Oliver Clay
Senior PPC Account Manager Verb Brands

As marketers, we forever walk the tightrope between achieving results on target and allowing spend on a marketing strategy that helps us hit the targets of the future. The importance of the two factors shifts in relation to a business financial situation, and so the pressure of short term targets can mean doing what is necessary to generate results, and fast.  But what does this mean for our longer-term objectives?

Understandably, priorities change, and quick revenue wins move from being helpful to essential. This often comes in the form of heavy discounting, and exclusively targeting low hanging fruit – and with this comes potential damage to the brand and consequences for future revenue.

Results in recent years are clear. Customers have acclimated to a ‘sale’ culture and are increasingly less likely to buy the full-priced product. This is yet more obvious with a luxury product, where many customers are willing to put their purchase on hold until the next flash sale comes along, and they can secure a big saving.

So how did brands get themselves into this situation, and what do they do about it? It’s clear that ultra-efficient marketing has emerged to try and solve declining revenue, but are our efforts fueling the fire? In this article, we break down the true meaning of efficiency in online digital marketing and look at the latest thinking that can help push brands back into stable growth.

What do we mean when we say ‘efficiency’?

In stark contrast to the offline marketing of the late 20th century, the world of paid digital marketing revolves heavily around metrics that describe how efficient a campaign has been. With luxury eCommerce brands this often boils down to metrics like ROI and ROAS which have no real cap, and so the temptation exists to aim for maximum ROI at all times. The frequent casualty in this line of thinking is the basics of marketing: users who cost the least to convert are going to be users already well on their way to making a purchase, and just need a little encouragement to complete, so how much incremental value is our marketing adding?.

Things change as we move up the funnel through users who have interacted with the brand previously, to users coming in-market for your offering, all the way to someone who doesn’t know what you’re selling and why they need it. The costs to achieve each potential customer’s purchase increases on the way. Once we begin to pin metrics like ROI to the upper funnel, the picture looks rather bleak. From this perspective, a campaign that returns less than it spends is a waste of money, and it is better to focus on those users who require a little less nurturing.

Unfortunately, we know the lower funnel is not an everlasting revenue stream – ROI can look great right now, but in a year’s time, things begin to slide. Lack of investment in low converting brand awareness activity means that as one set of customers make their purchase and end their journey, there are no warmed users to replace them. Interaction with the brand, and inevitably revenue, start to fall. This is where brands have a tendency to introduce discounts and sales, boosting revenue in the short term, but further encouraging repeat customers to hold out for saving.

What do we need to do in luxury to achieve efficiency?

We believe this is the time to take a step back, invest in building the brand, and let revenue grow through organic means. In reality, the pressure of competitors, targets and changing consumer appetites make this far easier said than done. Do you invest now to support long term growth of the brand, or focus on profitability until you’re on a sound footing and worry about a contraction of the brand later?

It’s not an easy question to answer, but what we can do is use the data at our disposal to nurture both sides of the argument. This involves hitting the sweet spot between revenue growth and spend. Consider the series of curves below, demonstrating how gains in revenue must be accompanied by an increased spend.

Chart
Chart

When siloing much of marketing to online channels, the aim is to push yourself as far to the left of the Spend / ROI graph as possible without getting into hot water, so that you can reap the benefits of that same position on the Spend / Revenue graph. 

To achieve this balance, we recommend a combination of ‘smart saving’ and ‘smart spending’ tactics. An example of the former involves reducing wastage on brand awareness spend by focusing on users who are most likely to actually engage with your site. The graphs below demonstrate the positive effect on actions for a client when introducing a bid strategy tailored to capturing users with time on site and pages per session metrics in the 90% percentile (defined as High-Quality Traffic).

Chart
Chart

Alongside ‘smart saving’, ‘smart spending’ should look to fill any gaps in the lower funnel where conversion opportunities are being missed. This could be a small project, like a basic UX audit and actioning of quick-fix changes to push up conversion rate on-site. 

Other ideas include ensuring 100% coverage for activity driving the bulk of conversions, where results can be further lifted by taking care to reach maximum quality scores. The below highlights a significant improvement in a client’s ad performance, led by small changes to meet best practice.

Performance Marketing

These are not always simple tasks to action, but patience and a step in the right direction along those curves can make for increased profits for reinvestment later.


How did we get here?

Many factors have influenced this trend, not least the speed of change in consumer buying habits, but one, in particular, has been a key driver: the availability of data. Platforms like Google and Facebook employ some of the best minds to ensure advertising with them is the absolute best way for brands to generate results. New features and reporting possibilities are abundant, enabling you to pin a return value to every online interaction.

This has led to an obsession with proving each area of marketing was money well spent, in direct contrast to historically popular TV and newspaper ads where the return was mostly just implied. Problems typically begin when you overwhelm yourself with data and focus in on ROI as a sole indicator of effectiveness. Considering profitability above all can very quickly lead to cutting away upper-funnel activity, and so also cutting away the audience that generates revenue further down the line.

Paid digital marketing has revolutionised the industry, and its dominance grows. Many companies have thrived off the ability to reach their target customer from their pocket and used deep insights to stay on top of consumer trends. For a brand to survive, the data now accessible must be used intelligently, but cannot replace the basic marketing principles that can clash with new learnings. Though the temptation to chase maximum efficiency persists, we know it isn’t always helpful. To enjoy the growth of the brand into the future, marketers need to return to taking risks on colder audiences.

To learn more about how we do Paid Performance Marketing in luxury, please get in touch with us.