Performance

Marketing

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@Circus_St | www.circusstreet.com
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Chapter 1: Introduction

Hi and welcome to this lesson on Performance Marketing.

The main benefit that advertising offers is the opportunity for companies to broadcast
their products and services to customers, effectively driving sales, and as a result:
business profit. But ever since it first came about, advertising has suffered from a major
shortcoming concerning accountability.

John Wanamaker, an early titan of the industry, articulated this issue clearly when he
famously admitted that “half of the money I spend on advertising is wasted, the trouble is I
don’t know which half”. Wanamaker’s confession is still widely quoted today and remains
applicable to many forms of marketing and advertising.

In these lessons, we’ll be taking a close look at a discipline that attempts to overcome
this accountability problem, known as ‘performance marketing’. Put simply, performance
marketing aims to ensure that channels are attributed with the effectiveness they
deserve and that you invest in the best media mix possible to not only drive sales - or
other conversions - but also overall business return. We’ll explore what performance
marketing actually is, how it's commonly used, and how a performance marketing
campaign should be approached properly. Let’s take a look at what’s coming up...

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Chapter 2: What is Performance Marketing?

The term ‘performance marketing’ means different things to different people within
the industry, but it generally relates to a set of channels and tactics that are widely
considered to be effective at delivering an easily measurable and creditable return to
the business.

Performance marketing strives to tackle the accountability problem head on. It

promises advertisers a clear view of what’s working to drive sales and what’s not,
allowing businesses to treat media budget as a true investment, with the return on
investment being highly measurable. Due to the granular levels of tracking and analytics
available, this approach is most typically – although not exclusively - seen within digital
marketing campaigns.

It’s fair to say that all marketing aims to drive business performance and urge some
sort of commercial return. Even when advertisers run brand building campaigns,
they only do so because they expect their media investment to pay back positively to
the business. If this is the case, then we might be inclined to wonder: ‘Is all marketing
performance marketing?’

The answer here, is ‘no’. Brand campaigns are usually expected to pay back in the long
run, working to exert a lasting influence on customer behaviour and shopping habits.
In fact, if you really think about it, you’re probably still being quite subtly swayed by the
brand communications you were exposed to as a child. Naturally, calculating the return
on investment from this type of long-term brand building media interaction is difficult
and prone to biases in how return can be calculated. Even digital brand building media
struggles to accurately report its impact, because the long-term effects on customers
are less tangible than the short-term actions that digital measurement models consistently
seem to prioritise.

Performance marketing campaigns, on the other hand, run over a shorter time period,
with a clear window in which what is usually quite a single-minded ‘conversion goal’
- for example, driving a higher volume of sales - can in theory be easily quantified,
measured and attributed to the campaign. For this reason, performance campaigns and
brand building campaigns are often seen as separate and distinct, despite both of them
ultimately striving to achieve the same broad goal – a commercial uplift.

Performance marketing essentially has its roots in direct mail advertising, and has a
close association with PPC, SEO, display, social, affiliates and email marketing - channels

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that have been known to communicate with users online in a less than ideal way. For
this reason, It may be tempting to view performance marketing as a dressed-up way of
describing media that may be labelled by most of its recipients as ‘spam’.

We could consider a simple definition of spam as ‘unwanted advertising’. But yet, for a
typical customer, almost all advertising isn’t specifically wanted. Customers generally
accept that advertising is the price they pay for consuming ‘free’ content, so perhaps
the key difference between standard ‘advertising’ and ‘spam’ is the level of intrusion, or
possibly even deception it subjects the potential customer - or ‘prospect’ - to.

In the early days of digital, ‘spam’ referred almost exclusively to unsolicited emails,
whereas today the most obvious example of spam is marketing that attempts to trick
prospects into believing false and misleading claims. However, spam can creep
into comparatively ‘legitimate’ but problematic activities that continue to be used
by many performance marketers: excessively high frequency retargeting and email
communications, pop up and auto play audio ads, competitor keyword bidding, and even
‘clickbait’ content.

It’s true that these techniques could all be considered spam, or at least ‘spammy’, and
they do exist within many performance marketing campaigns. However, it isn't fair to say
that all performance marketing is inherently spam, as there are still many more effective
techniques available that stay well above board. As a general rule: pay close attention to
the context in which customers engage with your campaign, and use the wealth of data
available in digital media to take an audience-first approach. As long as you’re being
sensitive to who’s being targeted with your messages, and when and where they appear,
you should be able to avoid being viewed as spam.

The brands that tend to invest most heavily in the performance marketing space are
those that have a digital conversion goal. The most obvious use case for performance
marketing is with eCommerce brands like Amazon and eBay who sell directly to
customers. Naturally, these retailer brands strive to grow sales and revenue on their
web and mobile platforms, calculating the sales and revenue return on their media
investment to ensure that the cost of advertising is exceeded by the return that it
brings to the business.

