Reach Customers, Spend Less With These Expert Tips

0:00What you've seen now is sort of a renaissance in this idea that like, hey, maybe creative should lead our marketing activities because that's really the biggest lever we have to differentiate. A, and B, because we're able to sort of apply it to all of these surface areas that were totally off limits to us before because our business was 100 % totally reliant on deterministic identity and therefore reliant on the channels that facilitated that. Hey, what's going on? I'm Benjamin Gottlieb and this is Shopify Masters, your companion for starting and building a business. How's this for the understatement of your day or maybe your year?

0:36Marketing is hard, and it's only getting harder. The price of acquiring a new customer, it's at an all-time high. There are legal changes afoot, especially in Europe over, for example, how you can market your products to someone. And yeah, that little thing, competition, there are more choices now than ever before competing for those same dollars. And you can throw your hands up in the air and say, forget it, this is too hard, who needs it? Or you can hang out with me and my two guests today for about a half an hour. Eric Sufert is the founder of the VC fund Heracles Capital, also runs the must-read blog Mobile Dev Memo.

1:11Welcome, Eric. Hey, Ben. Nice to see you. Thanks for having me. Good to see you too. Also with me, Andres Baranowskas, Director of Product here at Shopify. Thank you for doing this, Andres. Hey, Ben. Thanks for having me. Well, again, really excited to get into this, and hopefully the audience is as well. Customer acquisition costs, governments, privacy, competition. Eric, did I miss anything? analytics, measurements, attribution. Yeah, a couple of things, but those are some of the big ones. So why? Why is it becoming more expensive and more difficult to acquire new customers? Well, I'd say there are a couple of recent developments that have created friction for digital marketers kind of broadly, but I think they've been felt maybe disproportionately by a lot of the DTC advertisers that are likely to be listening to this, and they relate to privacy and the way that data can be transmitted between advertisers and publishers for use in building behavioral profiles that can then be targeted to kind of achieve advertising efficiency.

2:18And some of those privacy restrictions have been led by the platforms themselves, such as Apple, introduced a fairly significant one a few years ago. And then some of those have been sort of instituted by laws, such as in the EU with the GDPR and the DMA that recently went into effect. I think we're going to see many more of those restrictions be implemented in the coming years. Google, they just announced a few days ago that they're delaying their big one, which is the deprecation of third-party cookies. But I mean, nonetheless, it will happen at some point. They're also deprecating the mobile advertising ID that exists on Android at some point.

2:56They I think advertisers can just sort of expect that the operating environment is only going to get more challenging over time because of these privacy restrictions. So privacy restrictions remain one of the big challenges. And if there's nothing that's universal about business owners, it's that they're certainly adaptive, right? I mean, when changes come afoot, entrepreneurs are there to adapt to them. How are you thinking, Eric, about these headwinds in marketing? And what sort of advice are you sharing with folks who are experiencing this right now and like, you know what, I just don't know what to do.

3:25How do I adapt? Well, there are a couple of things you could do. I mean, on the measurement side and the attribution side, I mean, there are approaches to trying to recover some of the efficacy, some of the fidelity that existed before when there was basically a free flow of user IDs throughout the ecosystem that allowed sort of parties to sort of understand when like, hey, I'm a publisher, I'm serving an ad for an advertiser. I can understand when that advertiser's ad led to some outcome, right? Led to some registration or a purchase. And I can understand that because they can send that back to me and they can give me that person's unique identifier, right?

4:03And then I can enrich my understanding of that specific person with that new knowledge, right? So that's kind of gone forever. But there are ways to kind of take a look at the different data sets with like a macro perspective and try to parse an understanding of which campaigns produced which outcomes through just like probabilistic methods, right? through like statistical methods. So that's one approach. You know, another approach is to work with technology vendors to find a way to do that sort of matching, that attribution such that privacy is preserved, right? So you hear a lot now about trusted execution environments, TEEs, you hear about clean rooms.

