The Great Unwinding: Why Cheaper CPMs Are a Trap for DTC Brands
The retreat of Chinese ecommerce giants like Temu and Shein promises cheaper CPMs for DTC brands. While this seems like a golden opportunity, it's a dangerous trap for those relying on outdated attribution models. This article explains why falling ad costs will expose flawed marketing strategies and how brands using causal inference will dominate the new landscape.
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By Joris van Huët, Founder & CEOUpdated 5 min read
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The Great Unwinding: Why Cheaper CPMs Are a Trap for Unprepared DTC Brands
You’re staring at the same grim PowerPoint slide you’ve seen for five consecutive quarters. Your customer-acquisition cost (CAC) is a hockey stick aimed at the moon. Your agency, fresh out of ideas, mumbles about macroeconomic headwinds and the ghost of iOS 14. They suggest another round of creative "optimization" and "leveraging" user-generated content. You nod, but the knot in your stomach tightens. You’re not building a brand; you’re renting customers on a platform that keeps raising the rent.
For years, direct-to-consumer brands have been locked in a brutal, asymmetric war for attention. The enemy? A seemingly infinite war chest from Chinese cross-border platforms like Shein and Temu. Backed by publicly traded giants like PDD and Alibaba, these companies carpet-bombed digital ad platforms with billions of dollars. Their goal was not profit. It was market share at any cost. They were willing to acquire customers for far more than they were worth, creating a distorted reality for every other advertiser. Your CPMs didn't just rise; they were artificially inflated by a tsunami of foreign capital that defied market logic.
This artificial inflation wasn't just a minor annoyance; it was a systemic poison. It forced a generation of DTC brands into a defensive crouch, forcing them to adopt unsustainable unit economics just to stay visible. Brands found themselves in a vicious cycle: to compete for ad space, they had to accept a higher CAC. To offset the higher CAC, they had to reduce their profit-margin or inflate their prices, making them less competitive. All the while, the platforms, Facebook, Google, TikTok, were happy to collect the ever-increasing tolls. The entire ecosystem became a transfer of wealth from DTC brands to ad platforms, facilitated by the market-distorting behavior of a few foreign giants.
But the financial tide is finally turning. The era of reckless spending is screeching to a halt. PDD Holdings, Temu's parent, has seen its stock value evaporate, plummeting -23.6% over the last six months and -13.8% in the first quarter alone. The story is even starker for Alibaba (BABA), the force behind AliExpress, which is down a staggering -31.8% in the same six-month window and shed -14.0% of its value in March. This isn’t a market correction; it’s a shareholder revolt. The blank check for below-cost customer-acquisition has been revoked.
As these behemoths are forced to inject fiscal discipline into their marketing, their ad spend will inevitably contract. This retreat will release a large volume of ad-inventory back into the market. The basic laws of supply and demand guarantee a result that many DTC brands have been dreaming of: your CPMs are about to drop. The cost to reach a thousand potential customers will decrease for the first time in years.
Conventional wisdom will scream that this is the moment to floor the accelerator. Your agency will advise you to pour every available dollar back into the ad platforms, to hoover up the newly affordable impressions and scale your brand to unprecedented heights. This is the conventional wisdom. And it is a trap.
Lower media costs create an illusion of success. A cheaper CPM feels like a win, but it does nothing to fix the fundamental, fatal flaw in the standard DTC marketing model: a lack of accurate measurement.
When CPMs were at their peak, this inaccuracy was survivable, albeit painful. You accepted a near-zero profit-margin and a dubious ROAS as the cost of doing business. But the coming market environment is different. The winners will not be the brands that can spend the most; they will be the brands that can spend the smartest. The advantage will shift from raw firepower to surgical precision.
This is the moment for causal-inference. While your competitors are getting high on the fumes of cheaper impressions and celebrating a meaningless spike in their already-broken ROAS metric, you have an opportunity to install a system of measurement that reflects reality. A causal model doesn’t rely on the self-reported, self-serving data from ad platforms. Instead, it runs controlled experiments to determine the true, incremental lift of your marketing investments.
