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The Tail of the Tape: Measuring ROI in Q4

Many retailers will spend the next week or two studying the results from Q4 hoping to find action items for early Q1. A word of caution: don’t yank the rudder too quickly.

The trackability of online marketing programs can lead to a false sense of security in knowing what drove business in Q4. Retailers need to be particularly careful in assessing the relative performance of advertising channels as two skewing factors in particular were at play:

  1. Uneven Distribution of Offers: Some channels may have had the “benefit” of more attractive discounts than were generally available. This is particularly likely of email and affiliate channels and leads to two separate impacts:
    • All sales dollars are not created equally. If programs are evaluated by sales dollars driven rather than margin, recognize that $100 worth of discounted sales is less valuable than $100 in full-priced sales, often MUCH less. Say your normal margin is 40%. On $100 sale at full price there is $40 in gross margin. If everything is 20% off because of an email code and that buyer still spends $100, they’re getting $75 worth of merchandise ($125 sale reduced to $100), hence there’s only $25 in gross margin. A 20% discount in price, but a 37.5% reduction in gross margin.
    • Offer Wars: In a season when consumers were disproportionately concerned about price, your SEO and PPC programs had more than usual competition for sales against sometimes reckless offers from competitors. The race to the bottom led those unwilling to play the game to drop out of the competition on keywords where they normally compete well.
  2. Coupon Affiliates: Consumers have been conditioned to search for coupons, and that unfortunate tendency was doubly amplified during Q4. The consequence being that customers coming in on paid search or natural search links originally, did a last minute “Acme coupon” search to generate a code and steal credit for the order for the affiliate program from the program that actually brought the customer to the site. Look for year-over-year dips in SEO and PPC being offset by unexpected “humps” in affiliate sales. The affiliates aren’t necessarily doing better, they’re just cannibalizing more.

Each marketing program should receive careful scrutiny. Each program should be evaluated based on how well money has been used, and whether the vendor’s compensation makes sense for the work they’re doing. However, it is a mistake to compare top line growth rates across channels expecting differences in those rates to reveal great truths about the relative success of the programs.

The complexities of multichannel interaction are growing, and the evolution of each channel is different. Just as it would be a mistake to stop mailing catalogs because the catalogs drive people online, it’s a mistake to assume that recessions impact all channels equally.

In a very real sense, we’re all wading into unknown territory. As the recession worsens we’re all going to learn a great deal about online marketing in tough times. Expect the dynamics to change and keep an even hand on the tiller.

George

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  1. [...] clients showed positive PPC-driven sales growth in the 4th quarter of 2008 vs. 2007. George Michie points out that some clients showing sales gains did so via significant discounting. 65% experienced a [...]