The retail industry is taking big hits when it comes to wastage, and this time, it’s not just the clothes. According to Next&Co’s annual Digital Media Wastage report, 43% of the $14.1 billion invested in digital advertising in Australia is wasted, with misalignment between advertising and stock levels causing a leaking bucket of ad spend.
With the rise of Google Performance Max and other AI capabilities within advertising platforms, retail marketers have fallen victim to heavy reliance on automation to drive their spending. This is either because marketers lack an understanding of the logic of these platforms, or they simply don’t know how to utilize their own data in their advertising.
For upper funnel marketing—though Next&Co says retailers are losing money by overinvesting in awareness activity through Google and Meta—we know return on ad spend (ROAS) can always be attributed in more ways than one. However, when investing in bottom-of-funnel and conversion advertising with product discovery, every dollar counts for the final conversion stage of the transaction.
Currently, marketers are locked in a cycle of implementing high-frequency conversion-focused activity, which appears to the target audience too often for their short durations—especially when the product advertised often has low stock cover, or is unavailable.
“Which builds negative sentiment and ad fatigue,” says John Vlasakakis, co-founder of Next&Co, “and burns money quicker than blackjack at the casino!”
Vlasakakis explained the other elements adding to digital marketing’s wastage woes include ad fraud, bidding on audiences and keywords that don’t generate a positive ROI, creative ad fatigue and low engagement rate content, and the increased cost of advertising (+23% year on year).
Starting now, digital marketers for e-commerce and DTC businesses must rethink their advertising channels and tech stacks, to evaluate and effectively use customer and product data. Getting a handle on data will not only help stop the spend leaks but will help digital teams prepare for first-party data collection and identity resolution strategies.
Here are three ways to get back in control of your paid media budgets to ensure you’re not throwing away dollars, or missing sales opportunities.
How to minimize ad spend wastage
1. Optimize your digital advertising for profit, not revenue
As ROAS loses its edge as the go-to metric to indicate the growth abilities of a brand, to shift your North Star metric to profitability, you must start looking at a combination of all marketing efforts across the entire funnel.
Vlasakakis says mix media optimization is one of the biggest challenges for retailers. “Many retailers are not yet at the point where they have a good view of exactly what channel/audiences to invest in to create growth,” he says.
“There is often no clarity as to how to balance the media mix between top of funnel, to bottom of funnel activity and a lot of retailers do not have the omnichannel marketing attribution measurement ecosystem to answer this question.”
You can start by assessing your channel investments by using a combination of media mix modeling (MMM) or marketing efficiency ratio (MER) alongside in-platform reporting.
MMM allows you to optimize media spend by identifying the most impactful channels and touchpoints. Once you know what’s working, make strategic adjustments in budget allocation and ensure that resources are directed towards the channels attaining the highest returns. You’ll be able to test your entire media mix and see how topline profitability responds to changes in media investment. For example, if you increase Google by 20% or shift 10% from retargeting to awareness, what is the impact on profit?
MER specifically looks at the big picture of the entire spend versus the revenue generated—what’s coming in, and what’s going out. Its calculation measures revenue against marketing costs, and will help you understand the overall impact of how each channel is working together to generate profits. A bird's-eye-view that ROAS does not provide.
MMM and MER are going to give you greater clarity on the mixed performance of long-term brand marketing and performance marketing, and how these combined efforts impact the bottom line.
2. Build precision across advertising and inventory
To reduce wasting ad dollars, and missing out on conversions from consumers with purchase intent, comes down to accurate advertising for your available inventory with adequate quantities. Marketers should cease advertising products where there is not enough stock to cover the product’s conversion window, or for products where all the stock is sitting in one or two sizes.
Say, for example, if your average conversion window from ad click to purchase is 14 days, but the product advertised has only a one-week cover, by the time the customer is ready to purchase, the product will be out of stock and the spend is wasted.
You can overcome this by prioritizing products with a high size availability to avoid customer bounce, and ensure the product has enough stock across in-demand sizes to cover the conversion window period.
Implementing an additional level of detail across your advertising puts you back in control. You can avoid relying on algorithms that prioritize products based on click-through rate, and focus on the metrics that matter most in converting customers.
By leveraging your brand’s own data across sales, profit, and size performance, with Style Arcade’s new auto tagging functionality, brands can use advanced product metrics like size availability, weeks cover, profitability, or return rate to create optimized product feeds for advertising campaigns. Marketers will be able to maintain a competitive advantage by optimizing ad spend based on specific product knowledge.
3. Encourage teams to collaborate on one data set
Collaborating on a single data set ensures consistency, enhances efficiency, reduces costs, and more holistically supports a customer-centric approach. Brands need to make sure your retail, e-commerce and marketing teams all have access to, and have an understanding of key profitability and product metrics before making decisions around the customer.
From pricing to product mix, consumer demand comes first, and understanding how to use your data collaboratively will ensure the whole team is listening to customers, and analyzing the same data to create products and ads that resonate. Understanding the ‘why’ behind performance data will allow your team to make informed decisions, faster.
One data set for product and marketing attribution will not only enable immediate conversions but will advance decision-making to grow the long-term value of a customer. Online retailers and marketers will be able to make better-informed decisions about where to allocate their marketing resources to increase LTV and ultimately reduce ad spend wastage.
Image Credit: Style Du Monde
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