DIGITAL MEDIA DIGEST: JUL ‘19
A monthly look at the world of digital from NORTH’s point of view
Tik Tok: The New Short Video App Capturing Gen-Z’s Attention
By Caroline Desmond, Director of Media Strategy
There is a new short video app capturing the hearts and minds of social media users. Tik Tok, formerly known as Musical.ly to its early users in the west, has consistently topped the charts for app downloads in the last year. As of Q1 2019, Tik Tok had topped the iOS App Store charts for the fifth quarter in a row. The latest data from analytics company Sensor Tower shows Tik Tok is the fourth most downloaded app for both the iOS App Store and Google Play based on U.S. downloaded during Q2 2019.
Tik Tok is similar to other short video apps like Snapchat or Instagram (Stories), because it allows users to create :15 videos that can be shared with friends. As with other social media apps, users also have the ability to customize videos with filters and other editing tricks. However, Tik Tok videos often involve music-related content such as lip syncing or dance challenges. In fact, early reports this month (including this one from TheVerge) suggest that Tik Tok may have purchased Jukedeck, a startup that has developed software that would allow users to use artificial intelligence to generate custom tracks to pair with their Tik Tok videos. Since the video is custom-made by each user, this allows Tik Tok (and its users) to sidestep copyright issues related to pairing existing copyrighted musical works with user generated video content.
Early adopters of Tik Tok tend to be Gen-Z, defined by The Pew Research Center as those born between 1997–2012 (or those currently between the ages of 7–22). Gen-Z’s inclination toward Tik Tok is not surprising given their attraction to mobile-first, social platforms. Consumer research company, SheerID reports that of surveyed Gen-Zs, “three out of four said spending time online was the primary activity they engage in during their free time, with smartphones as their device of choice” and “[s]eventy-five percent of Gen Zers say that they receive most of their information on social media, and that they follow at least one brand on social media.”
Brands are also increasingly taking note of Gen-Z’s media behaviors given their spending power and influence over other household spending. Some estimates place Gen-Z’s spending power as high as $143 billion with additional influence over 70% of family food purchases & 80–90% of other items purchased by the household. Brands who have already begun to test the waters on Tik Tok include Gymshark, Red Bull, MTV and the BBC.
The audience scale is there too. A recent Mintel U.S. report released in May 2019 entitled “Marketing to Gen-Z” reported that Tik Tok has “has over six million users in the US and 500 million active users in China,” and that “TikTok is gaining a large Gen Z audience and could be a great way for brands to gain exposure with music-related challenges or sponsored Muser content.” (For the uninitiated, a “Muser” refers to a new crop of social media celebrities that are gaining popularity on Tik Tok.) Fans can actually purchase in-app monetary gifts for their favorite Musers (limit $50 USD).
Currently, it looks like the most accessible way for brands to tap into Tik Tok’s audience is through less traditional advertising tactics. Brands with existing brand ambassadors should consider whether it makes sense for brand ambassadors to begin posting content to Tik Tok in order to appeal to a younger audience. At least, it is something we will be thinking about in the coming year as we continue to monitor this trend and look for new ways to influence brand preference among Gen-Z consumers.
Spotify’s Voice-Enabled Audio Ads
By Izzy Kramer, Media Planner
Voice-enabled ads have been a long time coming with buzz around the possibility even before voice technology really started to gain traction. The good news is voice-enabled audio ads are imminent. Since May, Spotify has been beta testing voice-enabled ads with brands and since July, Amazon has started taking steps in the same direction.
First off, Spotify’s beta test has been exclusive to limited US mobile inventory and only responds to the command “play now”. They have also made efforts to control the test by keeping users on Spotify by driving to a different playlists. For example, “Unilever’s Axe brand [sends] listeners to a related branded playlist … and Spotify Studios [forwards] listeners to the Spotify Original podcast, Stay Free: The Story of the Clash.” If the user chooses to not respond and remain silent, they will return to what they were listening to.
While Spotify’s voice-enabled ads are limited, it is the closest brands have ever been to a standardized voice-enabled opportunity. It also sparks my curiosity for what Spotify could offer knowing the ad units they have available:
- Companion Banners: No doubt Spotify will work toward voice-enabling their standard ad units. This is a major game changer for Spotify’s companion banners included with each audio ad. Now companion banners are held to a 0.05% — 0.08% engagement rate benchmark. Users are more likely to gain awareness from listening to the ad versus tapping to engage simply due to the passive nature of the streaming audio experience.
