#2 The BROAD Hoax

Hi DTC folks,

This week is all about acquisition. We'll talk about targeting, ad copy, attribution and strategy.

Let's go.

Featured: Why BROAD audience targeting is the biggest hoax in advertising history

1) MONETIZING AD PLATFORMS

Everyone is doing it. All the major marketing platforms - Meta, Google, TikTok and even LinkedIn for B2B - are pushing their advertisers towards BROAD targeting.

They are also being pushed by their influencers in the form of agencies and marketing gurus.

But why all this? And is there really no better technology alternative?

I see a big core problem here - misaligned incentives.

One of the core aspects of my theory is that the marketable products of advertising platforms are their users and the resulting ad impressions.

Simply put, as a platform, I have 1,000 users who produce 50,000 ad impressions per day. I can sell those 50,000 ad impressions to the highest bidder each day. So far, so good.

Well, as we all know, not all users are equally attractive to the ad market. If within those 1,000 users there are 50 power shoppers who spend thousands of dollars a day and 600 users who have never bought anything online in their lives, the cost per impression for those 50 users would explode, while the 600 users would be unmarketable.

So how can I, as a platform, still make money from these 600 users?

Quite simply, by cleverly integrating and pricing this worthless "inventory". The same thing that happens all the time with "excess" in other industries. Bundle it, mix it, make the price of the end product opaque.

You see what I'm getting at.

But that's not all.

What happens when more and more advertisers start spending money on that audience? – The CPM per capita of that audience goes up.

And if I, as a platform, also see the trend that my user quality is moving in the direction of the actually poorly marketable audience, I am making increasing revenues with a product that is getting worse.

That's what we're seeing in their financials. Disproportionate growth in advertising revenue compared to active user base and activity. And they call it increased competition.

2) AD TECHNOLOGY IS SMARTER THAN YOU THINK

Right now, we are just puppets having to work with what they give us:

1) Ad platforms could work much more efficiently for you than they do, but that's not in their interest. Their interest is in maximizing the CPM on their inventory. Period.

2) But in order for you to keep spending money, they need to show you that your spending is having an impact. So they cannot completely eliminate the conversion aspect. But just enough transparency to keep you engaged. With today's technology, it would be easy to include customer journeys and LTV in the calculation. But they make it almost impossible to optimize for anything other than first purchase ROAS and conversions, and they have no interest in bringing you the best customers. They want you to spend more and more on new ad inventory.

3) The hoax that BROAD is best for the algorithm: I agree that AI and ML are the future of targeting, and that lookalike audiences were just a simple first step in that direction and will be replaced. However, it is simply wrong to withhold knowledge from the AI that has already been gained and will not be collected in the future.

Every data point matters for better learning.

Why shouldn't I tell the platform what my ideal customer looks like in order to use this as a signal for the AI? I don't mean a static customer segment that only has certain attributes. I mean additional data points that help me to use my limited budget efficiently.

This is also what we at RetentionX have seen by far the best results with for our dtc brands. Broad targeting with signal audiences based on high LTV customers (drop me a PM or comment if you want to test our setup).

I'm also afraid of what other potential data isn't being used because the ad platforms know it could hurt their ARPU.

3) THE DECLINE IN CUSTOMER QUALITY

After all the explanations so far, you can still rightly say: "But as long as my average CPA is still lower than with other targeting methods, I don't care."

Well, there is a huge problem here:

1) Since the push of BROAD targeting in the marketing industry, we see in the data from over 1,200 advertisers sometimes 30-50% drops in the average customer quality.

2) At the same time, many brands are still making decisions based on LTV assumptions from historical customer cohorts.

3) The medium and long term effects will be devastating. The constant dilution of the customer base will make it increasingly difficult to operate profitably. Many of these customers will never reach the profit threshold.

4) Accelerating spends just because of low CAC when you need 2+ purchases for turning profitable on a customer can bring your brand in serious trouble. It's like lightning your funding on fire.

Add-on: The Role of Agencies

We talk all the time about the misaligned incentives of brands and ad platforms. Agencies are often no better.

Many performance agencies don't care about long-term customer quality either. They are not incentivized to do so, but define themselves by ad spend, first purchase ROAS and conversions.?And they love the attribution platform that shows the highest number for their channel. (I should write an article about that too..!)

And while we're at it: Dear marketing gurus. You spend your customers' money, not your own. So stop trying to make a name for yourself by managing 7-9 figure budgets. Presenting spending other people's money as an accomplishment and not prioritizing the results of your work says a lot about the way you work. I would be curious if you would handle your own money the same way.

Don't get me wrong, there are great agencies and freelancers out there who are genuinely interested in your long-term success. Most of the time they are the quiet ones on social media (Let me know by PM if you need any recommendations).

However, I would strongly advise against working with people who argue ideologically and take things for granted, like BROAD targeting is the real deal.

So how do we solve the problem?

To be honest, I don't know.

A real solution can just only if everyone would work towards the same goal. And this is not really realistic.

My main advice is not to trust what the platforms tell you. It's not in their interest to really help you, and to be honest, most account managers have no idea how they could.

They have a playbook of things to sell you that are in line with the platform's long-term strategy. That's it.

Think critically, logically and find smart workarounds.

Talk to people (like other brand operators) who have the same goals as you.

In short, don't talk to the insurance agent about whether you need insurance.

How to solve this issue

When I was still running my own brand, I quickly reached the same limits. And that's why I built RetentionX. Our software looks at pure transactional data. No bullshit. It identifies the real levers of each KPI and with that the drivers of incremental growth. Book a quick demo with me??

That’s it for this edition!

Don't forget to subscribe. Any questions or topics you'd like to see me cover in the future? Just shoot me a DM or an email!

Cheers,

Alex