complicate your results. The key to long-term, sustainable growth lies in balancing new opportunities with proven, high-performing strategies. Brands should
focus on maximising efficiency in their core channels before expanding into new platforms or sales channels.
By following the principles outlined in this paper measuring the impact of diversification, prioritising high-return channels, and managing rising CPMs on Meta ecommerce brands can scale efficiently without compromising their bottom line.
If you’re looking for tailored advice on refining your ad strategy or scaling efficiently, our team of experts is ready to help. We specialise in developing data-driven strategies that maximise growth while preserving profitability. Get in touch to learn more.