TikTok Shop, Incrementality, and the New Growth Playbook

:00:46] Luke: Doing very well. Back into a normal routine of a week. The family and I were out in Des Moines, Iowa, the majority of last week seeing my wife's family, extended family, showing them the newest baby. So it's alwa- it's always fascinating to me how exhausting what seems like such a simple task as just watching a child watching children can be.

[00:01:13] Where like sit around, make s- try to get them to not spill avo- avocado oil all over the wooden f- wood floor, whatever, and you're like-- And then it's like, "Why am I so exhausted?" And and out of the routine. And so anyway, it's

[00:01:27] Richard: Well, it's, yeah.

[00:01:28] Luke: be be back, be back in the office, be back on the normal time zone, be back in be back in the routine of things.

[00:01:34] Richard: Yeah, I was gonna say it feels like just a simple equation of they just have more energy than you.

[00:01:38] Luke: Yeah.

[00:01:39] Richard: you forget what it feels like until you're around a kid, and they really-- Man, I can't believe I used to be like this, you know?

[00:01:45] But all right. Well, so today what we wanna talk about is, well, a couple of things.

[00:01:51] I think the main thing we wanna talk about is something we, we're calling the ecommerce demand cascade and talk a little bit about how we

[00:01:55] approach that at CTC. But primarily, I think what we wanna talk about is give you a little sort of sneak preview, let's say, of something that we're launching soon, which is that we're going to be doing, We're going all in on TikTok Shops. Let's put it that way. And w- we've begun by rolling out sort of an internal service for existing clients and, and we'll talk a little bit about how that's going. But w- we'll use that kind of as a jumping-off point to talk about how TikTok Shops and TikTok in general plays into the overall generation of demand in ecommerce spaces.

[00:02:22] So let's start with let's start a little bit with the, the just the TikTok Shops thing. Like what, what's, what was the thinking around us, us kind of diving in headfirst into that?

[00:02:31] Luke: So this will sort of tee up this, this idea of what we're calling the e-commerce demand cascade and what, what we see being The ecosystem right now for brands that are growing what, what they look like and, and and what that-- what the implication is. So we'll get there in, in, in just a few minutes of sort of the core idea.

[00:02:48] But just to tee up the TikTok shops thing. So yeah, we're, we're gonna be doing a more public launch around this. You won't, you won't even see the service on our website yet, and we're not gonna spend too much time right now discussing it. But we've, we've launched TikTok shop service offering. The leader is for that department is g- Creator First built out a program with a brand and scaled their TikTok shop service offering to to multiple seven figures.

[00:03:12] They're spending half a million on creator fees every year, led to a lot of the dot-com sort of spillover and growth, as well as Amazon and retail impact in the sort of eight-figure range on top. So we're, we're excited about what, what we're building and our sort of unique approach to TikTok shop service offering and the leader at the helm, and how it's uniquely situated in CTC in our, in our broader data set, and how, how we do things here.

[00:03:35] So we're excited to share that more broadly. We've rolled it out to our to a, a initial cohort of our existing customers and are focusing on that and prioritizing them based on the capacity that we have at this point. And and then we'll sort of roll out more, more broadly from there.

[00:03:51] But TikTok shops is w- the, the one of the hottest things right now for many of us. It's in the back of our minds. Okay, are we doing enough on TikTok shops? Should we be on TikTok shops? What is it? What are we missing? What are other brands doing? And we've been spending a number of months looking at what others are doing in this space, having broader strategic conversations discussions with other leaders as well, and we're excited about what we're gonna, what we're gonna bring to the conversation around TikTok shops and being able to equip, equip brands to, to be effective in that way.

[00:04:18] But the sort of the, the impetus for it is, yes, a lot of, a lot of FOMO broadly around TikTok shops. But what's, what's been happening more particularly over the past year, which is incredible because Tik- TikTok shops is just so young. What, like four years old really since it's been on the scene, and it's leapfrogged walmart.com in terms of in terms of GMV.

