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How CMOs Can Measure Return on Ad Spend With Better Modeling and Conversion Attribution - iCrossing

How CMOs Can Measure Return on Ad Spend With Better Modeling and Conversion Attribution - iCrossing

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Published by iCrossing
CMOs are getting bad information on the value of their digital ads. Here's why: people online are usually exposed to more than one marketing message before their exploration of your brand converts to a transaction – but most reporting systems give all the credit for the transaction to the last message that the consumer saw.

As a result, marketers have a hard time knowing how to wisely allocate their digital advertising resources because the value of some ads is overstated while the value of others is overlooked.
CMOs are getting bad information on the value of their digital ads. Here's why: people online are usually exposed to more than one marketing message before their exploration of your brand converts to a transaction – but most reporting systems give all the credit for the transaction to the last message that the consumer saw.

As a result, marketers have a hard time knowing how to wisely allocate their digital advertising resources because the value of some ads is overstated while the value of others is overlooked.

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Published by: iCrossing on Sep 27, 2011
Copyright:Attribution Non-commercial

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07/21/2013

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© ICROSSING. ALL RIGHTS RESERVED.
by Doug Bryan, Vice President, Analytics, iCrossing
ICROSSING POV:
CMOs are getting bad information on the value of their digital ads. Here's why: people online are usuallyexposed to more than one marketing message before their exploration of your brand converts to a transaction –but most reporting systems give all the credit for the transaction to the last message that the consumer saw.As a result, marketers have a hard time knowing how to wisely allocate their digital advertising resourcesbecause the value of some ads is overstated while the value of others is overlooked.
MEDIA MIX MODELING
Marketers use media mix modeling to measure the relationship between each channel's ad spend and their value generated(such as revenue) by analyzing spend per week per channel and comparing that spend to the overall value generated.Usually value increases as spend increases. But the ratio of value to spend can vary greatly by channel and by spend amount. Forexample, a certain display ad network might generate 500 percent value/spend while paid search marketing generates 800 percent.But if paid search spend doubles, then the law of diminishing returns takes effect, and paid search drops to 400 percent value/spend.But CMOs have reason to hope: marketing analytics specialists are trying to determine the true value of advertising through mediamix modeling and conversion attribution. It's important that CMOs understand those techniques and align their customer valuekey performance indicators across channels.Media mix modeling uses statistical methods to allocate promotion resources to advertising media channels such as TV, Internet,newspapers, radio, and magazines. By contrast, conversion attribution allocates channel resources to individual ads, like the paidsearch keyword "chefs knives" at Google.com. The following table illustrates these levels of granularity:
HOW CMO
S
CAN MEASURE RETURN ON AD SPEND WITHBETTER MODELING AND CONVERSION ATTRIBUTION
The key differences between media mix modeling and conversion attribution are the amount of data used and, consequently, thestatistical techniques applied.
MARKETING MIXMEDIA MIXCONVERSION ATTRIBUTION
ProductPricePlacementPromotionTVInternetPrintRadio"chefs knives" paid search broad matchYahoo.com 300 x 250 display ad"Wüsthof knives" paid search exact match
 
HOW CMO
S
CAN MEASURE RETURN ON AD SPEND WITH BETTER MODELING AND CONVERSION ATTRIBUTION
2
© ICROSSING. ALL RIGHTS RESERVED.
SEPTEMBER 2011
1. winner-take-all2. even split3. increment lift
CONVERSION ATTRIBUTION
Media mix focuses on channels by week. Conversion attribution analyzes events by
customer 
to understand the value of individualad placements. Consider a multi-channel example:How much credit for the conversion should the knives' paid search ad, the display ad, and the natural search result get? It's atough problem, but not a new one. Banks and telcommunications companies addressed this issue 10 years ago with multi-touchcampaigns using automated phone callers, direct mail, bill inserts, out-bound call centers, in-bound call centers, and in-store orin-branch cross-selling. Marketers can apply three levels of sophistication to unravel the attribution problem:
Winner-take-all 
is commonly used today and gives all the credit to the rst click, rst impression, last click or last impression. It'snice and simple, and doesn't require much data. Last century, Einstein advised us to "make things as simple as possible but notsimpler." So is winner-take-all too simple? Yes; we can do better and improve ROAS because winner-take-all tends to over-valuenatural and paid search brand keywords and under-value display ads.The
even split 
approach makes few assumptions and simply splits credit equally between all the ad placements involved in aconversion. In the example cited about chefs' knives, the "chefs knives" paid search ad gets 1/14th the credit, each of the 12display ads would get 1/14th, and the natural search result gets 1/14th. Credit doesn't change with temporal order since usingorder wouldn't be as simple as possible, and there's little evidence that temporal sequence matters.
5
+
 A customer types in "chefs knives" at Google.com and clicks on a paid search ad. The customer browses the advertiser'swebsite for a while but doesn't buy anything
+
The customer sees a dozen display ads for the advertiser over the next week, nally clicks one, and browses awhile — butagain does not buy
+
The next day, the customer goes to Yahoo.com, enters the advertiser's name, clicks the top natural search result, andmakes a purchaseMarketers can use advanced media mix models to go a step further and nd the interactions between channels. TV ads, forexample, can directly affect search engine queries for an advertiser's brand name, increasing the volume of searches for aparticular term, and, in turn, increasing the paid search channel's cost. In fact, 60 percent of TV viewers now use the Internetwhile watching TV. Viewers can and do use Google and Bing
during
TV commercials.
1
Advanced media mix modeling measuresboth the direct return on ad spend (ROAS) of such TV ads and the indirect ROAS of the additional paid search trafc.Internet advertisers can learn from media mix models since there are strong interactions between the Internet channelsthemselves; perhaps the strongest interaction is between display and paid search. Studies have shown that display ads canincrease brand name searches by 52 percent
2
and paid search conversion rates by 56 percent.
3
 And display ads together withpaid search can increase online sales 50 percent and ofine sales 33 percent compared to paid search alone.
4
 Although media mix modeling provides lessons on channel relationships, it fails to leverage one of the Internet's main competitiveadvantages: granular data. Conversion attribution relies on that wealth of data and moves the analysis from channels to individualad placements.
1
 