4:36That's another approach where you get some sort of like trusted third party to merge the data on your behalf from the publisher and the advertiser. But that requires sort of integrating with another SaaS platforms. And then the third option is to just be much more sort of holistic about how you think about marketing, right? So instead of trying to track everything or attribute everything, I should say, from the bottom up, from at the user level, is to try to take a very sort of tops down approach. And sometimes that's paired with like these sophisticated statistical techniques I was referencing earlier.

5:03Sometimes it's not. And sometimes it's just building products that are much more broadly applicable, much more sort of broadly appealing and not having to rely on user level attribution. And the DTC space, I think, has kind of moved in that direction in a lot of ways. Certainly a reimagining of how we attribute, for example, customers being acquired to all the data points that you were describing just there. You know, Andres, I bet this stuff is on your mind too. Your team focuses on trying to understand pain points for business owners. From Shopify's perspective, what are some key challenges that you're trying to solve on your team?

5:39Yeah, I think overall, as you rightly mentioned at the start of this, that marketing is hard, right? And it's getting only harder. time. And what we see that our merchants are facing a great complexity. There are so many platforms to run ads. There are so many ways to acquire customers. There are things like affiliate or influencer marketing that you need to think about. Setting up campaigns is hard and the results are often unpredictable and costs are growing. Generally, the environment is very volatile. The cost can change very, very fast. And it's a difficult job to experience marketers and seems almost impossible for someone who's just starting up.

6:23This is a real tax on merchants' ability to grow. I believe that many, many merchants could grow much faster, but now they are limited by the complexity of this thing in general. And what we are trying to do here at Shopify, we're trying to leverage the scale and the volume that happens on Shopify and help merchants. And we have two concrete offerings. One is Shopify audiences, where we help merchants to run their existing campaigns on existing channels better. And we do have shop campaigns where we simplify the customer acquisition altogether. And Andres, we're going to talk about both of those a little bit later in the program.

7:04But back to this idea of it becoming more difficult and perhaps slowing growth for certain business owners or for certain merchants. Oftentimes when you spend something as a business owner, you need justification for that spend, right? I spent X and the reason was Y and I got Z. This is becoming much more muddled, right? To find the justification for a very expensive ad campaign. What is this going to do if we could open up our chest here and look at our crystal ball. What is this going to do to the landscape of marketing? I think Eric mentioned one interesting thing is that when marketing is unpredictable and it's less precise in general, it actually makes sense for you to, instead of focusing on one product, to look at more, right?

7:52More that would appeal to the same segment or wider segments of people. I think this is one of the things you could actually observe. Yeah, I think if you looked at the immediate impact, particularly of Apple's platform change, it was with the reduction in clarity, you saw advertisers get more conservative, right? I mean, I think if you have less belief that your ability to measure the impact of your marketing is precise, you're probably going to spend less. That's just sort of a natural reaction. What you've seen is a lot of people have resumed that spend as the platforms have kind of evolved to offer more clarity through their ability to impute attribution or model attribution, right?

8:34So one thing advertisers just had to do, and this is kind of like a just a natural dependency is wait for the ad platforms to kind of catch up, right? I mean, Shopify audience is a perfect example of that, right? Shopify has built this very novel product that allows its retailers to advertise against relevant customers on these other platforms. Well, that kind of a product was needed. I mean, there's just no other way to do what was being done before without the biggest platform sort of stepping in and finding, these privacy safe ways of sharing the data or making the data available to be used in an effective way.

9:04The other kind of responses are to think about marketing less as a sort of directly attributable exercise in precision measurement and to do more of what I call flying blind. And the idea with that is, you know, when you had these sort of deterministic identifiers, you had the comfort of being able to trace a user's journey from exposure to an ad through clicking an ad, through landing on the advertiser's website, to adding something to cart, to making a purchase, to then making a repeat purchase. And that gave you sort of comfort in precision, but in a lot of ways, that was a sort of a false sense of security, A.

9:45And B, it forced all of your marketing activities to conform to the measurement, right? So if I base the entirety of my business around the ability to measure that journey with total precision, then I cannot use any ad channels that don't facilitate that, right? And so my point was, well, that the fidelity of that data has been degraded, right, considerably as a result of these privacy interventions. And so you don't have that sort of auditability, that sort of total transparency anymore. And so you really need to embrace the idea of flying blind, but embracing the idea of flying blind actually opens up a lot of new opportunities to you, like TV, like podcasting, like influencers, Right.

