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Foreign.
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You're listening to Perpetual Traffic. Hello and welcome to the Perpetual Traffic Podcast. This is your host, Ralph Burns. I'm the founder and CEO of Tier 11 alongside my amazing Chicago based co.
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Host Lauren E. Petrulo, founder of Mongoose Media.
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So glad you joined us here today. Lauren is still in Chicago recovering from podcast Evolution Shop Talk, south by Southwest. You've been on like a worldwide journey here and while all that's been happening, have you been watching the news? Because I know I have and we've seen some fallouts of like, well, first off, if you have been living under a rock for the last, I don't know, let's say when was he, you know, inaugurated? January 29th.
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January was inaugurated, but it was February 1st.
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Like the Google search volume on tariffs is through the roof. It's the most searched term as of right now as of the recording of this date. And we're now seeing this constantly evolve here. And the question comes back to me, like when I get on calls with business owners is what impact this is going to have just in general on the market and as well as in the marketing industry. And obviously it's going to be very, very industry and company specific. But there has been a whole lot and just within the last four hours, China just did a counter tarif, 34% on all imports of US products starting April 10th. So that is hot off the presses. If you're listening to this, what's been the impact for you? What have you seen? Because people are saying, all right, what's the impact of tariffs? But also what's the impact on marketing just in general and what are you seeing in your business as of today?
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I mean, right now it's like a lot of discussions with clients of ours that have had products that were pulled from Canadian shells that have ingredients or resources that are imported from various other locations. So their cost of goods is increasing. Their inventory and sales channels outside of the US is, well, the sales channels are decreasing and then the inventory is there sitting. So I have a lot of clients and even like conversations that we're talking about is if you're selling a physical product, your costs are going to change. Another client of ours that has like a brick and mortar store, the apparel that they order like Tommy Bahama brands and other things like that, like those shirts are now going to go up 80 to $90 and they're already at a price point where they've said sometimes it's surprising how much their consumer is currently already paying for these shirts. But now we have to ask them to pay even more because they have to pass that cost along. Some of our clients are evaluating ways where they can trim that increased cost without passing it to the consumer, which of course is often thought of first at marketing. So that's an awkward conversation where people are decreasing their ad spend because their cost of goods is going up and then they're also trying to evaluate what do they do with the surplus of inventory that's either being shipped back or not being reordered. So that's, that's the conversation landscape I'm having right now with regards to all of the tariff implications.
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Yeah, and I think there's very different answers to that depending on what the product is. So for example, like we're in talks right now with a bunch of software companies, really not something that's going to impact them. So it's not even a topic of conversation. However, companies that actually manufacture in the US and then import their raw materials from China, in particular steel and one particular case has been a hot topic of conversation for about two to three months now with a client of ours that obviously is going to be a major concern. However on the software side, less so. So it' very industry specific is what I'm finding. So we just had a conversation with a very large multinational American based brand that is all American made. However, some of their raw materials are imported from other countries, not specifically China. So the impact there, they really didn't know. They hadn't figured it out quite yet because the landscape is moving so much. What we're seeing just in a general sense now though is that especially with new prospects that we discuss, we don't necessarily look at and this is the reason why we shifted our model from an ad spend based model, which is we make more when we spend more, to a flat fee based model. Because first off, it's a cost. Yes, it's technically, I guess it's a cost of goods sold, but not really because it doesn't vary with the amount of volume which you push. Cost of goods sold is technically anything that is related to the sale of your product or the delivery of your product. Agency fees is really sort of like an operating expenses the way that we look at it. But it's got to be something that's factored in because it's an increase potentially if they don't have an agency bringing it over to an agency, something they have to factor into their cost of goods sold or their NCAC really more specifically their cost to acquire a new customer. So what we're seeing is with a lot of our analyses is that when we go deep into the business, we're not only seeing uncertainty around the cost that they can actually pay to acquire a customer, but then we go deeper inside a lot of their ad accounts. We're seeing a tremendous amount of waste, wasted spend, overspend in areas and in fact in one particular client was particularly hard hit by these tariffs. We looked back and we did all of their meta advertising and we did a deep dive analysis for about two weeks, had some of the smartest people in Tier 11 on this and determined that they were far overspending on brand and on Amazon. And that's usually the places where a lot of agencies overspend to make themselves look good because it's, it's easy to overspend on brand because you're like, hey, look at my brand campaigns. Hey, they're producing X