Author

Seema Sheoran

Sr. Manager Data Consulting at Artefact Germany

Author

Karen Rieger

Data Strategy Consultant at Artefact Germany

Measuring and optimizing marketing ROI is a challenge for many companies, with 70% of marketing executives struggling to do so effectively.

“Organizations that focus on measurement as a strategic priority see a 10 to 20% increase in marketing ROI.”

Measuring Marketing ROI is a key challenge in today’s companies

For many companies, holistic measurement remains a challenging puzzle piece that doesn’t quite fit into their overall strategy. In fact, 70% of marketing executives still struggle to accurately measure and optimize the return on investment (ROI) of their marketing campaigns. But why is this the case? Why has measurement become increasingly complex, and what is the best approach to tackle these challenges?

Here are three key trends shaping the current marketing measurement landscape:

  • Your Diversification of Media Investments with a Focus on Digital: As digital media continues to grow, investments in this area are expected to reach 71% by 2026. However, the increasing competition for ad space is driving up costs, making it more challenging for marketers to achieve a high ROI.

  • Multiplicity of Sales Channels and the Rise of Omnichannel Strategies: The global omnichannel retail market is experiencing a compound annual growth rate (CAGR) of 14% and is projected to reach USD 19.51 billion by 2030. This diversification of sales avenues presents both opportunities and challenges for marketers in measuring and optimizing their efforts across multiple channels.

  • Growing Need for Personalization Amid Privacy Regulations: With tightening privacy policies and the impending phase-out of third-party cookies, personalized brands are gaining a significant advantage, seeing up to a 40% boost in revenue. However, this trend also complicates measurement as marketers navigate the balance between personalization and compliance.

Beyond these trends, a new topic is emerging in the realm of marketing measurement: the environmental impact of advertising. Every data transfer between an ad server and the end-user involves millions of signals exchanged between various technologies. Activities like targeting, real-time bidding, and tracking verification all consume electricity, leading to the production of greenhouse gasses. By quantifying the electricity used at each stage of ad delivery and considering the carbon intensity of energy production, we can estimate the emissions generated by an ad. However, carbon measurement often comes with additional costs and, in challenging economic times, is seen as a luxury rather than a standard requirement.

Additionally, there is frequently a significant gap between the current state and key strategic goals. Marketers must navigate the complexities of bridging this gap while managing a plethora of marketing technologies. This navigation is critical to aligning marketing efforts with overall business objectives and achieving sustainable success.

Holistic Measurement: Key Challenges Remain for Marketers

1) Lack of Confidence

One key challenge is a lack of confidence in areas such as media planning, budget approvals, and justifications (Mank et al. (2019).) An internal satisfaction survey of marketing managers across industries in the DACH region found that nearly 25% are dissatisfied with their current ROI measurement capabilities, and only 30% consider their current capabilities satisfactory and on the right track.

There are several reasons for this:

  • Outdated Budgeting Approaches: Many companies rely on outdated budgeting methods, such as simple business rules or a “previous year +/- x” approach. This leads to inefficient resource allocation, as these methods don’t account for changing market conditions or the varying effectiveness of different channels.

    The solution is a data-driven approach that uses analytics and insights to distribute budgets more effectively across channels and funnel stages. By leveraging data, companies can make more informed decisions that optimize their marketing spend and improve overall ROI. For example, for one of our beverage industry clients, external factors like weather, football matches, and holidays were critical in creating a budget scenario planner, enabling more accurate and strategic budgeting decisions.

  • Inconsistent KPIs: The lack of a common set of key performance indicators (KPIs) across the organization can lead to inconsistent marketing performance assessments. This inconsistency makes it difficult to compare results across campaigns and channels, and measure success accurately.

    To address this issue, companies should establish a unified taxonomy of KPIs that align with their strategic objectives. Consistent KPIs enable clearer communication and better comparison of marketing outcomes, facilitating more strategic decision-making.

  • Delays in MMM Results: Marketing Mix Modeling (MMM) often suffers from lengthy timelines, as data collection and analysis processes can be complex and time-consuming. This delay can result in outdated insights that do not reflect current market dynamics, reducing the effectiveness of decision-making.

    To solve this problem, companies should invest in more efficient data collection methods and technologies that streamline the MMM process. Our article on “What consumer data strategy should brands adopt in an ever-changing technical & regulatory landscape?” talks about the solution in detail. Additionally, integrating real-time data analytics can help provide quicker, more actionable insights, allowing for more timely adjustments to marketing strategies.

  • Dependence on Third-Party “black box” Solutions: Many marketers depend on third-party solutions, which can be problematic as they require sharing sensitive data with external parties and often offer limited customization options. This dependence can lead to a lack of transparency and control over data, as well as potential data security risks.