[00:04:43] And will, will soon be coming up here based on its growth rate on eBay after not too long and, and hopping to Temu b-before that. So the growth rate of TikTok shop's just been incredible. So there's just this, this like for everyone, okay, we want, we want a piece of that. What's, what's happening, what's going on in the platform?

[00:04:59] But the-- for us, where we've sat, which is really focused on dot-com e-commerce business What's happened is over time, what it's the-- where the demand is getting generated and how we think about growing e-commerce businesses is becoming more complicated. It's more, it's more complex than ever right now in terms of what it takes to do this really effectively.

[00:05:22] And the brands that are growing, it's not as simple as here's my .com store, here's Meta and Google, and I'm gonna feed it a bunch of creative, and that's where the growth is gonna come from. The growth that's happening exists in a more complex environment than it's, than it's existed before in what we're sort of calling the e-commerce demand cascade of where this, the, the demand is being generated from across these various channels.

[00:05:46] And TikTok Shop is a crucial piece of that right now because it, it exists not just as a sales, individual sales and distribution channel, but it exists uniquely as a primary demand creation engine that then feeds into .com and, and Amazon as well. And so r-right now what we're seeing is that the, the ability for brands to be able to measure the impact across this, this more complex environment of this e- of this demand cascade, measure the, measure the impact and have clarity on where the demand's actually being generated from, where it's being captured from to be able to make decisions, it's more challenging than, than ever.

[00:06:25] And the ability to, to execute against each of these sales channels, media channels and sales channels is critical as well because that's where the, the demand is going to come from. So that's sort of the impetus. Like TikTok Shops, we're going all in. We've got, we've got to we are, are rolling this out to our existing customers and, and the big, the big reason why is there's the demand cascade phenomenon that is, that is happening and the brands that are growing really well have unlocked the ability to execute and measure the impact across all-- each of these individual channels and it's g- that's gonna be necessary for for any D2C e-commerce brand in the coming months, maybe years if you have that long.

[00:07:03] Richard: Yeah. Okay. Well, so let's pause there then and, and obviously you mentioned the demand cascade a couple of times. Let's let's take a second then to just define what that means and, and give us like a little bit of a sense of like what this ecosystem looks like. And then we can talk a little bit about how brands sort of execute against that or, or dive into it to take advantage of it.

[00:07:22] So what

[00:07:22] is the e-commerce demand cascade and, and what are the constituent parts?

[00:07:26] Luke: So we've talked about this idea of demand creation and demand capture quite a bit related to different media channels and how they sit, where Meta is gonna be lean more demand creation, Google's gonna lead more demand capture as as an example. What's, what's happening is this demand creation and demand capture dynamic is now existing on a sales channel, distribution channel layer as well, that, that adds the additional layer of complexity.

[00:07:55] So what, what you can think about is you have two subsets of groups of sort of demand creation and demand capture happening for your business. The first pillar is all the media that is creating and capturing demand for you. So th- this is Meta, YouTube, Snapchat, AppLovin, Google, Bing, Amazon, GMV Max. These are all the media channels, right?

[00:08:18] Like where, where we're deploying creative and then investing the media dollars and tracking the ROAS, iROAS against those additional media, media channels. So that's, that's sort of pillar one. Pillar two are your sales and distribution channels, and the prime-- the three primary are TikTok Shop, dot... your dot com store, and then Amazon.

[00:08:40] And then you're gonna-- Some brands will have retailer.com and, and then broader retail distribution. But as it relates to the e-commerce business, TikTok Shop, dot com, and Amazon. So just think of like try to picture these two pillars, where the demand is getting created for your business and where the demand is getting captured exists in sort of these two areas, the media channels that are driving it, and then the sales channels that are, that are, that are driving that.

[00:09:01] And the, and these sort of live in, in relationship to one another. So in each of those, each of those pillars, media and sales channels, each individual channel within those buckets leans further one direction than the other in terms of how it's creating demand versus how it's capturing demand within your funnel.

[00:09:20] So as an example, your media channels TikTok, GMV Max, and Meta acquisition are in the media bucket going to live very demand creation-oriented, right? And so you're, you're gonna see higher incrementality factors for those channels where on a click-only basis, they're actually underreporting their full impact.

