Facing an uncertain economic climate and wobbly customer sentiment, marketers are collectively tightening their belts and allocating more digital ad spend toward lower-funnel campaigns.
According to AdRoll’s Q2 2025 State of Digital Advertising Report, data compiled from tens of thousands of online businesses indicated a 27% decrease in the cost of prospecting ads—which target new-to-brand customers—year over year.
“That’s a pretty big dip,” says Courtney Herb, senior director of brand marketing and public relations at AdRoll. “It’s a clear signal that brands are pulling back on the top of the funnel.”
While the cost of retargeting ads dipped as well, the decline was just 8%, suggesting that marketers are more than willing to put money behind bottom-of-the-funnel campaigns.
As pressure increases and teams become laser-focused on ROI, they’re opting to devote more budget to the leads that are most likely to convert, Herb says. Though the strategy makes perfect sense, Herb believes that marketers are over-relying on the bottom of the funnel and that recent history proves they may want to reconsider.
For instance, during the pandemic, brands like Nike (making their running app free), Peloton (extending free trials from 30 to 100 days), and Airbnb (shifting focus to remote workers and lodging for frontline workers) came out ahead because they adapted to rapidly evolving customer needs and maintained visibility when competitors pulled back, Herb said. “Brands that show up when the times are tough are typically the ones that come out ahead.”
Declining Customer Sentiment
The decline in ad spend comes as consumer sentiment fell to its lowest point in three years and the 12-month inflation expectation reached a record high of 6.6%, according to the report.
So with customers becoming more budget-conscious, how can marketers balance empathy with effectiveness in their messaging and targeting to succeed in this kind of climate?
“It’s a matter of balance,” Herb says. “It doesn’t mean being soft. It means being tuned in. People are uncertain. They’re doing more research and making decisions based on trust. If you’re showing up consistently with a message that helps people and a tone that respects what they’re going through, you’re not just earning clicks and one-time conversions, you’re earning loyalty.”
The report also found that, unsurprisingly, artificial intelligence is transforming the way customers learn about new brands. As AI summaries take prime real estate in search results, click-through rates on traditional listings have fallen by 34.5%; the authors expect this trend will only accelerate with the arrival of AI Mode, a new feature in Google Search that browses the web and generates AI-powered responses to user queries, turning search into more of a chatbot of sorts.
“The algorithm for search has changed so much in six months; AI is curating what people see first,” Herb says, adding that the days of packing content full of helpful keywords and hoping you ranked are long gone. “Marketers are scrambling to figure out how to hack the code.” The way Herb sees it, this shift favors better-known brands. “If you have a frontrunner in mind, there’s a strong chance you’ll stick with that favorite.”
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