The basic principle of the break-even is marginal variable cost equal marginal variable benefit as we all remember from our last business administration class. The question every CEO has to answer about this break-even is: What is the true value of my marketing activities?
In traditional offline businesses the value of marketing is often unclear and reliable numbers are difficult to come by. On the one hand we have the grand total of revenue for which a few segmentation possibilities exist. On the other hand there is the grand total of marketing cost. It is incredibly difficult to link cost and revenue segmentations together in a meaningful way and to build a strong case of causality. However, there are a couple of approaches to build significant data segments that can provide insights about new marketing opportunities:
- Offline Solution: ask potential customers to provide information about where and when their attention was first drawn to your brand and aggregate this information into a database (CRM = customer relationship management). Drawback: Not all potentials can be reached and people always lie for various reasons including cognitive dissonance.
- Offline Solution: depend on market research and brand studies. Drawback: Market research might not cover precisely your niche, your segments or your special use case, is expensive and reflects only a snapshot of reality that might lose value quickly.
It is often suggested that online marketing technology is able to provide these insights by analyzing information about where the audience is coming from, based on traffic sources (other websites, queries on search engines, social networks, e-mails, advertising campaigns) and based on geography (by locating users through their IP address). By tracking conversion data like eCommerce sales, revenue can actually be attributed to every single source or geographic area (amongst other segmentation). This means that for the first time in history, we can precisely connect the cost of each marketing activity with the revenue they generate. Thus we are suddenly able to distinguish low from high performers! We now have hundreds of thousands of visits whose cost and revenue data is accessible, literally "Big Data"!
Why are marketeers still trusting their own gut feeling instead of their web analytics data?
Here is why:
Analysing this data, the most common insight is that the overwhelming part of the revenue can be attributed to direct visits and to brand queries on search engines (both paid and organic). We will call this the branded segment (vs. the generic segment). There are three principal reasons for this imbalance:
- It's not only the visit previous to a conversion that leads to a conversion. It is the whole customer journey (several subsequent visits) that eventually score a sale. A recent Google Analytics case study has found that with such traditional last-click attribution, the revenue of generic search queries are underestimated by up to 30%. This is a serious data distortion that would result in a suboptimal investment allocation.
- Technology is imperfect: Users change devices and browsers (no unique identification) and cookies can be deleted or expire.
- Even by considering the customer journey, an overwhelming amount of data shows that most users still convert after only one visit (mostly branded traffic). It is important to keep in mind that brand awareness nevertheless was bound to happen at some point. Brand queries on a search engine don't fall out of the sky. The missing steps in the customer journey are mostly caused by a limited look-back window in web analytics tools. If the awareness process that triggers a recent brand query happened 3 months ago, most if not all web analytics tools are unaware of this. In Google Analytics, the largest look-back window is only 30 days. However, in many industries the customer journey can take years!
If we blindly trust our web analytics data, we systematically undervalue our awareness channels while we overvalue our sales channels!
As a consequence of this flawed data, the purchase and retention phases would show lots and lots of conversions while awareness and interest would seem to be failing channels in any Customer Lifetime Cycle (CLC). What is the effect of this distorted cost-benefit perception?
Obviously, the pressure to increase sales makes marketing managers fund channels where they see the most conversions being attributed to. Poor funding of life-sustaining awareness channels is the outcome. In the worst case, branded sales numbers start to drop in the long run - the sales funnel narrows. Because long-term causalities are difficult to track, the real cause might never be found.
What are the key take-aways?
Web analytics alone is a real gem and an important step towards obtaining new, valuable insights into your market. However, it is not advisable to act based on this data alone. What should be done? I have some practicable approaches for you:
- Estimate the impact of non-trackable channels (TV, word-of-mouth, print, social) on your branded traffic by using qualitative data from market research and customer surveys.
- Work with web analytics attribution tools that provide a large look-back window (30 days is not enough).
- Use this data to justify your investment into awareness generating channels and projects.
- If your business has offline touchpoints try to estimate the offline marketing impact on online sales and the online marketing impact on offline sales for optimal marketing spend allocations. Here are 5 common attribution black holes: http://econsultancy.com/ch/blog/62159-five-simple-attribution-black-holes-to-look-out-for-in-reporting
- Invest into awareness channels and use meaningful performance indicators like cost per entering visit or micro-conversions such as valuable user interactions.
There are plenty of opportunities to build your brand online in a sustainable and positive way: Expendable, Will it Blend or The One Dollar Shave Club. Here are some Google Case Studies about Brand Awareness: Link.
Comment to this post or email us for more examples!