Why incrementality testing is essential for multi-channel retailers
By David Lockwood, Co Founder, Insight Director, The Tapestry Agency
When it comes to multi-channel advertising, understanding the role each channel plays in driving a conversion is imperative for building an effective marketing strategy. Just as your customers are not all created equal, neither are your marketing channels.
When you hear the words last-click attribution, or click-through rate, you might think measuring multi-channel activity is relatively simple. However, these metrics alone offer little insight into overall engagement and fail to inform on true business impact. First-touch and last-touch attribution models can actually distort channel value and don’t provide the full picture. Instead, incrementality testing will, over time, show the true value of your channels in driving a sale.
How incrementality testing works
While tracking offline attribution is relatively straightforward (for instance, customers taking advantage of a promotional code in a catalogue), combining this with digital channels makes tracking ROI much more complex, since it is unclear how much each channel contributes to conversions.
Incrementality testing isolates the impact of a particular channel on purchases using ‘holdout cells’. During testing, the audience is randomly split into two groups, where a particular marketing activity is temporarily suspended for one group (the holdout cell), but not the other. For example, you could prevent some users from seeing PPC ads for the duration of a campaign. By comparing the response rate of each group, the incremental lift of the activity is measured. In essence, the ‘lift’ is the increase in sales that’s attributable to that specific marketing effort.
Naturally, incrementality testing takes time because only one variable can be changed per test, and it also sacrifices a certain number of sales per test. But the data this testing provides is invaluable for attribution modelling going forward, and more than makes up for the initial investment.
So why is this so important? Well, it’s simple. Better insights mean better decisions mean better marketing and more sales.
Don’t go chasing waterfalls
Companies often take a ‘waterfall’ approach when it comes to deciding on their most effective channels, ranking them from best to worst based on gut feel (with those perceived as the most measurable at the top). The result? You will always credit those ranked highest as your most effective sales drivers, irrespective of whether or not this is true. This approach distorts the real impact of a channel, leading to a misaligned strategy that delivers less effective campaigns.
When Tapestry helped sustainable clothing company BAM transition their marketing strategy from catalogue-centric to multi-channel, they saw a 30% growth in sales. However, as digital channels became increasingly important to the brand, their waterfall approach no longer cut it. They needed a more systematic approach to untangle the complex web of multi-channel attribution.
Enter the matrix (of attribution modelling)
While marketing is both an art and a science, the complexity of channel attribution definitely requires a scientific approach, so you may need support. You need to start with a channel-neutral assessment of the customer journey and build a realistic view of channel engagement.
For example, Tapestry helps clients such as BAM to develop bespoke matrix and attribution reporting for multi-channel retail and ecommerce businesses, using this to build incrementality testing. The matrix approach replaced the hierarchical attribution model originally used by BAM, providing a complete view of channel potential and helping them develop a valid multi-channel strategy.
BAM can now confidently put figures on the cost of recruitment through each channel, and the value of those customers at later periods – known as the future value. And, of course, this approach can be refined over time, using attribution reports to continually optimise their strategy.
A more sophisticated approach
Hold out testing can give you a much deeper understanding of channel performance for a more sophisticated approach to budget allocation.
For example, BAM used incrementality testing to accurately measure the value that Google Ads contribute to their business. By dividing the country into a handful of different regions, and switching off Google Ads in each region for a period of time, the marketing team has been able to measure the decline in sales in each area. This shows not only the impact of Google Ads but also the halo effect it has on other channels, because taking one channel away often dries up sales in other channels.
Tracking audience segments can also be used to measure the value of organic social traffic so that you don’t rely solely on external analytics. For example, BAM posted some of their content on Facebook only, with a call to action to sign up to their newsletter. They used a unique landing page so they knew that sign-ups from that page could only have come from Facebook users. However, when the team compared their results with metrics from Facebook Ads, they found a huge difference as the platform was dramatically over-reporting the conversions. Concluding that they couldn’t rely on these metrics alone, BAM is now conducting further in-house incremental testing to accurately measure the impact of the social network.
The impact of incrementality
Incrementality testing gives you the data you need to build an accurate attribution model, and therefore, the confidence to make critical marketing decisions. You can test and understand a new channel’s potential before allocating too much budget to it. You can then apportion marketing spend to the best-performing channels to drive efficiencies and improve campaign ROI. And the shift in budget can be quite profound. Over the past few years, for instance, BAM’s spend has changed from 70% catalogue to 70% digital.
The most effective multi-channel approach involves all your channels working together optimally and complementing each other. But part of this means judging channel effectiveness based on how each contributes to your business KPIs – rather than a gut feel. Marketing success is defined by the channels you choose to focus on, and those you don’t, so it’s important to get it right. In our experience, incrementality testing is the key to building the most effective multi-channel strategy you can
You can listen to Ryan Shannon, Managing Director of BAM Bamboo Clothing talking about incrementality testing in this podcast at the 22 minute point. Shifting from offline to online marketing and getting on-top of attribution