10:23Like all the sort of above the line, you know, advertising channels that that you just couldn't use if you're totally dependent on deterministic ID. And so I think what you've seen now is sort of a resurgence or renaissance in this idea that like, hey, maybe creative should lead our sort of marketing activities because that's really the biggest lever we have to differentiate, A. And B, because we're able to sort of apply it to all of these surface areas that were totally off limits to us before because our business was 100 % totally reliant on deterministic identity and therefore reliant on the channels that facilitated that.

10:59It's really interesting because at the same time, there is this friction of beautiful, creative, and the cost and the man hours that takes, and the juxtaposition of the lack of clarity measuring its impact. It becomes difficult to make that argument outside of saying, hey, let's fly blind. Hey, we know this differentiates ourselves from our competitors. But you were talking a little bit earlier about the way in which we can measure the impact of some of these things from a macro level. You called it more sophisticated. Andres, from our perspective here at Shopify, is there a way that we're adapting to this lack of specificity on our end?

11:40There are definitely ways. And I think one of the things that is helping merchants in this new environment is Shopify audiences. And this is how to leverage the scale of Shopify to create superpowers to our merchants. And what's happening with Shopify audiences is that merchants are already running ads on multiple platforms. And as Eric pointed out, performance on these platforms recently changed. And changed not to the better. But what Shopify Audiences does, it helps merchants actually still find customers, find more customers on those platforms and maximize their ad performance there. So Andres, just to interrupt for our folks listening, Shopify Audiences is basically an audience list that we help supply.

12:24Is that right? Yes. So what happens is that merchants get their ads in front of the most interested buyers with custom audience lists that we generate. And they're powered by the algorithms and the millions of insights that we have here at Shopify. And these customer audience lists are with value generated, exported, and then merchants can actually add them to their ad sets on those big platforms. What happens in practice is that the retargeting audience that you had on a platform like Meta, in most cases, for most merchants, doubles or even more. Sometimes it triples. And this audience itself is usually the best performance audience that you have.

13:08So you can get more customers at that same low price that you would be paying for your usual retargeting audience. And that helps to save a lot of money. And not only that, what also happens there is that the cases where a merchant wants to prospect, wants to achieve a completely new audience, that they have zero touch points. For example, Happy Hippo, they make bad products that are safe for kids and fun to use. And they reached, I believe, 70 % lower cost to acquire new customers. and five times return on that spend by leveraging the Shopify audience's product. Where less than 1 % of the audience that they connected was the audience that had any interface in the past.

14:01What they did precisely is that they created 1 % seed for their meta lookalike audience. And that seed was created leveraging the insights that exist at Shopify as a platform. That's the power of Shopify audiences in practice. this seems somewhat almost too good to be true, right? We have all of these restrictions now to how we can track people and their behavior. How does this work in practice? Why isn't this a violation, for example, of new privacy laws? How is this acceptable? How does this circumvent what Apple's been doing? The way it works in practice is that merchants are able to cooperate with each other effectively.

14:42They're able to better identify the customer that lands on their store, have their specific intent that is the intent that they're seeking. So suddenly, in order for you to reach the same customer that effectively already visited your store, you have much, much higher chance that you would have before, that you would have doing this alone. Now you have power of the collective effectively to do this much stronger. So again, certainly a challenging time. Eric and Andres, what an insightful conversation. and cannot wait to get into some more of the products that Shopify is building for our merchants.

15:21Before we get there, I'd like to take a moment to thank you for tuning into the show today. If you haven't already, please make sure to follow Shopify Masters wherever you listen to your podcasts so you do not miss an episode. And why not? Leave us a review. Let us know what you think of the program and we love reading those. So keep them coming. Thank you so much. Andres, we've been talking a lot about Shopify Shopify audiences. A tool really combines the power of our merchants together to help you acquire customers at a lower cost. Another great tool that we are employing here at Shopify is the Shop app, which is our own marketplace.

