Retailers missed out on an additional $5 billion in net new revenue by focusing on the wrong advertising metrics, according to Nanigans, a performance advertising software provider.
In 2017, total U.S. retail digital ad spend was $18.2 billion, and approximately 14% of that — more than $2.5 billion — was spent on remarketing, according to eMarketer. By not adopting an incrementality-driven approach to digital ad remarketing, Nanigans argues that retailers wasted money and sacrificed revenue and profit in the process.
Legacy remarketing providers aim media spend toward consumers with the highest organic conversion rates and then take credit for those purchases. This can potentially artificially inflate the impact of an advertiser’s returns, and waste budget by serving ads to users who would have purchased without being exposed to the advertising.
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In some cases, marketers may ignore consumers who should have been targeted, but were not because of their low expected purchase rate.
The first step to overcoming this issue is to measure incremental revenue generated from remarketing, which is calculated as the difference in revenue between two groups: consumers assigned to a remarketing group (those who see ads) and consumers in a holdout group (those who do not see ads).
Knowing this difference enables marketers to stop serving ads to frequent purchasers, and replace them with consumers who are less likely to purchase but are predicted to have high incremental lift.