- Device Targeting: Voice-enabled ads will also ultimately make engagement easier on hands-free platforms, such as smart speakers or in-car audio. The tricky part with an audio ad via these devices is the user is typically at a point where they can’t engage — i.e. wrist-deep in chopping veggies for dinner or driving on their daily commute. Say sayonara to those barriers as voice-enabling continues to evolve.
- Sponsored Ad-free Listening: Easier engagement goes even further when considering engagement-required units, such as Spotify’s sponsored ad-free listening. Currently if a user is unable to tap the ad, that hour of ad-free listening goes unengaged and unenjoyed. Voice-enabled ads would allow users to command an engagement and gain the reward.
While the above is a media planner’s wish list, Spotify will need to keep progressing especially as intimidating competitors, such as Amazon, begin to gain momentum.
To be clear, so far Amazon has not beta tested or offered voice-enabled ads. Right now Amazon is working on developing audio ads for their ad-supported Amazon Music platform.
However, Amazon is the leader in voice-enabled technology (just ask Alexa), and the Amazon Echo is the most popular voice command device on the market. According to Canalys, in the third quarter of 2018 alone, Amazon shipped 6.3 million Echo devices, 400,000 more than their next largest competitor, Google. Just having Amazon’s presence in audio advertising is certainly intimidating to Spotify, especially as Amazon Music’s growth is outpacing Spotify and Apple Music. This makes for the perfect playground for Amazon to test of voice-enabled ads.
For now, Amazon is at the point with audio ads where they are searching for select brands willing to beta test. According to Musically, in early July “brands were invited to submit 15- or 30-second ads for use in the test…with accompanying images to be shown if the ads are played on Alexa-enabled devices with screens. AdAge says the tests are expected to run until the end of this year, ahead of a full launch early in 2020 if all goes well.”
Above all, voice-enabled ads will progress streaming audio from a passive medium to an interactive one. Voice-enabling has the potential to improve the ad experience for listeners thereby improving the relationship between brand and listener.
Venturing into the Realm of Amazon: A Guide to Choosing the Right Partnership
By Madelyn Engel, Performance Marketing Manager
When it comes to Amazon, we’ve all set our Facebook relationship status to “It’s Complicated.” The Amazon platform can be both attractive and intimidating to brands. Amazon’s share of the US ecommerce market hit 49% in 2018, which is evidence that it is a platform that many brands cannot resist, or afford to ignore. To put this in perspective, this is more than Amazon’s top three competitors combined, with eBay coming in at 6.6%, Apple at 3.9% and Walmart at 3.7%. However, Amazon is a controlling lover, and what type of partnership you enter into will depend on what level of control you want to maintain.
As a retailer, there are two paths to selling your products on Amazon — as a First-Party Vendor or a Third-Party Seller — and each has its own list of pros and cons. One of our clients has been running a Vendor Central account for years, but as questions arose surrounding a new product launch and testing a campaign as a Third-Party Seller, I began to dig in to the nuances of each.
The Vendor Central relationship is harder to come by, as it is by invitation only. As a vendor, Amazon negotiates with you to buy large quantities of your products at wholesale. Amazon then prices and sells the items themselves. Vendor Central can work well for businesses who are growing quickly or who already have a high level of product sales and inventory. In this relationship, Amazon does the heavy lifting and you get to sit back and relax, rosé in hand, which sounds like a dream. But in this scenario, you give up a good portion of control to Amazon, and a good portion of your profits as well.
- Volume: Bulk purchase orders allow you to move a large quantity of product at once.
- Effort: This scenario requires little time or effort. Amazon is essentially your customer, and once the products are delivered to Amazon, you are off the hook. Amazon takes care of storage, shipping and customer support.
- Avoid Fees: Similar to the above, you are not responsible for storage or shipping fees.
- “Sold and Fulfilled by Amazon” Badge: This badge increases trust in a brand or product and can lead to more sales.
- No Price Control: Amazon controls the pricing and will often adjust based on inventory or competitor prices. Amazon also does not follow MRSP, and you could find that your products are selling for less than you expected, which can cause inconsistencies across channels or other product dealers.