15:59For those listening who haven't had any experience with the Shop app, what is it exactly? Yeah, Shop app is something that started as a package tracking app back in the day. And now it's one of the most popular shopping apps in North America. Just the last quarter of last year, ShopApp was one of the top three apps in Apple's App Store for a while. And it's reached a pretty significant scale recently, where for the last few months of the last year, ShopApp was close to$100 million in GMV in a single month. Just underscoring the value that's being created there for Shopify's merchants. And the future of that is only available if you are actually on Shopify.

16:42And what is it exactly for, again, for folks who haven't really interacted with it yet? Yeah, so it's an app where you can discover a lot of merchants that are in the universe of Shopify. You can find great products that are being offered and you can make a purchase. Every time you as a buyer do make a purchase on a shop app or using ShopPay on any of the online stores that are powered by Shopify, you're also earning shop cash, which is also spend them inside the shop app, which actually leads to the other product that I mentioned, Shop Campaigns. Which we're going to talk about in a moment. When you say Shop Cash, it reminds me of being a kid and going to like Dave & Buster's and going to exchange your card to get a little more, you know, some money to play the games there.

17:27This is an incredible platform. And for folks who want to support individual businesses, small business owners, really, the Shop app is a celebration of that. Eric, from a consumer behavior standpoint, we have seen, I think, a growing shift. That's not just in the last couple months or years, but even longer of folks who don't necessarily just want the cheapest product or the fastest product. They're curious about where this product comes from, its story, and also what their money might be doing once you buy that particular product. Is that something that you think will continue to resonate with customers, this idea of supporting individual small businesses?

18:07Consumers tend to be, you know, price sensitive, right? But my sense is, you know, what you see a lot of times with personalized ads, you know, it's really a value-rooting proposition, right? The purpose of the outcome of, like, truly personalized advertising should be to put an ad in front of someone that represents the thing that they are most likely to find relevant, right? And therefore, most likely to click on, most likely to purchase. And so, you know, that could be a function just of the lowest price, but it could also just be a function of meeting that person's needs the best or having like a functional design that is the most attuned to their design sensibilities.

18:46Right. And all of that stuff gets baked into a person's proclivities to click. Right. And so not to say that those are necessarily dimensions that get considered in an ad scoring algorithm. But, you know, the thing is, like the more relevant something is for a person's taste, the more likely they are to purchase it. And it's not always just a question of price there. And it's more a question of conversion, right? And so like one of the problems with degrading ad targeting systemically is, well, then you kind of just end up with a race to the bottom, right? I mean, like, well, then everything becomes almost solely a consideration of price.

19:20Shop Campaigns is kind of an example of this thesis that I've published about called Everything is an Ad Network, right? And so when you can't sort of have data flowing sort of like freely and advertisers sharing data with the publishers that they can understand, you know, who their best users were from that publisher site. You have the ability for anybody with true first party data to launch an ads business because first party data is sort of takes over for that, right? And so the ability to know, like, well, I know everything about my customers. I should just put ads on my product to show them what I know they like.

19:51And all of that's first party to me. That's effectively what will happen in the absence of the ability to sort of transmit this data back and forth. And, you know, in a lot of ways, that's a good thing. In a lot of ways, that's, well, I've already got a relationship with this product. I've already got a relationship with this platform. And so, yeah, show me the things on the platform that are the best for me. Right. Right. Remark it to me. Yeah. It alleviates that tendency for without the ability to target ads on the basis of relevance and the basis of taste and basis of preferences for people to only sort of be for conversion to only be a function of price.

20:21For it to only be a function of price. Right. I mean, that's that's something that we're looking to adjust. And with campaigns, Andres, what's really cool is that, you know, it's not just restricted to one channel, for example, right? I mean, you can acquire brand new customers at a controlled cost across a variety of channels. Tell us how that works exactly. Yeah, it's pretty simple. I think what we're going after is the problem that we talked about earlier, again, like marketing is hard and it's very complex. And I think this is a chance for us to really simplify it. and Shop Campaigns is about that.