amount of roas. Hey, look at my Amazon. It's pursuing X amount of roas because I'm really, I'm just bidding on the brand name when in fact there are strategies beneath that that you can actually use to save money on overspending in advertising. I think it's one of the biggest mistakes that a lot of agencies make right now to make themselves look good is pump up their own metrics. And in this case we found $1.2 million in wasted ad spend on an annual basis. That was 80 some odd thousand dollars. And that's just what we found, not even managing the accounts, a tremendous amount of spend. And when I look back on that, it's almost criminal that their agencies were spending that amount, passing it on to this business because that's more that we could have spent on top of funnel in order to create more new customers for them. And that's the model that I think is going away. Because what were they incentivized by? They were incentivized by spending more. And it's counterintuitive. And I think that's a thing that really has changed is it's got to change in this industry. So I'm coming at this from an agency standpoint. When I look at businesses, they have no idea this is happening. It's time we all lift the veil on that. So I think that's one of the big things in this particular case. They were very hard hit by the China tariffs on steel imports and they were looking for double, triple, quadruple that in just cost savings. But we could ship 25% away from that almost immediately through just some normal tactics and also get them the growth that they were looking for. So that's what we're seeing. It's like, you gotta look at this stuff differently now. It's not about spend more, make more. It's about spend less or the same and make more, but do it in a smart way, especially if you understand your metrics.
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It's efficiency of ad spend and management 100%.
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And I think there's just way too much waste. And I think the platforms themselves, we both know this, like Meta and Google, like, what do they want to do? Those are the two big platforms that we talk about the most on this show. Right, right. And obviously we also love TikTok, Snapchat, LinkedIn, all the other ones. Ones, but those are the big two that we really talk about here the most. What they want is they want themselves to look good too. So they are going to. No matter how many exclusions you do for your database and people who have visited your website or your upload your customer list, Meta is still going to find people that are most likely to convert. And then those are probably in most cases, repeat users or people who are aware of your brand or have at least engaged with your brand in one way, shape or form because they're looking for the best way in order to make themselves look good. So you continue to spend money. So, yeah, you know, not to be all conspiracy theory here, but this is the first time we've talked about this. So how that impacts tariffs from my standpoint is a lot of companies are looking to figure out ways in which to cut back spend. If they decrease marketing overall, where does that leave them?
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My standpoint, it's going to hurt them long term.
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There's a lot long term. It screws you, really, you know, if you don't take our proposal to spend like save you 1.2 million, what are you going to do? What's your alternative? So are you going to shrivel up as a business and die or are you going to sort of double down and do it in a smart way? And I think that's what we're finding right now because there's a lot of uncertainty and a lot of trepidation when it comes to these tariffs. And the news cycle is just constantly churning out new updated information on it.
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Yeah, I mean, I think it's a really unique situation. All of COVID and the pandemic, where I think it's almost like a pandemic 2.0. And so we have cycles in marketing and in business and in industry to have another one so close to the previous pandemic where a lot of brands pulled out and then saw that because they pulled out, those that stayed in and even doubled down, I think they're like more millionaires made during the pandemic than any other year previously. It's just there's a lot of opportunity. And I'm not a lawyer, I'm not a tax strategist, I'm not an economist, I'm not like a super purveyor of news consumption. But what I'm seeing, at least with the conversations of tariffs and with the impact to the sales and marketing process, especially with the like withdrawal of funds, I think this is a another opportunity of a feast or famine type of situation where I totally understand, like when you need to make cuts that you don't want to pass the consumer because you don't want to destroy the brand. I understand that. But I think now is honestly a really good time to spend because more people are pulling out. I know it depends like to where your company is based in where you're selling to. Canada has been pro Canada products since February. Where there are grocery stores that have completely pulled all like Kentucky Bourbon California wines, there's just massive stores that now have like Canadian only aisles. They've done this huge push for buying local. Where my conspiracy theory is, I'm hoping to God that there is a strategy behind all the tariffs and that maybe it means that American goods are going to become luxuried because it's going to be harder to find and more expensive. So it's going to create like an elitism kind of thing. I don't know if that's the strategy. That's one of the only positives I can see potentially coming out of this. But there's just so many people that are pulling back. So a lot of this depends on where your products are being sold and who your market is for that. I think there's a huge opportunity right now. And when there are brands that are finding like poor efficiency, like before you cut back on your marketing look and evaluate. Were you previously efficient with your marketing? Because you might already have money that you can do that you can put into, as you've seen with, I mean, 1.2 million. Oh my God, that's an M. I would throw a fit.