So why, in general, do brands use performance marketing? Well, most companies invest
in digital marketing and, of course, online conversion goals can vary in nature. They
don’t necessarily have to involve the user directly paying for products and services,
and indeed - performance marketing is widely used to drive non-sale goal metrics in

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order to gauge the ‘success’ of different components of - and therefore investments in - a

media mix.

Performance marketers may use metrics such as leads, app downloads, appointment
bookings, quotes, call back requests, social media likes and follows, and so on... Whilst
these conversion metrics don’t directly make an advertiser revenue, they shouldn't
be underestimated, as they may well represent an important step in their customers’
journey, leading them towards a sale or other revenue opportunity.

Advertisers who operate in this way will typically work back from their expected
conversion rates at each stage of the journey to establish a cost per goal metric that
is seen to be driving cost effective growth and profit. Media is then planned and
optimised to ensure that it’s delivering the goal metric within the target cost.

Brands will typically use a digital attribution model - a method of determining how the
credit for achieving these goals should be assigned - to figure the return that these
channels are delivering, helping to make an assessment of ‘media effectiveness’, which
can fundamentally be boiled down to: the ability to achieve goal metrics at a cost-
effective rate.

From here, with such an array of targeting and media delivery options available,
advertisers can use their attribution model and web analytics to ensure that each
channel is using the most effective variables possible within their campaigns.

The need for accountability in performance marketing often dictates the media channels
that are used, as it’s easier to measure the impact of some channels over others. Digital
media has always been seen to be highly measurable, and this has meant that PPC, SEO,
display, social, affiliate & email marketing have taken the mantle as staple channels for
most performance campaigns.

It’s also worth noting that performance marketing techniques are not exclusively used in
online media campaigns. The wealth of technology and statistical attribution techniques
makes it possible for performance marketers to track and optimise media to ‘offline’
metrics like inbound phone calls, retail footfall and offline sales, allowing the discipline
to extend outside of purely digital businesses and the more traditionally-used digital
performance channels.

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Chapter 3: Performance Marketing & The Customer Journey

The rapid growth and perceived complexity of performance marketing has resulted in
many brands taking a ‘siloed’ channel-based approach to measuring and improving the
effectiveness of their marketing. This means that each performance channel is assessed
in isolation, with budget being distributed to support the channels that appear to be
delivering conversions at the most cost-effective rate. This process is referred to as
‘bottom-up planning’, and whilst it’s straightforward and easy to manage, it isn’t much
help when aiming to truly optimise overall media effectiveness and business return.

The thing is, investment in media channels will more often than not have knock-on
implications for other channels in the media mix, which is to say: investment in one
channel could quite easily help or hinder the performance of other channels. On top of
this, silos don't just exist within channels. Even mature digital businesses often treat
digital as its own silo, where decisions are made regarding digital media and website
performance without considering the impacts on offline media measurement and sales
channels, of which there are bound to be many.

Because of this, if you really want to drive total business performance and keep all
channels at the top of their game, understanding how channels work together is crucial.

To understand how performance channels complement each other, it’s helpful to think
about the roles these channels might play in encouraging the customer to the point
of purchase.

When considering the breadth of digital performance channels available to advertisers,

it becomes clear that these channels can be roughly put into two broad categories –
‘demand creation’ channels, and ‘demand harvesting’ channels, the key difference
between them being that of customer intent. To figure out which channels belong to
which ‘category’, the question to ask is: ‘what is the user actively trying to do whilst
they’re engaged in the performance media?

Demand harvesting channels are those that speak to customers at a moment in time
when they’re looking to purchase, or at least make a positive step in the customer
journey. With this definition, branded searches can clearly be seen as demand
harvesting channels, as the user is actively searching for a keyword that directly relates
to a specific brand. The same goes for affiliate marketing, which predominantly offers
voucher codes and cashback. Users will typically navigate to these websites to examine

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the deals and discounts on offer – meaning that, once again, their level of purchase
intent is relatively high.

And it doesn’t stop there. Retargeting display can be counted amongst demand
harvesting channels as well, because a user must have already expressed an active
interest in the brand in order to be included within the retargeting cookie pool. Some
forms of email marketing also fit the bill, particularly if the customer has an existing
relationship with the brand, perhaps they’re listed in a CRM database as a ‘warm
prospect’ or someone who makes purchases regularly. Similarly, even some forms of
data-led social and display media fall into the harvesting category, targeting users based
on their previous purchase history.

Demand creation channels, on the other hand, speak to users with lower intent to
purchase. Their aim is to disrupt a user when they aren’t necessarily in a shopping
mindset. The advertiser hopes of prompting the prospect into considering their products
or services - the start of a new customer journey. With demand creation channels typically
speaking to users who are not specifically ‘in market’, channels such as prospecting
display and ‘cold’ email can be seen to fall within this category.