Edmund Lee (2011) “Among media, TV is still on top,”
 Advertising Age
, March 29. Source: Nielsen
2
 
comScore (2008) “Whither the Click? comScore Brand Metrix norms prove 'View-Thru' value of online advertising,” November 17
3
 
John Lovett (2009) “A Framework for Multicampaign Attribution Measurement,” Forrester Research
4
 
Magid Abraham (2008) “The Off-Line Impact of Online Ads,”
Harvard Business Review
, April
5
 
Demetrios Vakratsas and Tim Ambler (1999) "How advertising works: What do we really know?"
 Journal of Marketing
, 63(1):26–43
 
SEPTEMBER 2011
3
© ICROSSING. ALL RIGHTS RESERVED.
HOW CMO
S
CAN MEASURE RETURN ON AD SPEND WITH BETTER MODELING AND CONVERSION ATTRIBUTION
MORE GRANULAR CUSTOMER VALUE
Both media mix modeling and conversion attribution require common value metrics across advertising channels. And since theInternet allows us to easily track many kinds of customer actions, savvy marketers are adopting those models as a catalyst forincreasing the granularity of their customer value metrics. The following tables list value granularity examples from a few industries:
6
 
“Subscriptions” are goods or services that are billed periodically such as a magazine, cell phone service, cable TV, Netix and Hulu Plus.
Lastly the
 incremental lift 
approach attacks ROAS by measuring the value of ads relative to no ad rather than relative to otherads. To understand incremental lift, consider an illustrative if absurd story:Incremental lift modeling measures the sales the billboard generated compared to Ms. Wilson not renting the billboard at all.
Ms. Wilson owns an ice cream shop in a small town strip mall. She hires two summer interns, gives them each $1,000 to spend on advertising, and tells them that whoever drives the most sales will get a bonus.One intern immediately runs out the door to go price newspaper inserts, radio spots, and other channels, while the second intern hangs back and asks, "How will sales be measured?" Ms. Wilson, wanting to make things as simple as possible, says she'll just randomly ask some customers if they saw any of her ads and whichever intern's ads are mentioned most often wins.So the second intern rents a big billboard at the mouth of the only driveway to the strip mall, making it impossibleto get to the ice cream shop without going right past his ad, and wins the contest. But what was the ROAS of the billboard? Did it increase sales or just increase impressions?
This proliferation of metrics provides new opportunities to understand customer behavior. Which of these metrics matter most,and which are levers that can be adjusted to have meaningful impact on marketing programs, are open questions that each brandwill have to answer for itself.Some leading marketers are doing just that — working with the data, testing, experimenting, and analyzing. They are workingto uncover the metrics that matter most to their business so that they can improve and optimize their programs and spend theirmarketing dollars more wisely.
RETAIL
1. register2. newsletter signup3. wish list signup4. gift registry signup5. gift card purchase6. catalog request7. find a store8. estimated revenue next 12 months9. estimated lifetime value
CREDIT CARDS
1. start an application2. complete an application3. approved accounts4. balance transfer amount5. spend and fees the first month6. estimated spend and fees next 12months7. spend and fees next 12 monthsadjusted by credit risk8. spend and fees next 12 monthsadjusted by estimated tenure
SUBSCRIPTIONS
6
1. leads2. start free trail3. start paid subscription4. estimated tenure
B2B
1. sales lead2. need identified3. qualified prospect4. proposal sent5. negotiation6. closing7. closed8. revenue9. estimated lifetime value
CPG
1. view recipe2. print recipe3. tell a friend4. print coupon5. register6. newsletter signup7. redeem coupon

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