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That's a million. That's a million. No kidding. Yeah. I mean, I guess there is just from a mindset standpoint, this is hard to do when you are fearful. Is like Warren Buffett said, be fearful when others are greedy and greedy when others are fearful. And right now there's a lot of fear and uncertainty here, which is going to identify an opportunity. I know Warren Buffett is not fearful right now. He is looking for opportunities because there's fear and uncertainty. It's the same reason why he made billions coming out of the pandemic because he kept his head on, he didn't overreact. Obviously he's sitting on billions. So it's like it's easy for me to say, yeah, Warren Buffett wasn't fearful in the pandemic because he's already a multi billionaire. Like how many billions do you need really? And the guy lives in the same house that he's lived in for like 40, 50 years anyway. It's a really nice house by the way. But the point is that it's easy to say that it's harder to execute on it. And I think what we're seeing right now is just more uncertainty because just follow the news cycle every single day, it's some other thing. What are you going to do as a business?
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Yeah, well, I mean if you're just constantly reacting to what sells, which is extremism and these are really real serious conversations. I will say from the standpoint of like amongst a lot of my US based friends born and raised in the United States, this isn't as hot of a topic for the non business owner. So like I'm saying from the consumer standpoint, that's just limited to like my social circles and the people I've encountered, people I'm talking to when I was in Canada and when I'm talking to foreign nationals or when I was just in Mexico, like the conversations that I'm having with foreigners, non US based people as consumers versus US based consumers is drastically different. Whereas a large part of the United States population that is paying and buying the products that you're advertising to are not as engaged in the tariff conversation as business owners or foreign nationals. Where like I said, I go back to the Canadian, like buy and support local Canadian, like this is a hot topic of conversations amongst nearly every Canadian and where this is becoming a hot topic of conversation amongst Canadian business owners. Well, I mean it's been a hot topic but becoming more prevalent where it's extending outside of the business owner circle. But I don't think United States consumers are going to be as frustrated with increased prices as foreigners buying American products abroad. There's not enough information out there. I think a lot of people are living in fear. I think a lot of people are also like living with their head in the sand. There is going to be drastic implications for businesses, especially those that are purchasing materials that come from outside the US that could be ingredients, that could be raw materials, that could be assembly outside. This is going to impact the cost of goods. I just think that if you are looking at cutting back on marketing, look first at being efficient with your marketing first. And that I really do think that there is an opportunity moment. And I love that Warren Buffett quote you just said because more people are being fearful. And I'm like there's a huge, huge decrease of CPMs right now. And like we're finally seeing cost per acquisitions in different verticals start to taper back down because it's just been increasingly growing. Like I think last year they said Meta had a 7x increase of your cost per acquisition compared to a 12 month period. Look back. That's just my conspiracy theory. Like there's an opportunity, but you have to make a decision that's best for your company and know that your US based consumers might not be talking about it as much as you, the business owner or your foreign consumers are.
