Don’t let your attempts to measure channel effectiveness strangle your profitability.

The pandemic has made it more important than ever for brands to tighten their purse strings and prove the profitability of their digital marketing channels.

During tough times there is a tendency to double down on post-click marketing, but there are real difficulties with using attribution as a measurement of channel profitability. A more-accurate approach is needed.

Epsilon has created a series of video and blog ‘explainers’ to guide you through key aspects of customer-centricity. Topics range from calculating customer lifetime value and boosting loyalty to customer acquisition and incremental growth.  

Why do finance teams measure attribution?

Attribution programs measure and compare the effectiveness of each customer interaction across channels. For example, if a consumer is exposed to a display ad and an email campaign, but they only convert after seeing a special promotion in the email, marketers assume this piece of collateral played a bigger role in driving the sale than the display ad. Marketers can then increase investment in targeted email campaigns.

Deeper dive. So, what’s the problem with attribution?

Attribution can lead marketers to focus on short-term goals. By trying assign credit to all channels, they can both overvalue and undervalue certain channels that may have played a role in driving a sale. What can be tracked best is then given most credit which causes businesses to focus on activity closer to point of sale.

If you can't see what marketing activity is profitable, how can you determine which channels to invest in to increase growth?

Why test-and-control trumps attribution:

The best way to measure success is to use test-and-control methods, deliberately targeting customers at different stages of your sales funnel. This will accurately reveal the differences in conversion rates over time between a test group and a control group. The control group is your baseline marketing, and the test group shows the uplift of that channel above your baseline.

So how do you make sure test-and -control is accurate?

• Select individual customers completely at random for your test-and-control groups.
• Ensure they remain in either test or control for the duration of the program, across all of their devices.
• Choose a mixture of your best customers, new, lapsed and lost customers to ensure there is no bias towards a specific group.

Adhering to these steps will enable you to identify which of your channels is the highest performing and worthy of further investment.

Epsilon uses two calculations to demonstrate the effectiveness of test-and-control.

By using one of the following calculations marketeers can clearly and simply convey the profitability of their channels to their finance team.

Incremental return on marketing spend. This is the incremental revenue driven by a channel, divided by spend. In this instance ‘spend’ includes all costs, including creative builds, media delivery and set-up to name but a few.

Gross profit margin. This is the revenue that would not have existed without that channel, minus the percentage of goods sold and minus media costs.

The bottom line

Measurements, such as post-click attribution, do not necessarily show profit. Test-and-control, however, enables you to accurately measure the impact of your investment in marketing at different points along your sales funnel. This gives you a clearer picture of what each channel is worth.