According to the Pitch Madison Advertising Report 2024, AdEx in 2023 grew by just 10%, against its forecast of 16% and a growth of 21% achieved in 2022. While the report identified several diverse reasons for this slowdown in growth, one key factor was: “The startup funding winter continued leading to many startups completely abandoning their advertising plans including substantial reduction on spends in the Performance Marketing.”

However, there is chatter about the digital advertising industry hopefully picking up lost steam. According to the RedSeer Advertising Report 2024, the next two years will see 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 much hope that after a funding freeze, Indian startups should see some more deposits in their coffers as VCs and conglomerates will hopefully loosen their purse strings. And like in other sectors, bets are being pinned on D2C brands to give performance marketing spends, and so overall industry growth, a fillip.

Betting on Performance

Venugopal Ganganna, CEO, Langoor Digital, says while exact figures vary across reports and industries, studies consistently show that performance marketing accounts for a significant portion of D2C/startup digital ad spend.

According to the latest EY-FICCI M&E Report 2024, even as digital advertising now has the largest share of India’s ad pie, performance advertising is the largest component of it. And, in 2023, “between 800,000 and one million SME and long tail advertisers spent Rs 208 billion on digital media, primarily on performance advertising on Google, Meta, and e-commerce platforms…  SME spends are focused on performance advertising”.

A 2023 report by Socialbakers suggests performance marketing comprises over 70 per cent of D2C ad budgets, while a 2022 study by iProspect claims it can reach as high as 80 per cent in specific sectors.

In recent years, a significant portion of digital ad spending by Direct-to-Customer (D2C) brands and new business has been driven by interest in showcasing the execution.

“This pattern is principally powered by the quantifiable and results-situated nature of execution promoting channels, for example, pay-per-click (PPC) publicizing, advertising, affiliate marketing, and influencer collaborations. As per industry gauges, around 60-70 per cent of D2C promotion financial plans are distributed to execution advertising exercises, exhibiting the significance of driving substantial profits from speculation,” says Advit Sahdev, Digital Marketing and Performance Marketing Expert.

Ganganna says this dominance is no surprise. “Performance marketing offers a data-driven, ROI-focused approach, allowing D2Cs to pay only for tangible results like conversions, leads, or app downloads. This efficiency and measurability are critical for young companies with limited budgets and a need to demonstrate clear return on investment.”

Performance marketing's appeal extends beyond just cost-effectiveness, say marketers. Platforms like Google Ads and Facebook Ads offer sophisticated targeting capabilities, allowing D2Cs to reach their ideal audience segments with laser precision. This, coupled with the power of AI and machine learning, enables dynamic ad creation and real-time optimization, ensuring D2Cs deliver the right message to the right person at the right time.

“Furthermore, performance marketing integrates seamlessly with marketing automation tools, allowing D2Cs to personalize the customer journey beyond the initial ad. This can involve tailoring post-click landing pages, email marketing campaigns, and even product recommendations based on user behaviour, ultimately fostering stronger customer relationships and higher conversion rates,” Ganganna noted.

Industry Interest

According to Swarali Halepati, Director, Integrated Media Planning, Carat India, performance marketing is heavily relied upon by industries where measurable actions and results can directly impact revenue generation. Some industries that are particularly reliant on performance marketing. BFSI and e-commerce are leading this segment in skewing budgets towards performance.

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

Ashutosh Nagare, Vice President – Head of Performance Marketing, Interactive Avenues, agrees that traditionally, fast-moving consumer product industries have heavily relied on performance marketing, leading to a prevalence of performance-led campaigns in e-commerce, travel, entertainment, and similar sectors.

“However, this trend is evolving. We now see products with longer conversion cycles also engaging aggressively in performance marketing, such as jewellery/lifestyle, real estate, and automotive. Ratios are shifting dramatically based on product demand and the adoption of technological advancements by brands keen on measuring outcomes and offering more personalized targeting to the right audience,” he says.

“In conclusion, the reliance on performance marketing varies between industries, often driven by factors like measurability, competition, and budget constraints. However, the future is likely to witness a more holistic marketing approach where performance marketing plays a crucial role alongside other strategies to create a comprehensive brand experience and maximize customer lifetime value,” says Ganganna.

And we'll be speaking about that future in a companion piece; so stay tuned.