    To mitigate these issues, companies should consider developing in-house capabilities for MMM or seek out more transparent and customizable solutions that allow for greater control over the data and analysis processes. This shift not only improves data security but also enables more tailored insights that align with specific business needs.

2) Lack of Technological Understanding

Another significant challenge is the lack of technological understanding. Existing measurement methods have evolved, leaving marketers unsure how to utilize them effectively. An international media buyer at a travel agency in Germany highlighted this issue, saying, “We are aware of the measurement problem, but we don’t know how to solve it.”

There is still heavy reliance on preliminary and inaccurate rule-based attribution, as well as expensive and time-consuming A/B testing for measuring marketing effectiveness. 60% of marketing leaders in the DACH region lack confidence in their ability to design effective experiments. Artefact DACH’s research shows that a tiny fraction of marketers are using a unified approach combining MMM, attribution and incrementality testing. 70% say they’re using rule-based attribution only to understand measurement, which is a very problematic indicator.

Figure 1: Potential set of service providers of MMM, A/B Testing and Multi-Touch-Attribution

3) Conflicting Focuses Within Companies

There is often a conflict between Chief Marketing Officers (CMOs) and Chief Financial Officers (CFOs) due to differing priorities in KPIs. While CFOs focus primarily on marketing expenditures, CMOs emphasize brand building and Customer Lifetime Value (CLV) rather than short-term sales. This discrepancy leads to challenges in balancing short-term sales stimulation with long-term brand development.

Figure 2: Conflicting strategic focus within company

Vincent BLACLARD

4) Identification of Truly Relevant Marketing Measures

It is commonly known that 50% of marketing spend is wasteful and identifying which half remains a critical issue. It underscores the importance of establishing a robust learning agenda to test the incremental impact of various marketing strategies. Companies need to understand which MMM model is best fit for them.

  • Econometric or ML-based MMM: Media Mix Modeling is a trend-based modeling approach that aims to understand the long-term impact on sales, primarily using historical data; it provides high-level insights to help identify patterns.

  • Causality Modeling: Multi-touch attribution (MTA) is limited to tracking online events and often struggles with imperfect links between different platforms like Facebook, Amazon, and Google. Meanwhile, Marketing Mix Modeling (MMM) can answer strategic questions but only at a low frequency (greater than every three months) and with limited detail (not at the segment or creative level). Causality modeling complements these techniques by frequently providing precise answers to operational questions and measuring the causal impact of various marketing touchpoints, both online and offline.

Three Steps to Gain Competitive Advantage and Maximize ROI

To gain the insights they need to stay ahead of the competition and grow their ROI, companies should integrate three key approaches: Marketing Mix Modeling (MMM), Incrementality Testing, and Attribution. These methods are complementary and should not be seen as mutually exclusive.

Figure 3: Approaches on Bayesian Measurements

Step 1: Clearly Define Your KPI Framework and Test & Learn Agenda

Artefact has extensive experience in helping our clients define their KPI frameworks and Test & Learn agendas. We leverage a comprehensive library of business questions and use cases across various departments and marketing channels, ensuring thorough measurement coverage. This approach enables a detailed 360-degree performance analysis at the most granular level.

Step 2: Collect All Relevant Data in a privacy-safe manner and enrich it with second-party data

The “garbage in, garbage out” saying holds particularly true here: without high-quality data, even the most sophisticated models can yield misleading results. Companies must always focus on collecting accurate and comprehensive data, covering sell-out figures, media metrics, and even non-marketing data.

Moreover, enriching your data with second-party data – information shared by trusted partners – can provide valuable additional insights. They can help fill in gaps, provide context, and enhance the overall quality of your analysis. However, it’s crucial to do this in a privacy-safe manner, ensuring that all data usage complies with relevant regulations and respects user privacy.

An illustration of different data inputs. May vary by industry.

Figure 4: Data inputs for MROI

Step 3: Combine the Three Methodologies for a Holistic View of Marketing Measurement and Effectiveness

  • Understand and Plan with MMM: Marketing Mix Modeling helps in understanding the broader impacts of different marketing channels and planning future investments.

  • Dig Deeper and Optimize with Attribution: Attribution provides detailed insights into the performance of specific touchpoints, enabling more precise optimization.

  • Validate with Incrementality Testing: Regular incrementality tests help validate whether the changes implemented are delivering the desired outcomes and can address specific business questions not covered by the other methods.

Figure 5: Holistic andeffective marketing measurement strategy

By integrating these approaches, companies can achieve a more holistic and effective marketing measurement strategy, leading to better-informed decisions and optimized marketing efforts.