20:57So whenever you are running a Shop Campaign as a merchant, you create a campaign. You set the customer acquisition cost that that is the right cost for you. You set the budget and then you choose where you want to promote your campaign. So the one piece is Shop, right? The Shop app and the visibility there. But another important piece is extending it further. So you can extend it to Mata and in the future other platforms as well. And what happens then is that Shopify optimized the creative, chooses the perfect placement, either in shop or beyond, and targets the best audience. And then brings you customers that convert.

21:34And you pay only for the customers that convert. And you get full access to that customer's data. So it's really about simplification. It's really about putting the customer position marketing on autopilot. And it's beyond just you talking about this. There's actually been some success from merchants already, right? Yes, indeed. And we see campaigns being used by merchants of all sizes. It's something that is used by smaller brands, where it's great to start scaling up your marketing activity, and it's also something that is great for and used by larger merchants as well. When they have a slice of their budget, they want to benefit from a new channel, a new approach, and actually do risk.

22:15Again, fixed customer acquisition costs reduces the risk, and it makes things simple. and we have brands like Unilever brand Liquid IV. They were using the product and they saw a 40 % reduction in customer acquisition cost using shop campaigns. We had brands like Carraway launching campaigns. We had even Netflix and Nike Strength doing that. It's been used by various different brands and it's been a great channel for the buyers as well. Because buyers were already used to the thing that, hey, shop app is an app where you can discover new brands that I have never heard about, but they're great.

22:51They're like high quality, great design, independent entrepreneurs and so on. And no, that's on steroids, like with Shop campaigns. Eric, listening to all these new products, we've talked about audiences, the Shop app, we've talked about campaigns. I'm gonna put you on the spot here. What else can Shopify do to help existing merchants and founders even more? I'll sort of pitch a product that doesn't exist. I would imagine one of the biggest issues they face with scaling their marketing is measurement, right? And, you know, Shopify seems like it's probably pretty well positioned to build some measurement apparatus to sort of support them in measurement, either building like a kind of flexible, sort of extensible, generalizable media mix model products that they can use to sort of say, hey, you know, our money is best spent when we split the budget up like this and give this much to this product or this much to this channel.

23:43My sense is, or incrementality testing to say like, hey, you know, when you spent the money on this channel, I don't know if it actually generated any incremental return to you. You probably should scale back on that specific channel. And I'm talking about like external channels, right? So like ad channels that Shopify doesn't own. My sense is Shopify probably could provide that to retailers and it would benefit Shopify to do so because they would probably allow them to spend even more money on marketing, driving users to their storefronts and buying their stuff. Andres, what do you think? I think this is great.

24:13These are the problems that are definitely at the top of our heads. And I think Eric is right, is that these are problems that are possible to solve, like leveraging the scale and the visibility that we have. And it's very hard to talk about what's next. But I think what's also worth mentioning is that there are some tools that already exist for merchants to, especially as they start their journey, to make their marketing more effective. As an example, anyone who's using Shopify audiences have access to benchmarks. where they can look and compare their performance against what the rest of the industry is doing, different industry groups and so on, and what's happening there.

24:55And this is very basic stuff, right? But this is like a very first step that we can take towards what Eric is talking about. And I think if we get to that, maybe North Star is the right term, maybe it's not. I think it's the right direction. And at the same time, Merchants also have access to tools like Shopify email and Shopify forms to do some of the other stuff that is really to market that's not necessarily paid and be effective there. Well, I want to thank you both for joining me today for this conversation. Eric Sufert, the founder of the VC fund Heracles Capital, also runs the must-read blog, mobile dev, memo, and a podcast by the same name.

25:34Eric, thank you so much. Yeah, thank you, Ben. And of course, Andres Baranowskis, director of product here at Shopify. Andres, thanks. Thanks, Ben. Thanks for listening. Shopify Masters is produced by Gogo Zoger and Megan Coyle, mixed and mastered by Matt Schwartz and Miku Betlam. Schwang Esther Shan is our host, and I'm Benjamin Gottlieb. If you've enjoyed what you just listened to, you can tune in again right here every Tuesday and Thursday for brand new episodes. Catch you next time on Shopify Masters.