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You, Me, and UGC?

October 28, 2022
Pepijn van Kesteren

Remember the good old days? The days of low Facebook CPAs and high engagement? When Influencer marketing was groundbreaking? The good days of … 2015?

Post-pandemic (are we allowed to say that?) creative and impressions cost more and drive fewer results making it harder for smaller companies to compete. But, there is hope. GenZ is the fastest growing cohort and largely lives on TikTok - which has given rise to a new class of ads: user generated content (UGC).

UGC is, as the name suggests, made by a user - often a Creator - who describes their experience with the product, rather than by a professional team or studio. Done well, it is authentic, trustworthy, and personalized. Plus, UGC looks like real content - particularly when combined with whitelisting (more on that in a future post) - so users are less likely to instinctively scroll past. 

The result: UGC performs much better in driving social shopping - a recent campaign by Glossier showed 40% higher conversion from UGC than from traditional ads.

So, who is leading this revolution? Smaller, growth-focused brands. They feature UGC in 61% of their ads compared to 21% at larger companies.

Makes sense!

Small brands* are cost-concerned and concentrate ad money on what has the highest immediate return. They don’t have the budget for expensive studio shoots (>$10,000) or to spend on branding which over time may lead to purchases. UGC is cost-effective and converts - no wonder small brands love it.

Large brands typically concentrate on what they know works. For many of them, this means linear TV (the TV your parents watch), connected TV (the TV you watch), magazines and the like. Still, 21% of their digital ads is still a lot of money given how big some of these brands are.

Next we looked at what brands who use UGC value. If you have a lot of employees working R&D, you are likely product-focused. Similarly, if you have a lot of employees in marketing, that’s probably your top priority.

Marketing-focused companies** - those with over 20% of employees being in marketing - are 1.5 times more likely to use UGC than their counterparts. In other words, brands that make marketing their competitive advantage tend to use UGC more often - should that be a wake-up call to everyone else?

It’s still early, but we wouldn’t be surprised if just like Casper and Warby Parker, who built their brands by adopting digital marketing early, are all over business school cases now, a few years from now these will be about the next generation of brands that built their dominance through UGC.

* Small companies are those with 1-10 employees, medium sized with 11-200 employees, and large companies those with 200 employees or more. There is a huge range of companies in the “large” bucket and so aggregate statistics don’t capture the reality for all companies in this bucket.

** "Marketing-focused" companies as those with over 20% of employees working in marketing, based on LinkedIn data.