[00:09:41] YouTube, Snapchat, AppLovin, similar thing. So the, the, the core media channels that exist within this demand creation bucket, GMV Max, Meta, YouTube, Snapchat, AppLovin you could add in Pinterest depending on the campaign type, but those really get at the sort of five core demand creation media channels.

[00:10:00] And then when you think about the demand capture side of the media channel pillar that's where your Google search and shopping campaigns are gonna live, Bing and then Amazon ads, your sponsored ads, and then DSP maybe lives a little bit up the funnel depending on depending on how you, how you view it.

[00:10:16] But you have your media channel pillar, you have your demand creation media, which is your GMV Max, Meta, YouTube, Snapchat, AppLovin, and then you have your demand capture media Google being an Amazon Ads. And each of those exist at some level of leaning more demand creation versus demand capture, which is going to be measured primarily by the incrementality of those channels, like I, like I mentioned.

[00:10:37] So Meta underreporting its impact on a click-only basis, leaning more demand creation, 120% incrementality factor as a baseline against seven-day click conversion campaigns. Google branded search leaning more demand capture, 30% incrementality factor as a baseline against the Google brand search reported, reported ROAS.

[00:10:54] And so you have this ecosystem of channels that are existing at different intervals of demand creation and demand capture that need to be measured and understood related to their true incremental their true incremental impact. So that's pillar one, the m- the media pillar.

[00:11:12] Richard: Okay. So obviously that flows into the the sort of point of sale pillar, I guess would be the second one. But I, I did wanna say like, so I'm, I'm looking at sort of a graph that we've produced right now. We can maybe throw it up on the screen. And what this is implying is that It's-- let's say traditionally, there's the main demand creation platform has been Meta, the main demand capture platform has been Google, and we've always sort of preached the gospel of those two being the only ones that you should be really putting energy into.

[00:11:39] Obviously, that's changed a lot with particularly with AppLovin coming about and, and then also with TikTok shops. So is kind of what we're implying here with this graph that TikTok GMV max or TikTok ads essentially has become a more powerful demand creation mechanism than Meta? Or what's like, what's the average sort or what's the opportunity there, I guess?

[00:12:00] Luke: So the, the, these media channels are gonna live... so to your point what has helped to better justify ad dollars being deployed in channels outside of like the core Meta Google has been having a very clear measurement framework and insight on the true incremental impact of these channels, right?

[00:12:21] And as the tooling around measurement has become more sophisticated and more available to more and more brands what's clear is that every channel is incremental to some extent, right? It's just a matter of relative to what the channel is claiming, what is the actual true incremental impact that needs to be, that needs to be assessed through geo holdout test to, to get to back into an incrementality factor for that channel, et cetera.

[00:12:48] So to your question, YouTube is a good example where the-- that channel Well, the incrementality factor for that channel in many cases could be 2X, two and a half X what the platform's reporting, because YouTube on a pl- pure play sort of conversion basis drastically under under credits its own performance.

[00:13:07] Whereas on the inverse, Google branded search is going to over-credit its performance and it's going to be discounted, right, by a third. It's gonna be a 30% incrementality factor. And so what it's showing is, like, that these channels from an incrementality factor basis are going to have are going to lean the demand creation media towards undercred- undercrediting its true impact, whereas the demand capture media is over-crediting its true impact and all of them lived at to some extent on that spectrum of increm- in- incremental impact that needs to be measured specifically for each brand.

[00:13:40] Because TikTok, GMB, GMB Max or YouTube or Snapchat, how does it compare to Meta's reported ROAS at 120% incrementality factor? Well, they could have 150% incrementality factor, a 230% incrementality factor. And so what's necessary is getting to that level of clarity around the impact of these channels because there's such a wide range of 230% incremental to 30% incremental.