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I think a lot of the conversation that has not occurred because it hasn't hit the US consumer's wallet yet is how this affects inflation. So there's the cost of goods part to it. But then there is the other net effect which is really the uncertain effect right now is what will be the effect on inflation. If There is a 25% import on Chinese steel and you're buying a refrigerator or a washing machine that is made with Chinese steel, it might be manufactured in the US But a lot of the steel pick an industry that's going to be passed on to the consumer. So then therefore, if you're marketing as a beauty brand, let's say, and you're all US sourced, let's just say that for example, you might not be affected by tariffs, but indirectly because of inflation. Now the discretionary income that your target market has could have a profound impact depending on where you are in the market, whether or not you are a regular brand, a premium brand or a luxury brand. Probably a luxury brand, not quite as much, not really price sensitive, but premium and sort of regular brands, normal brands that we consume every single day. How is that going to impact discretionary income purchases? Sure, if you're selling jewelry, if you're selling makeup, if you're selling, selling. Well, makeup is probably like an essential. But I mean certain products, like in the health and beauty space, for example.
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It'S like diapers, gas, formulas, diapers, gas, those type of things.
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But then again, you're going to start to think of better ways to use public transit if gas prices all of a sudden increase as well.
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This is the piece that I'm excited about because in war is one, we have innovation. And in war is one the US economy has done well. And I don't want to go to war. I don't want anyone to get hurt. I'm very much like, I feel bad using like Ant Raid because, well, who am I to determine that those ants can't live in my bathroom? But they got in there. I know. I'm like, anyways, okay, I get very sensitive and I'm like, I want pick up a dying bee and like risk being stung, even though that exasperates anyway.
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Oh my God.
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Where I'm excited about it is that's.
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What it gets for me. Anyway. Go ahead.
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No, where I'm excited. It's like the force innovation. Because then what if there's another material that's more sustainable than steel or something that like we can use? I think 3D printers and plastic, like recycled plastic. I was literally looking at like we're buying pill bottles, like prescription pill bottles that we put our, like take to a day until you see an erection in your sales. Mongoose media tchotchke things. Obviously I play off the little blue pills. You know how much I lean into this, like, say, like I have some condoms for my business cards and I'm like looking at like, well, if I have to pay $3 a unit and so I could just take plastic that we're not using anymore and I can just 3D print it myself. Like I think there's going to be innovation in new materials that we can use. Innovation with more cost effective materials and also innovation in like recycling materials. Because there's a lot of Ikea cardboard stuff. Like, what if there's a way that you can use all that shipping hardware, all those Amazon boxes to be made into a material that you can 3D print a plastic like solution. So I think that that's where I'm a little bit excited into what the frustrated individuals in the world will do when they're deprived from something that was easy. So that's like the positive that I'm like, oh, I believe in the brilliance of different people. When you're frustrated, you innovate. And I'm glad that we could potentially see a massive increase of new types of product, new resources, new ways to use existing. You talking about using public transportation? That's leveraging existing resources available to you that were often neglected. And then if we have mass use of public transportation, will have masked men for better public transportation. I live in Orlando where the public transportation is garbage. You cannot get to the airport successfully. And I will vent about that all day long. But that's where I'm like, is there a chance what's the good out of what is a very serious and uncomfortable grave conversation that we're having with business owners and we're seeing like the marketing line get cost. But on the bright side, like, hey guys, imagine if the more Amazon boxes your wife purchases, the more raw materials you have to make your figurines and you don't have to buy $60 and you can help reduce the carbon footprint of Amazon boxes. Like, wouldn't that be amazing?
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Yeah. Although cardboard is the most recycled commodity on earth, which is actually pretty amazing when you think about it because it's so easy to recycle. But yes, either way, the stickers and.
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The tape and all the stickers and.
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The tape and all the stuff that.
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Gets thrown is wish cycling versus actual recycling for sure.
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And plastic, this just ends up in Indonesia somewhere anyway. That's a whole other thing. So bottom line here for marketers, I know our time is short here. Like, what is your recommendation on where we stand right now with regard to tariffs and marketing in in specific terms.
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Your cost of goods are going to go up. Your consumers are going to know it. If you're authentic about your brand, like what we had talked about in the previous episode, your consumers are going to know and they're going to want to support you. You just have to be authentic about who you are and why you make changes to the price if you're passing them onto your consumer. Two, the takeaway is you need to start looking at where can you be more efficient. You probably have been lax in a lot of departments. I'm not saying like be Elon Musk and Doge in that capacity. But I think there is an opportunity for everyone to find greater efficiencies within their own companies. And this is a really good opportunity to evaluate if there are AI solutions that can be layered into your tech stack to help provide greater efficiency. And then the last one is that if you really are like going to pull back on marketing, just be mindful that you're probably along the same mindset as the majority of businesses. So if they're all pulling out, those that stay in may have another pandemic style opportunity of explosive growth.
