Be it smaller retailers trying to build their brands or the most well-known high street brands on the market, it is staggering how many retail businesses are not getting the best bang for their digital marketing buck.
Across the retail sector, I firmly believe that the majority of digital marketing budgets are being used inefficiently and ineffectively. The primary reason for this – digital marketing agencies are not asking for, or are not being provided with, the right briefs. As a result, agencies are not providing retailers with the right advice.
To achieve success, there needs to be real trust between an agency and a retailer. And, crucially, there absolutely must be a reciprocal understanding across both teams of what the big picture is and what the key goals are.
Why is the retailer engaged in digital marketing activity? What are they specifically trying to achieve? Is the goal to just increase revenue? Is profitable growth the primary objective? Perhaps, though more difficult to quantify, is it a case of boosting customer lifetime value? Or, and possibly even more difficult, is longer term brand engagement the measure of success?
Agencies are usually incentivised directly or indirectly to maximise advertising spend. The more the retailer spends, the more work will nominally be required, which means the more they can bill back to the retailer. This, in turn, means that the agency is spurred on to keep spending levels as high as possible.
This type of agreement does not naturally engender trust and means that both the agency and brand are not necessarily working towards the same goal. Obviously, higher advertising spend does not always mean a better return on investment.
A question that retailers need to ask themselves is how much growth could they achieve if the advertising budget was spent more effectively? There is a real danger of averaging a digital marketing spend, evaluating the overall result and assuming it was optimal based on the amount of money invested. But this doesn’t give you the full picture. Determining what the optimum spend actually is, is often the hardest question to answer, though it provides the biggest opportunities to learn and improve results.
To give a simple example, if spending £10,000 on advertising generates £15,000 of additional profit, it would nominally be a good result. Although, breaking this down could tell a very different story; the first £5,000 spent might have generated £12,000 of the total return, whereas the second £5,000 only generated £3,000. This level of understanding suddenly gives teams more insight that there are ways to cut costs, but only once you understand cause and effect more accurately.
Data massively helps retailers to better understand the cause of positive or negative results. It is important retailers make proper use of the data available to interrogate results. We can, however, never be 100% sure whether a customer would have made a purchase anyway. Did seeing or clicking the advert directly cause the purchase or was the customer on their way back to the website anyway?
Retargeting can be an effective way of reminding potential customers to come back to your shop. However, those potential customers that are retargeted, are, by definition, already somewhat familiar with your brand; a handful of them will be planning to come back and make a purchase anyway. To accurately assess the success of a retargeting campaign, you must try to understand how much incremental revenue is being generated. You can usually optimise retargeting effectiveness by simply having a time break before reaching out to the potential customer with a remarketing message (at least 24 hours).
For the more advanced retailers, the use of ‘ghost adverts’ can help to understand the real conversion rate of different online advertising methods, especially retargeting. What would have been the conversion rate if you took the same potential retargeting customers and didn’t show them the advert? We need to understand this in order to understand the real incremental results. Agencies should be more transparent and proactive in promoting these techniques.
On the flip side, during peak sales periods – like Black Friday and Cyber Monday for example – discounts could be viewed as the largest driver of sales. Although, if the customer is unaware that a retailer is even staging a sale, then a potential customer may shop elsewhere. A strategically placed advert might make all the difference in bringing in the customer. But, is that sale profitable? Does a new customer acquired with a discount have lifetime value for a retailer? The retailer and the agency need to work together to carefully understand the value of new customers during a sales period when stock may very well clear from the shelves regardless.
The huge pressure on retailers means that every expenditure is closely scrutinised and needs to generate revenue. What’s more, retailers are looking to partners to help them navigate these tricky waters. Marketing agencies are well placed to support them, help them innovate and entice shoppers to spend money with them. But, for this to work, the relationship between agency and retailer needs to be transformed, focusing on communication, transparency and working towards a common, shared goal. Only then will budgets work harder and results be improved.
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