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Auction-based Merchandising: KPI doesn’t mean ROI

This time last year I had the pleasure of attending the annual iProspect Client Summit in Las Vegas. Two key lessons from that event still resonate with me. The first is that consistently betting on black at the roulette table is an expensive and novice approach to the game. The second is the major theme of the conference, as announced by iProspect’s President, Jeremy Cornfeldt:  that no company should “ROI themselves out of business.”

The phrase stuck with me, not because It was not a shock statement, but because it got to the core of a basic business truth. When you consider the idea closely, the fact is that anyone can achieve a profitable ROI. Anyone! The secret is not so secret, simply sell a handful of products and quit while the ROI looks good.

However, a positive ROI figure is not enough to keep a business afloat. Sales volume is also key. When we see client brand briefs for Amazon and Criteo (formerly Hooklogic) in which the KPI is said to be “ROI driven”, we challenge the statement. Let’s look at some of the reasons why.

  1. We know that brands derive value from the consumer behavior called “webrooming” (researching products online and purchasing offline) and that this trend is experiencing steady, year-over-year growth. In fact, a whopping 46% of US 18-24 year-olds webroom via a mobile device.  However, because the association between this activity and corresponding offline sales are rarely captured, ROI calculations can't include these figures and are therefore a less accurate reflection of reality.
  2. Over-focusing on ROI can also limit where you appear on retailer sites. A brand’s aim should be to increase consideration and grow market share for your product within category.  There are a few ways to achieve this, but looking at market share shift reports or organic SKU position as a result of the advertising is a great way to start.
  3. Brand ROI targets are easier to achieve on brand sites and through the likes of Google shopping leading to a brand’s own ecommerce store because the discoverability of competitors you face in those spaces is fairly static. However, on a site like Amazon in addition to competitors, you also have fluctuating product prices for your product and competitors’ products. You also have third-party competitors and products that may offer Prime delivery. Throw in some seasonality and you’ve got a minefield that makes it almost impossible to maintain static ROI, let alone improve ROI.
  4. You also need to be able to accurately define the ROI you are looking at. Do you take into account that ROI figures on Amazon and through the Criteo network do not use the same attribution methodology? That Amazon’s ROI figure is not restricted to the sales of only the product you promote? For example, if you’re promoting a certain specification of essentially the same product, Amazon will group together similar sales. (This is not helpful if a 64GB version is more profitable that the 32GB product you needed to increase sales.)
  5. Finally, ROI is no good unless you are looking at incrementality. Any financial director being asked to sign off on a marketing budget will require proof that the sales figure you are seeing would not have been attainable organically without marketing budget.

With over 50% of US audiences starting their product search on retailer sites (rather than search engines, brand websites, or blogs), companies that embrace and prioritize share-of-voice and category-share KPIs, are the ones that will learn the most about customer behavior on retailer sites. 

Brands that also evaluate their branded ecommerce sites with less of a focus on immediate purchase ROIs and more of a focus on customer life-time value (LTV) will get even further ahead. Even though a brand website should, in theory, be able to offer the least expensive price, that isn’t always the case. This is because retailers can run special deals by discounting their own margin. Even if price parity is achieved or you have an even lower price than any reseller, you still have to be able to beat the one- or two-day delivery that’s included with Amazon Prime, and that’s no easy feat for most brands. Instead, consider offering lifetime care of product or extra add-ons that make the purchase more attractive to the consumer and – more importantly – give you the potential for future upselling through CRM methods.