Causal inference is not another buzzword. It is a fundamentally different way of thinking about marketing effectiveness. The answer to that question is incrementality, and it is the only metric that matters.
Imagine seeing precisely which channels are cannibalizing your organic sales and which are genuinely expanding your customer base. This isn’t about "optimizing" your spend; it’s about understanding its true impact. It’s about moving from correlation to causality. You can identify the precise point of diminishing returns for each ad channel, ensuring that every dollar you spend is contributing to your bottom line. You can stop funding the marketing channels that are simply taking credit for sales that would have happened anyway and reallocate that capital to efforts that drive real, profitable growth. Your conversion-rate will no longer be a mystery, but a number you can influence with precision.
The retreat of the Chinese cross-border giants is more than just a news headline; it’s a shift. It’s a once-in-a-decade opportunity to escape the CAC death spiral that has plagued the DTC world. But this opportunity is not a rising tide that will lift all boats. It is a clarifying event, a market shock that will brutally separate the disciplined, data-driven brands from the ones built on guesswork and vanity metrics.
The illusion of cheap media is seductive. It promises effortless growth. But the real opportunity is not just to acquire more customers for less money. The real opportunity is to build a business with an unshakeable foundation, to know your numbers so intimately that no market shift can throw you off course. The ad market is about to reward precision and punish waste more severely than ever before.
Which side of the divide will you be on?
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Frequently asked questions
Why are my CPMs so high even when my campaigns are performing well?
For the past few years, your brand has been competing against Chinese giants like Temu and Shein, who have been spending billions on ads to gain market share, not to be profitable. This large spending artificially inflated CPMs for all advertisers, regardless of their campaign performance.What does the stock drop of PDD and Alibaba mean for my DTC brand?
The significant stock drops of PDD (-23.6% in 6 months) and Alibaba (-31.8% in 6 months) indicate that these companies are under pressure to cut costs. This will lead to a reduction in their ad spend, which in turn will lower CPMs across the board for DTC brands.Why is a lower CPM a 'trap'?
A lower CPM is a trap because it creates a false sense of security. While your ad costs will go down, it doesn't fix the underlying problem of inaccurate attribution. Brands that simply increase their ad spend without understanding true incrementality will waste money and see no real profit growth.How can I take advantage of the changing ad market?
The key is to move beyond flawed metrics like ROAS and adopt a causal inference model. This will allow you to identify your most effective channels, cut wasteful spending, and reinvest in campaigns that drive actual, profitable growth, giving you a decisive advantage as your competitors fall into the low-CPM trap.
Go deeper: Causal attribution, explained.
Sixty-second versions of these ideas: Causality Engine on YouTube Shorts.
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Terms in this article
- Causal InferenceCausal inference is the set of methods for estimating how much an outcome changes because of a cause, rather than alongside it. It works by comparing what happened with an estimate of what would have happened without the cause.
- Causal ModelA Causal Model is a mathematical representation describing the causal relationships between variables, used to reason about and estimate intervention effects.
- CorrelationCorrelation is a statistical measure showing a relationship between variables; it does not imply causation.
- ExperimentsExperiments are scientific procedures that test hypotheses or demonstrate facts. In marketing, experiments like A/B tests determine the causal effect of campaign changes, enabling data-driven decisions.
- IncrementalityIncrementality is the part of an outcome, such as orders or revenue, that a marketing activity caused: the extra results compared with what would have happened without it. It is a causal effect, not the number of conversions credited to a channel.
- User-Generated ContentUser-Generated Content (UGC) is any content, such as images or text, created and posted by users on online platforms. It provides authentic brand promotion.
- Vanity MetricVanity Metric is a data point that appears impressive but does not measure actual business success. It lacks a clear causal link to business objectives.
- Vanity MetricsVanity Metrics are measurements that look good but do not provide insight into business performance or aid decision-making. They do not reflect true impact.