D2C Marketing Spends to Boost Digital Advertising Scores

Performance marketing has become popular because it offers a data-driven, ROI-focused strategy, allowing D2Cs to pay only for actual results, according to those in the sector.   

According to the Pitch Madison Advertising Report 2024, AdEx increased by just 10% in 2023, compared to an estimate of 16% and a 21% increase in 2022. While the research highlighted various causes for the slowdown in growth, one important aspect was that “the startup funding winter continued, leading to many startups completely abandoning their advertising plans, including substantial reductions in spending in Performance Marketing.”

However, there is an expectation that the digital advertising business may regain strength. According to the RedSeer Advertising Report 2024, the next two years will witness a “shift of focus from brand building to performance…. higher emphasis on advanced analysis tools…. with performance-led platforms to see growth”.

Indeed, there is great expectation that following a funding freeze, Indian entrepreneurs would see more deposits into their coffers as VCs and conglomerates probably release their purse strings. And, as in other sectors, bets are being placed on D2C businesses to provide performance marketing spending, hence driving total industry development.

Betting on performance

According to Venugopal Ganganna, CEO of Langoor Digital, while specific percentages vary between reports and industries, research consistently shows that performance marketing represents for a large amount of D2C/startup digital ad expenditure.

According to the most recent EY-FICCI M&E Report 2024, while digital advertising currently accounts for the majority of India’s ad pie, performance advertising is the largest component of it. In 2023, SME and long-tail marketers spent Rs 208 billion on digital media, mostly for performance advertising on Google, Meta, and e-commerce platforms. SME spending is centered on performance advertising.”

As to a 2023 Socialbakers analysis, performance marketing accounts for more than 70% of D2C ad spending, while an iProspect study from 2022 estimates it can reach up to 80% in some industries.

In recent years, a large percentage of digital ad expenses by Direct-to-Customer (D2C) companies and new businesses has been driven by a need to show execution.

“This tendency is mostly driven by the quantitative and results-oriented nature of execution boosting channels, including pay-per-click (PPC) advertising, affiliate marketing, and influencer partnerships. According to industry estimates, 60-70 percent of D2C promotion budgets are allocated to execution advertising activities, showing the need to generate significant revenues from speculation,” says Advit Sahdev, Digital Marketing and Performance Marketing Expert.

Ganganna feels this dominance is expected. “Performance marketing provides a data-driven, ROI-focused approach, allowing D2Cs to pay only for measurable outcomes such as conversions, leads, or app downloads.” This efficiency and measurability are crucial for emerging businesses with limited finances that must demonstrate a clear return on investment.”

Marketers believe that the appealing nature of performance marketing extends beyond cost-effectiveness. Platforms such as Google Ads and Facebook Ads provide broad targeting capabilities, allowing D2Cs to target their preferred audience groups with pinpoint accuracy. This, combined with the power of AI and machine learning, allows for dynamic ad generation and real-time optimization, ensuring D2Cs send the appropriate message to the right person at the right time.

Furthermore, performance marketing interacts effortlessly with marketing automation technologies, allowing D2Cs to tailor the customer experience beyond the original ad. This can include customizing post-click landing pages, email marketing campaigns, and even product suggestions depending on user activity, resulting in better relationships with customers and improved conversion rates,” Ganganna explained.

Industry Interest

According to Swarali Halepati, Director of Integrated Media Planning at Carat India, industries rely extensively on performance marketing since measurable actions and outcomes have a direct influence on revenue production. Some sectors are heavily reliant on performance marketing. BFSI and e-commerce are leading the way in shifting spending towards performance.

“Online retailers often depend on performance marketing to generate sales through channels such as affiliate marketing, pay-per-click (PPC) advertising, and conversion rate optimization. “Banks, insurance companies, and fintech startups frequently use performance marketing to acquire new customers for services such as credit cards, loans, insurance policies, and investment products,” Halepati added.

Ashutosh Nagare, Vice President and head of Performance Marketing at Interactive Avenues, agrees that traditionally, fast-moving consumer product industries have relied heavily on performance marketing, resulting in the prevalence of performance-led campaigns in e-commerce, travel, entertainment, and other sectors.

“However, the trend is changing. Products with longer conversion cycles, such as jewelry/lifestyle, real estate, and automobiles, are increasingly aggressively pursuing performance marketing. Ratios are moving significantly as a result of product demand and the use of technical developments by businesses that want to measure outcomes and give more personalized targeting to the correct audience,” he adds.

“The dependence on performance marketing varies by industry and is frequently influenced by considerations like measurability, competitiveness, and budget limits. However, Ganganna believes that in the future, a more holistic marketing approach will be used, with performance marketing playing an important part alongside other techniques to provide a whole brand experience and maximize customer lifetime value.”