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Yeah, I would say I reiterate that on the efficiency Side, if you have a marketing team or an internal department or even an agency, this is the time for you to say, okay, 80, 20, this, where am I getting the biggest bang for my buck? And then figure out efficiencies that are in and around there. And I would say in the media buying space, it's usually having anything to do with selling again to your same customers. That should be something that is almost a zero cost. I mean if you have an email agency you can certainly do that. It's one of the biggest things that we see whenever we do an analysis. I know you do the same sort of analysis on like SMS and email and obviously on chatbots. It's a great way of increasing average order value, but also lifetime value, getting more out of the clients and customers that you've already paid for. It's a major opportunity. Almost every single client call that I'm on, they can improve there. And then you back end out. It's like we've already got the customer, how can we improve their lifetime value? How can we actually improve their experience with our brand? And that's something that you can do for almost zero cost. You are hiring an email agency. Like we have an email service that we use, we add it in after the fact because like this is a force multiplier. Once we actually do acquire the customer and then doubling down on a data solution. I know we've talked many, many times about tier 11 data suite here, but even if you get close to that and if you look at your CRM, we used to do it all manual, like really see which channels are the ones that are the ones that are pulling for you, sometimes it is indirect and it's harder to do it. But like your, if your agency or your internal team isn't using real data from your CRM, where you actually capture the money, that is a big wasted opportunity. Because if you're using the platforms themselves to show exactly what you're doing or how great you're doing, chances are you probably have a tremendous amount of waste there. And that's what we see when we go deep into these ad accounts. So I think there's a lot of things to do here, but also maybe even switching your model from a pay by ad spend model, it's like it's all of these things in general. Like there is a wave of change that's going to come in the marketing space. In my opinion, it's already started to take hold. And I think this event like this, nobody saw this really coming. Nobody really thought it was going to happen, but it's happening. What the downside of it is going to be or what the upside of it is going to be, what you make of it today. And now is the time to really dive deep and look for efficiencies as much as you possibly can and don't stop spending. Because plenty of clients that we had to say, oh, I'm freaked out by the pandemic. Like a lot of them are not in business anymore, Lauren. They went completely out of business because they stopped doing the number one thing that their business, which is the front.
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End market, their competition came and took in sweep their spot. And also it's like you stopped the front end at a time when it was the cheapest to get front end.
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True, true. Like that you bring up a really good point. There is going to be a lot of fear in the market right now and then that creates opportunity for you to maybe get those customers at a cheaper price as a result of that. So we'll have to have this as a continuing conversation here because as soon as the news cycle comes out, it changes again.
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There might be new retaliatory tariffs that are going to come in. And like, I think it's great. You and I both have clients not just in the US but we have camp, we have foreign clients, we have clients in Canada, we have clients in Latin America and we also have clients in Europe. We consult with clients that are in Asia and Oceania area. Don't know how many continents you count in the world. I didn't know that it was a different number, but I learned it because apparently, yes, it ranges from five to seven. I never knew but depending on that. Like it's really interesting. This is an, an ever evolving story and how us really just makes such an impact on the global economy. And who's to know if it's going to be detrimental or a gangbuster item for your business?
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Yeah, I think there's going to be something. But my gut feel is this, and I know we're right at the end of our time here, is that there is going to be some kind of government subsidies back to business because of this. It's going to be sort of done on the sly. A lot of smart economists are even predicting that. So it sounds that this is an America first policy on the front end, fulfilling campaign promises, sounding tough when in fact if business suffers, those are the same business people that put him in office to begin with. So we'll have to see how this all evolves. We will certainly keep you updated as the news cycle generates more and more information on this. But hold fast, hold strong, look for opportunities. Think Warren Buffett. All right, so, yeah, anyway, for my amazing co host, Lauren E. Petrulo. Till next show. See ya.
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You've been listening to Perpetual Traffic.