[00:14:18] Yeah. Yeah. And what, and what makes it more complex as well, right, which-- So to get to pillar two, let's, let's say this media channel ecosystem lives only in the context of people only buy things on your .com store. So let's, let's sort of like live in this hypothetical world that you just have-- brands just have a .com, like that's where you're gonna provide.

[00:14:39] So you have all these media channels that are, that are, that range from some level of incremental impact to what they're actually reporting But you're capturing all of that demand on your .com channel, right? In that case, it's, it's much clearer to be able to assess here's the true impact of this channel, the incremental impact related to what we're seeing on .com is, is X percent relative to the incrementality factor and go from there.

[00:15:05] But, but what's actually happening is for brands that have multiple distribution channels and like the big three of TikTok Shop, .com, and Amazon, each of these media channels have impact that's focused primarily on one of these individual distribution channels, but then has overflow or, or trail off towards the other channels to some extent.

[00:15:27] So I'll give, I'll give an example. Your-- Sort of the simplest one that we, we all are aware of. Your meta acquisition, you, you sell on .com and you sell on Amazon. Your meta acquisition ads that are pointed at your .com store relative to what the campaign is the campaign is crediting for itself, there's 120% incrementality factor for those campaigns.

[00:15:48] You can get into like, okay, great, I know the true incremental impact of my meta acquisition campaigns on .com. What's also happening though is you have a 20% spillover or halo effect into Amazon that's not captured in just the .com performance, right? So a dollar in on meta is $1.20 out on your .com store, but there's an additional 20% halo effect which gets you to a buck 44 instead of a buck 20, right?

[00:16:18] So there's actually more halo effect because meta is impacting .com and then it's trailing down into Amazon. And you can do this sort of down the line where every channel has this layer of impact related to each of these channels that make, that makes it more complicated to understand what's actually leading to what.

[00:16:33] So in this, in the second pillar of we have our p-- our, our POS, like our, our distribution channels, TikTok Shop, .com, and Amazon live in a hierarchy related to the amount of demand creation versus demand capture that's happening on those individual channels where TikTok Shop lives at the, at the highest end, where the amount of revenue that's getting credited to on the TikTok Shop channel itself directly related to how much demand it's creating is it has more incremental impact relative to Amazon, right?

[00:17:08] Where like if you-- Where on, on Amazon, it leans very heavily demand capture-oriented for that channel, where the creators that you have posting on TikTok, yes, some of the sales are being captured on your TikTok Shop, but a lot of the demand from that activity happening within your TikTok Shop is being captured by folks that are discovering the brand on TikTok Shop by the creators and then going into Amazon and purchasing on that channel.

[00:17:35] So you have the media channels that function at some level of incrementality each, and then you have TikTok Shop, .com, and Amazon That live in a similar hierarchy where TikTok shop leans much heavier towards demand creation relative to the demand capture and credit that it's, that it's getting. Dot com is more sort of evenly distr- distributed where you, you are creating sort of driving demand to that channel and some of that's falling off into Amazon, but more of it's being captured on dot com relative to what's being captured on TikTok shop.

[00:18:05] And then Amazon is the heavily-- heaviest sort of demand capture channel where most of the demand that's being driven there is then being captured there because there's no, there's no further step down the funnel for a consumer to go from Amazon outside of, okay, they found it at the Target down the road if you're selling at Target and they've just had to drive over there to pick it up rather than get it on Amazon.

[00:18:25] Richard: Right. Okay, so I, I think it would be interesting then to go into like-- and, and you mentioned this a little bit with the incrementality piece, but like given the complexity of all of this, this sort of net of relationships where both I mean, there's sort of a mixture of creation and capture that happens with each media channel, and then there's, there's obviously there's some clear proportionate differences between each one of these channels in terms of the capture, but they are all sort of blended in such a way that you, you know... I mean, I guess what we're just talking about is the difficulty of attribution. But talk to me a little bit about like how you then sort of harness this or d- again, dive into the complexity and, and figure out how to make this work for

[00:19:05] Luke: So the, the first step is for brands that are running on both .com and Amazon, getting very clear on the true incremental impact of your media channels, just accounting for .com impact plus the Amazon halo effe-effect is step one. Otherwise, you, you're going to be throttling, you're gonna be throttling the media spend on your core channels because it doesn't look as strong from a platform-reported ROAS on Meta because 20, 30, 40, 50% of that additional demand is being captured on Amazon.

