29-06-2017

This blog post was originally posted on marketingfacts.nl by our colleague Sylvia Vroklage

Marketing management is a budget allocation game, where the ROI is the highest priority. In other words, where the added value for the consumer is greatest. E-commerce players have always been strongly involved with direct response channels, Search Engine Advertising (SEA) first and foremost. However, online marketers do not escape the laws of supply and demand from diminishing returns. With the increasing competition in the market, the question is: Should we change the rules of the game?

Research

Starting this year, I completed my Executive MBA at Nyenrode University with my thesis titled “The Conversion Attribution Riddle”. Conversion attribution is a subject that fascinates me. I am convinced that companies who better understand their data and translate this data into value for their customers ultimately have a lead over their competition.

Throughout my research, I interviewed a large number of managers at (amongst others) the top 10 e-commerce companies in the Netherlands. One of my conclusions: online marketers and traditional retailers are increasingly moving towards each other. Now the tools.

The battle for the last click

What is conversion attribution? To clear up any confusion:

“Conversion attribution is to assign a value to different interactions (touchpoints) that consumers have with a company on the way to completing a purchase.”

An AdWords campaign, radio spot, or email: These are all examples of touchpoints holding a certain value. Yet, how do you determine that value? And what or where, do you put in? Different attribution models provide different answers to that question.

The academic literature distinguishes between two types of models: algorithmic and rule-based models. Rule-based models are at the heart of tools like Google Analytics. Since those tools really appreciate the last click, the e-commerce game has been focused on channels that are strong at this last click; Google Adwords first.

With good reason, because the success was there. The market was young, there was relatively little competition and a large supply led to low prices and high ROI. Of course, the model was simplistic, but who cared as long as it did what it was supposed to do? You can’t argue with results.

Bubble Economics

Fast forward to 2017. The online advertising market has grown and the competition is killing. The budget that companies – and no longer exclusively e-commerce companies – spend online, has exploded. Past performance results in more and more marketing euro’s  flow to channels like AdWords.

Where demand increases, costs follow. A principle that has pushed on the ROI, confirmed by the managers I spoke to for my research. Earlier were a money crane was, now remains bubble economics, with suboptimal investments as a result. So less money which you can spend on innovation, or real added value.

Online marketers therefor are increasingly looking at the entire customer journey, searching for higher potential. However, a good understanding requires a more holistic look. A perspective that goes beyond a single touchpoint or channel. Furthermore, an idea of how such a customer journeys may differ between different product categories. After all, buying a book is significantly different from a television.

The Blue Ocean

Because the paths that customers walk are numerous. With the increasing number of channels that brands have at their disposal, the number of touchpoints have also increased. Sixty to seventy percent of consumers now shop across multiple channels. Customers do research, visit physical stores, compare prices, looking for experiences with your product or service; and all of that before clicking on that last ad.

That’s where the opportunities lie; because where there’s a red ocean, there’s usually also a blue one: channels where the market is not moving too much. Were supply and demand are more in balance, but where do you find that? What role do channels play in a conversion? How do your customers follow that variety of channels and devices?

Last-click attribution in general and tools like Google Analytics in particular do not actually answer that question. Big online players realize that and therefor are looking for other, richer models. In that search, they increasingly find traditional marketing channels, service points, and concept stores ahead.

Through my research, I identified three major gaps when it comes to multi-channel conversion attribution modeling:

  1. Many conversion attribution models are purely focused on online channels and thus say nothing about your efforts in traditional media.
  2. Cross-Device: monitoring your customers across multiple devices is often difficult.
  3. Understanding what the added value of each touchpoint in the customer journey on a conversion is not available in a rule-based model.

First Steps

Last-click-attribution seems to have had its longest time. Nevertheless, most of the managers I interviewed still used such a model to determine – in whole or in part – their performance. A difference between dreams and reality.

Obstacles in implementing a richer attribution model are cost accounting (70 percent), lack of marketing team knowledge (56 percent), and legacy systems integration (48 percent). In addition, there is still doubt as to what a suitable attribution model should look like.

So where do you start? My advice: think in possibilities, not in restrictions. There are little things you can do to put your first steps towards a truly cross-channel attribution model. The existence of every company is ultimately creating value for customers. So try to map those touch points that have the most added value to your customers.

In my next blog, I’ll give you some tips from my research. Stay tuned!