- No Inventory Control: Amazon buys in bulk through purchase orders, but these purchase orders may be inconsistent in amount or timing, leaving your products unavailable for indefinite amounts of time.
- Little Brand Control/Customer Engagement: Amazon will not respond to negative customer reviews or go above and beyond to satisfy customers. Yes, Amazon will assist with no-hassle returns, but they will not offer to help replace an item or do anything to further the customer and brand relationship.
This relationship is the most common on Amazon, as anyone can create a Seller Central account. Seller Central places the control in the Seller’s hands. In fact, more than 50% of all Amazon sales come from third-party sellers. In this relationship, your brand sells directly to the Amazon customers. Essentially, Amazon is providing their space and customer base for a fee, and you are setting up a shop to sell your goods. You will manage inventory, pricing, and customer service for your products. Now, Third-Party Sellers may make more profit than those in Vendor Central, but they will need to sell and ship on an order by order basis, unless they pay Amazon to participate in Fulfillment by Amazon (FBA).
- No Invitation Required
- More Brand Control: You decide what you are selling, when, and for how much.
- More Profits: Third-Party sellers have the opportunity to take a larger chunk of the profits than First-Party sellers. You can optimize your listings, and control price and inventory
- Customer Engagement: You can respond to negative or positive reviews, and maintain brand voice across your channels.
- Advertising/Optimizations: You will likely need to invest in advertising to help your products break through the clutter. You will also need to optimize your listings and product descriptions, which will likely require a professional or someone highly knowledgeable in the Amazon platform.
- Effort: This scenario requires a much more hands-on approach as you manage products, inventory, competitor pricing research, and storage/shipping.
Like First-Party Vendors, Third-Party Sellers have the option for Fulfillment by Amazon (FBA), where for a small fee, Amazon will take care of storing, packing, and shipping your products as well as customer service. Furthermore, FBA gives sellers a 30–50% increase in sales.
Both First-Party Vendors and Third-Party Sellers have fairly equal advertising opportunities. Both have access to Promoted Product and Promoted Brand campaigns. As a Third-Party Seller, advertising is more straightforward and takes a more traditional path, wherein the advertiser selects products to advertise, optimizes and manages their product listings, and monitors their ROAS and revenue to boost direct profits.
Advertising as a First-Party Vendor is a little more complicated. Some may even question why a Vendor would advertise for products that they have already sold to Amazon at wholesale. This relationship is similar to how CPG companies, for example, work with brick-and-mortar grocery retailers. CPG brands sell their products at wholesale to a grocery store then run ad campaigns to drive brand awareness and increase product demand so that when customers go to shop, they choose that brand’s products over their competitor’s. Think of Amazon Vendor Central as just another retail channel.
The advertising that we run through Vendor Central helps boost our products over other competitors, and the quicker that we drive sales, the sooner Amazon will put in a new purchase order, boosting our wholesale revenue.
However, determining the effectiveness of these ads is not as straightforward as it may seem, as the ROAS you are monitoring is taking into account the price that Amazon is selling your products for, not the wholesale revenue you are pocketing. Determining your breakeven ROAS will require a little more math.
For example, let’s say that our product costs us $25 to make, and we have negotiated a 40% wholesale profit margin. On top of that Amazon averages a retail profit margin of 65%. Essentially, we sell our products to Amazon for about $42, and Amazon sells them to customers for about $119.
If we spend $119 on advertising and Amazon reports $119 in sales, this appears as 1x ROAS, or break even. But in reality, our sales were $42 from $119 in ad spend, which is a ROAS of 0.35x and we have lost money. In order to break even. We need to spend $42 in advertising cost and make $119 in Amazon sales, which is a ROAS of 2.8x. So, we don’t break even until we hit a ROAS of 2.8x, and we don’t double our profits until we reach a ROAS of 5.6x. To make things more complicated, Amazon’s profit margin may shift as they adjust prices based on inventory or competitor prices, making this number very difficult to pin down, but using an average should help you make smarter optimizations.
As you can see, your relationship with Amazon will be complicated regardless of which type of seller you choose to become. But it is a platform worth exploring, and both paths offer the opportunity for vast profits.