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Why Didn’t CPC and CPM Growth in Digital Marketing Keep Pace in Q4?

Advertisers across channels and verticals saw extreme Y/Y increases in CPC and CPM in Q2 and Q3 of 2021. Data from our Digital Marketing Reports showed double-digit growth in cost per metrics across Facebook, paid search, and more, as summarized below:

graph of CPC and CPM growth 2021

 
As a result, advertisers braced themselves for more expensive traffic across advertising channels during the Q4 holiday season. However, that’s not what played out – Merkle’s Q4 2021 Digital Marketing Report showed more modest increases in CPC and CPM:

graph of CPC and CPM growth q4 2021

 
There were several factors that caused Q4 CPC and CPM to experience lower Y/Y increases in Q4 than earlier in the year.

1. Brands experienced unique challenges with staffing and supply chains.

Retailers and the media alike were talking about supply chain challenges in the months leading up to the holiday season. Brands were concerned with keeping inventory stocked for holiday shoppers, and as we found out, rightfully so. The Adobe Digital Economy Index found that out-of-stock messages were up 258% in November 2021 compared to 2019.

Advertisers typically invest heavily in Q4 advertising to capture increased demand, which drives up CPC and CPM. However, without the inventory to support more shoppers, brands did not lean as aggressively into digital advertising, keeping cost-per increases lower than in previous quarters. With staffing shortages piled on top of inventory challenges, some advertisers pulled back or paused advertising earlier than usual, further impacting the competitive landscape.

2. Consumers shifted their shopping behavior.

In 2020, Amazon held Prime Day in October instead of its typical summer timeframe, essentially kicking off the holiday deal season a month-plus earlier than usual. Other brands followed suit with deals running around and after Prime Day. As a result, the shopping season was more spread out with consumers purchasing earlier.


Fast forward to 2021 – Prime Day moved back to the summer, but shoppers once again started shopping earlier in the holiday season. This could have been held-over behavior from the year before, but there were also other potential contributing factors. The supply chain challenges were well-publicized, with news outlets encouraging shoppers to buy gifts early. Consumers were also haunted by the shipping delays of the 2020 holiday season, which led to some gifts getting delivered well after the holidays. These three factors likely contributed to a more spread out 2021 holiday season.


From a marketer’s standpoint, this meant there wasn’t a neat, fiercely competitive five- or six-week window to lean into with ad spend – again, helping to keep the cost-per spikes under control compared to what was expected.

3. There was a higher starting point for year over year comparisons.

Understanding the baseline data is critical when we’re talking about Y/Y performance. 2020 was, dare we say, unprecedented, when it came to most things – digital performance included. Q2 and Q3 were especially unusual from a click and CPC/CPM standpoint, but how does our perspective change if we aggregate 2020 and 2021 performance and compare it to 2019?

Looking at paid search, we might guess that the CPC ups and downs from 2021 and 2020, respectively, might even each other out. Maybe not entirely, but to some degree.
 

Y/Y CPC changes - paid search

 
And we’d be right. When we combine 2020’s declines with 2021’s increases, we find that compared to 2019, Q2 CPC was up just 6%, Q3 CPC increased 26%, and Q4 CPC jumped 13%. That variation across quarters is much less stark than when we look strictly at 2021 versus 2020.

Facebook follows a similar trend. There are peaks and valleys for CPM changes over the course of the last two years, but when we compare where we are in 2021 to where we were in 2019, growth is much more consistent quarter to quarter – 24% in Q2, 31% in Q3, and 19% in Q4.
 

Y/Y CPC changes - facebook

Factors from supply chains, the labor market, brands, consumers, and the data combined to drive lower Y/Y CPC and CPM increases in Q4 than in Q2 and Q3 – unexpected but warmly welcomed changes. Learn more about trends from Q4 across paid search, organic search, paid social, and Amazon by downloading our Q4 2021 Digital Marketing Report.
 

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