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Oracle Data Cloud Blog

Marketing myopia: Why focusing only on ROAS is NOT in a brand’s best interest

This week’s guest blog is contributed by Jim Greco, Senior Analytics Director, Oracle Data Cloud.

Many articles about marketing campaign measurement invariably begin with a variation of one of the two statements:

“We can finally answer the iconic question posed years ago by famous retail magnate John Wanamaker: "Half of my advertising is wasted. I just don’t know which half."

… or …

"We are entering a golden age of marketing measurement and accountability for marketing spending, where measurement of clicks and shares are ceding influence to financial measurements of Return on Ad Spend (ROAS)." 

“Blah blah blah…” I apologize for the sarcasm.

Although well-intentioned, these articles are also (we believe) producing an infatuation for using Return on Ad Spending (ROAS) as the sole metric for determining whether a campaign was successful. This rhetoric sounds suspiciously similar to 'marketing myopia,’ a term coined by Theodore Levitt in his seminal 1960 paper by the same name in the Harvard Business Review. According to Levitt, marketing myopia suggests that businesses are short-sighted because they focus on selling rather than the needs of their customers.

We have strong empirical support to suggest that focusing solely on ROAS is NOT in the best interests of an advertised brand:

1.  A 'maximize ROAS' mindset will undermine advertising’s ability to drive brand growth.  

Most CPG brands want and need to grow. And to grow, brands must advertise to all brand users (heavy buyers as well as light buyers) as well as attract new and lapsed users to the brand.  

Oracle Data Cloud recently measured campaign lift for different brand buying (and non-buying) target audiences across 35 campaigns, and we see that the measured responsiveness of these groups to advertising varies.

Lift Index ($/HH lift for Segment vs. $/HH lift for Total Campaign)

 

Category Buying

Brand Buying

 

Heavy

Medium

Light

Non-Buyers

Heavy

455

261

NA

 

Medium

327

250

176

 

Light

341

221

174

 

Non-Buyers

272

183

89

32

Source: DLX ROI Campaign measurement (n=35, all statistically significant at 95%)

With the different degrees of ad responsiveness illustrated above, a ROAS-maximization strategy would undoubtedly prioritize some households and ignore others. This makes achieving the dual objective of maximizing ROAS and driving brand growth extremely difficult, and in many cases impossible, since light buyers make up the majority of every CPG brand’s buyer base.

2. Focusing on ROAS leaves money on the table.  

For most advertisers, the 'R' in ROAS is expressed as a percentage return comparing incremental sales to campaign costs. If ROAS is maximized based on percentages, absolute campaign returns frequently end up being smaller. This topic often comes up when evaluating how many impressions to serve each household during a campaign.  

Consider the below graphic, which illustrates how incremental sales in a campaign accumulate as the average impression frequency per household increases:

Based on this graph, an advertiser will serve ~4 impressions per household on average during the campaign if their goal is to maximize ROAS (this is the point where the difference between the sales curve and the cost line is the greatest). But in doing so, all campaign profit between the optimal point and the breakeven point is money left on the table.

Robbing Peter to Pay Paul

An advertiser (perhaps unknowingly) accepts two consequences when they adopt a ROAS first strategy: first, they ignore current and future buyers of their brand who have lower than average returns but are still critically important to growing (and sustaining) overall brand sales. And second, their campaigns end up bringing in less incremental sales overall.

This conclusion obviously begs an important question: what IS the best way to use ROAS as a campaign performance metric?  

Well, we’ve got some thoughts on that too. And we'll focus on this question in Part 2 of this blog post, coming soon. Until then, all you need to remember is that it’s not all about ROAS.

Stay up to date with all the latest in data-driven news by following @OracleDataCloud on Twitter and Facebook! Need data-related answers for your next marketing campaign or client partner? Contact The Data Hotline today. (What's The Data Hotline?) 

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