[00:19:36] So that's primary step one in the context of you have a .com and then you have Amazon distribution, and you have media that's directed at your .com store, getting clear on what that looks like. Otherwise, you will throttle demand that's being traded through these media channels that's directed towards .com, but some portion of that's being captured on Amazon.

[00:19:55] So that's, that's critical. That's step, step number one to be able to engage engage with this. Then the, the, the step two from there is is that what this highlights is there's a, a massive amount of demand that of, of, a demand opportunity that's represented in TikTok Shop, that if you're not on TikTok Shop or not at a scale of the, the, the channel producing a meaningful volume, that represents the biggest opportunity right now as it relates to net new channels to drive demand for for the business.

[00:20:28] So if there are two things I'd pick out from like the e-commerce demand cascade, the brands that we see growing effectively right now and have clarity around this is they understand the halo, halo impact of these media channels so that they're not throttling it based on just the .com reported impact.

[00:20:41] And then two, they have a robust TikTok Shop strategy in place and are scaling into that channel. And the primary thing that's going to drive that's going to drive results as it relates to the, as it relates to TikTok Shop is assuming you have your store set up in good way, you have the right products there, the right reviews, you're in compliance, you have a good shop score, because that-- If you don't have all that baseline in place, then nothing else you do is going to matter.

[00:21:03] But assuming all those pieces are in place, the brands that are growing on TikTok Shop Are finding ways to spend more and more money every single month on creators. Where, like I mentioned before, the brands that are, the brands that are seeing the growth that's impacting TikTok Shop but then trickling down to .com and Amazon and lifting all tides are spending 20,000, 30, 40, $50,000 a month on on payments directly to creators.

[00:21:29] And the unique-- what's unique about TikTok Shop, we're all very comfortable with I have a meta campaign, I'm gonna load a new creative, and then I'm gonna bump the budget. And so the main mechanism of driving the meta account performance for .com is more spend, more spend. What's-- On TikTok Shop, the main mechanism of growth is more videos posted by more creators.

[00:21:50] And what that requires is the building the core asset of your community for that, for that for your TikTok Shop. So building out the community, incentivizing those creators, coaching the creators, et cetera, to make a high volume of, of converting videos and finding, finding ways to say, "Okay, we spent $20,000 last month on, on fees to creators for videos that they're posting.

[00:22:17] How do we build our community more, incentivize more, so that we can go from posting 500 videos a month to 1,000 videos a month to 2,000 videos a month?" That's the mechanism for growth on TikTok Shop, and that's the opportunity and the challenge that exists right now.

[00:22:32] Richard: Yeah. No, that makes sense. And we'll, we'll get in-- I think we'll dive deeper into that once we roll out more publicly with the TikTok shop stuff, kind of dive into how to win there. But for now, we'll, we'll leave it at that. Anything else that you wanna hit on kind of the navigation of this demand cascade, Luke?

[00:22:46] Luke: I don't think so. It's, it's complex is what I'll say. We're, we're building out tooling and solutions on our side to pr- provide more clarity as it relates to these, to all of these dynamics that exist. Because the first step in this is getting clarity so that you can make the decisions on where the dollars should be, should be invested.

[00:23:03] So if you feel like you have a lack of clarity as it relates to what each of your channels are contributing and where the demand's coming from, love to help bring some clarity to you in that journey. And TikTok Shop represents a lot of opportunity, and there's a lot of complexities that go into it as well.

[00:23:18] So that's the-- that is one of the key opportunities that exists right now in the space.

[00:23:23] Richard: That's right. And yeah, like Luke said, you know where to find us, Cometherco.com. Hit that hire us button. Let us know you're interested in working with, with us to help you develop clarity around this very, very complicated thing. But I think that's gonna do it for us. Thank you, Luke, and until next time, folks, we will see you