Then there are some interesting performance channels that sit somewhere in the
middle of demand harvesting and demand creation. Generic search is a great example
of this. When searching for a broad category keyword like ‘cheap flights’, the user is
demonstrating that they’re actively considering buying flights but are not yet showing any
positive brand intent. These users are effectively mid-journey – they know they want a
flight, but they haven’t decided who they’re going to fly with yet.

It’s perfectly possible to drive direct sales from generic keywords, but most PPC
practitioners will admit that pound for pound, it’s a lot more difficult than with brand or
product-related keywords – which speak to users with a much higher purchase intent.
This isn't to say that they’re less valuable though, because a large portion of the benefit
of this form of advertising comes from triggering future online sales, that are likely to be
finished off by demand harvesting channels.

All performance channels exist somewhere along the demand creation to demand
harvesting spectrum, and whilst the impact of each channel skews more heavily towards
one side, it’s likely that each investment also contributes in some way towards the other
end of the spectrum.

So, we’ve examined how digital performance channels fall somewhere along this demand
creation and harvesting spectrum. However... whilst this framework is useful, it’s also very

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simplistic. Customer behaviour is inherently complex, and people don’t often behave in
a way that’s ideal for the advertiser.

If you reflect on your own purchase behaviour, how ‘linear’ are your shopping habits?
We don't necessarily follow the traditional marketing funnel through the awareness,
consideration and decision stages every time we buy something. In fact, nowadays, it’s
perfectly possible to receive a product recommendation on a retailer website and be one
click away from purchasing that very same product.

Management consultancy firm McKinsey developed what they call a ‘consumer decision
journey’, which offers a more nuanced view of shopping behaviour. It has many of the
same elements as the marketing funnel, but it can also explain repeat purchases, along
with psychological shortcuts that customers make as part of their shopping behaviour.

The McKinsey decision journey begins with some form of ‘trigger’ that prompts the
prospect to evaluate their options. This trigger could range from being exposed to a great
advert to going through a specific life event – big or small.

Depending on the prospect’s familiarity with the purchase category, they may or may not
have an ‘initial consideration set’ – a shortlist of brands they associate with that type of
purchase - based on previous experiences and brand perceptions.

For some purchase decisions, the prospect will jump straight from the ‘initial
consideration set’ to ‘the moment of purchase’. But for other purchase decisions,
the prospect will conduct some form of research. McKinsey calls this phase ‘active
evaluation’. The most obvious form of evaluation is performed online, reading reviews
and comparing prices. But it could also include speaking with other people about their
experiences and brand preferences, or even just recalling personal experiences from
previous purchase decisions.

As part of their ‘post-purchase experience’, the prospect - now the ‘customer’ - will
reflect on their purchase decision, which will inform future purchase behaviour. When
this happens, the customer might shortcut their journey, effectively bypassing the initial
consideration set and active evaluation stages via a ‘loyalty loop’. A happy customer at
this stage might even help prompt sales from others by writing positive reviews or telling
other people about their experience.
Having seen that all performance channels exist along a demand creation to demand
harvesting spectrum, and that they can be plotted onto the McKinsey decision journey,
let's take a look at how they fit together…

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Display and ‘cold’ email can both be considered as demand creation channels. The
McKinsey decision journey demonstrates that brands using these demand creation
channels are still ultimately trying to drive sales as an outcome. However, the precise
way that investment in these channels helps to drive sales is that exposure to these
communications can act as a trigger to start a new customer journey, or perhaps to
increase the likelihood that the advertised brand will exist within an initial consideration
set by communicating product benefits for example.

So, performance media can be used throughout the full customer journey. As we’ve
seen, generic search can be viewed as both demand creating and demand harvesting,
and it’s often seen working its magic after the initial consideration set when people are
conducting research in the ‘active evaluation’ phase. Retargeted display can also be
used in this section of the journey, often with the aim of reminding the user about the
advertised brand or product, or perhaps communicating additional product features and
extra reasons for the prospect to purchase from them.

Towards the moment of purchase is where you see the most obvious use of demand
harvesting tactics. Affiliates and the discounts they promote thrive in this territory,
working hard to complete purchase journeys and seal the deal. But perhaps the most
dominant method of ‘closing’ a sale is to bid on brand or product keywords in PPC,
where the user is showing high degrees of brand preference and purchase intent.

Now we’ve explored how performance marketing relates to the customer journey,
and how performance marketing channels are used to nurture prospects throughout,
chaperoning them all the way through to making repeat purchases, you should
understand the importance of taking a holistic approach to measuring and optimising
your media mix, acknowledging that the success of each channel not only depends on
its own performance, but on the performance of your marketing overall.

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