Retailers are feeling the pinch of several factors outside their control. While that can be a hopeless feeling, the good news is that there could be significant upside to their bottom line with meaningful changes to their advertising approach.
When running advertising, the media mix matters a lot. Our data science teams analyzed the average retailer media mix and compared it to a high-performing media mix. These numbers are updated quarterly as part of an ongoing Marketing Mix Modeling effort across several, large and small, retail clients.
For the retail advertiser spending $500,000 per year on advertising, an improved media mix can lead to a 5% increase in sales and a whopping 32% increase in advertising ROI. At the $1,000,000 spend level, the upside is a 4% increase in sales and 27% increase in ROI.
Media Mix Optimization opportunities are most pronounced in a few key channels for retailers:
· Traditional Television. Viewership has been on the decline for years, but retail advertisers have still not caught up to the shift. Instead, they stick with legacy GRP benchmarks, even while the idea of a GRP has been called into question by TV networks themselves. The average retailer spends 2X more on TV advertising than an optimized mix model would suggest.
· Streaming Video, including Connected TV. This is the flip side of the point above. Retail advertisers are under-invested in Streaming Video by almost the same 2X factor. The ROI from this channel is 270% stronger right now than the ROI from Traditional Television.
· Audio, both Terrestrial and Streaming. The audio format is under-invested by the average retailer. Music and podcasts, whether traditional or digital, offer strong ROI performance. Streaming audio outperforms traditional radio, but both are important to the media mix. This underinvestment is a bit of a head-scratcher especially given how easy it is to produce good creative for this ad format.
· Paid Search. The last channel we’ll highlight is Paid Search. Retailers, on average, actually spend too much money on it, at about 25% of their budget. The optimized mix recommends spending in the 15-20% range, depending on the budget. Don’t get it wrong – this is a strong ROI channel – but many retailers are past a point of diminishing return on paid search. This overinvestment is likely due to an over-reliance on “last click” attribution tools, namely website analytics platforms. Those are great tools for measuring customer activity on a website, but those same tools are very bad at giving the proper credit to advertising channels in the complex world of consumer behavior.
Retailers that have an optimized media mix have a much better shot at intersecting with customers in-market for what they sell. Of course, that is only half the battle, as it is also important to execute at a high level in every advertising channel. The best retail advertisers know this and take advantage of it to build their businesses at the expense of other retailer without that know-how.
