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OPINION The ROAS versus ROI debate: what to do?

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A lot of brands use ROAS and ROI as their main KPI. – mainly because they were championed by Google and Facebook as measures for advertising, but are they the best way to measure retail media, writes Colin Lewis. Marketers like the immediacy and predictability of ROI and ROAS. However, the marketing community is recognising that these measures – although common – are far from perfect.  ROI is a very different metric than ROAS.  

Criteo’s recent report – The ROAS Trap – supports this. As it points out: “Retail Media consistently drives tremendous ROAS”, deeming it a critical metric to track. It’s retail media’s bread and butter.

Criteo’s global data shows that over the course of one year, brands that advertised with retail media

saw consistently high ROAS, with significant spikes during peak shopping seasons.

The Criteo report tries to answer the question “would consumers still buy from us if we don’t advertise?

It claims that its data shows that retail media is a “sure-fire way to consistently deliver strong incrementality results”, and it quotes two incrementality tests:

  • US brands that ran sponsored product ads saw a +428% incremental return on investment 
  • EMEA brands that ran onsite display ads saw a bump of +160% sales per user.

These sorts of very high-level numbers are not something any marketer would base a campaign strategy on.

The key part to understand here is that the report uses the word ROI – and ROI is a very different metric to ROAS. Let’s look at the differences:

So, ROAS and ROI as imperfect KPIs. What are other metrics that matter? This quote from Steve McGowan, Head of Shopper Activation & Strategic Partnerships, Mondelez, is insightful: “We look at our investments across the entire ecosystem to deliver against our ultimate objective: incremental volume and sales growth. We use retail media to maintain, and more importantly grow, online and in-store incremental sales. This is crucial since a huge portion of our sales is still completed in-store, while a huge portion is digitally influenced”.

Ready for ROPO?

The concept of being digitally influences is called ROPO (research online, purchase offline). Shoppers who research more on Amazon, are more likely to buy, either on Amazon or off-Amazon. For every 10 customers who research on Amazon AND buy on Amazon, 17 other research on Amazon AND then buy off-site, according to a published paper by Professor Koen Pauwels.

The ROAS Trap by Criteo quotes an analysis that when it included offline attribution, campaigns saw a +42% average ROAS increase compared to campaigns that only looked at online attribution.

The ROAS Trap by Criteo quotes an analysis that when it included offline attribution, campaigns saw a +42% average ROAS increase compared to campaigns that only looked at online attribution.

How should brands think through the ROAS versus ROI conundrum? Here are some suggestions to get you thinking:

  1. Think ‘Shopper Funnel’: Allocate your budget by percentage with your goals in mind for each step of the shopper funnel of ‘awareness’, ‘consideration’, ‘purchase intent’ and ‘purchase’ and ‘loyalty’. This will help you align your brand’s goals.  
  2. The Shopper Context: Retail media search does not operate in a vacuum: discounts, promotions, seasonality, non-retail media investments, and other factors meaningfully impact retail media performance. 
  3. Be Creative: breakthrough results come not from ROI, not from ROAS, not from efficiencies, but creativity. Creativity can deliver a 6.1x increase in effectiveness. What should marketers look for? Ad creative content that inspires emotion, triggers behaviour AND encourages an action.
  4. Know the variables: budgeted spend, share of voice and share of spend, media types and audiences chosen all drive different outcomes.
  5. Be Smart: while you might like ROAS, ROI or ‘new to brand’, ‘New to Brand’ by definition means an ROAS decrease.
  6. Selling Period: key selling periods like Christmas or Prime Day drive a higher portion of sales simply by the increased traffic of shoppers ready with their wallets compared to how much a retail media ad can be estimated to have contributed.

Registration for Retail MediaX remains open.

Asos, John Lewis Partnership, Asda and many more are speaking at this brand new event on 11 June 2024.

For more information about Retail MediaX, held at The Cavendish Conference Centre London, click here.

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