Mastering retail media: A guide to allocating budget across every funnel stage
How can brands make the most of finite retail media budgets and optimize their spend across every stage of the sales funnel? Megan MacDonald, Director Solutions Consulting at CommerceIQ, shares the principles, strategies, and tools that help brands make smarter decisions about retail media budget allocation.
Brand marketing managers, ecommerce professionals, and shopper marketers are responsible for maximizing the effectiveness of their retail media strategies at every stage of the customer journey.
Being smart about budget allocation is key in this context. It’s all too easy to blow your ad dollars on retail media ads and search terms that don’t meaningfully grow your business.
So how can make brands the most of their finite budgets? And what are the pitfalls to avoid?
Based on our extensive experience of helping clients optimize their retail media spend, particularly on Amazon, here are the key principles, strategies, and practical tools we recommend.
Understanding retail media’s role throughout the sales funnel
Getting the most out of your retail media budget starts with being clear about how retail media can benefit your brand at the four stages of the sales funnel. This is what you need to know.
At the top of the funnel retail media’s main role is to help make additional users aware of your brand.
On Amazon, this is typically achieved through lifestyle targeting directed at broad groups (e.g., new parents, yoga enthusiasts, millennial mothers) within Amazon’s Demand Side Platform (DSP) program, as well as streaming TV ads.
At this stage of the funnel consumers are already in-aisle. They are shopping the subcategory your products play in but may not be aware of your brand or products, or they may have converted on a competitor product instead.
Retail media’s role is to target these shoppers and redirect them toward your products. Amazon’s ‘in-market segments’ targeting through DSP is the main tool for this. It enables brands to target consumers who are already actively shopping for a particular type of product; plus, it allows for the targeting of competitor audiences.
For paid search, the focus at this stage of the funnel is on generic or category searches. The idea is to capture somebody searching for ‘diapers’ rather than a specific diaper brand.
Retail media’s role during the conversion stage is to target people who have already viewed your product detail page but did not convert. By surfacing an ad to remind them of the product during the conversion stage you can drive them back to your detail page to convert.
This is the stage where branded keywords come into play for search, while on the display side the focus is on retargeting.
Right at the bottom of the funnel sits loyalty. Retail media’s role at this stage is to target consumers who have already purchased your products and make sure they buy again.
Key tactics used at this stage include targeting shoppers with ‘subscribe and save’ messaging and relevant ads during the replenishment phase.
3 simple principles for allocating retail media budgets:
Budget allocation needn’t be complicated. The following three simple principles will ensure you get the fundamentals right and help extract the most value from your retail media dollars.
#1 Look beyond conversion
To allocate the right amount of budget to each funnel stage, brands must understand the true return on investment for their various retail media activities and how the different funnel stages fuel – and interact with – each other.
Many brands are prone to overinvesting in conversion tactics because those typically drive the highest return on ad spend. In the process, however, they often end up retargeting the same buckets of people instead of bringing more people into their retargeting pool.
To fuel that lower funnel, you need to invest in the mid and upper funnel. Brands are sometimes reluctant to do so because they see weaker returns there, but it is typically going to be more incremental to invest in those areas than to keep spending in areas where people are already aware of your brand.
Greater investment in consideration tactics can help you reach people who are in-aisle for your product or type of product. This, ultimately, will drive more people to your detail page and, in time, bring them into your retargeting pool.
#2 Invest in search terms that are truly incremental
Received retail media wisdom used to be that branded search terms are less incremental than generic terms. However, this isn’t always the case. You could have a higher organic rank on either a branded or generic term, which in turn would make that term less incremental.
That’s why it’s crucial to look at incrementality when deciding which paid search terms to invest in. You don’t want to overinvest in areas where you already have a high organic presence – it’s a waste of budget.
At CommerceIQ we help our clients find the most incremental opportunities using our unique incrementality model and iROAS metric (incremental return on ad spend). This approach allows you to pinpoint precisely which branded and generic terms are most incremental to your business.
#3 Reserve 5-10% of your budget for testing and learning
New ad types get rolled out all the time, especially on Amazon, and new capabilities and audiences to are continually being added to DSP. You want to be in a position to try them out and take advantage of relevant alpha and beta testing opportunities.
Having some dollars already allocated to testing and learning will enable you to respond quickly to opportunities as and when they arise, without having to go to your leadership teams and beg for more budget.
How to optimize your retail media budgets?
With the key principles established, it’s time to look at some practical ways you can optimize your retail media budget allocation across the sales funnel using the CommerceIQ platform.
Make sure you truly understand your category
Understanding the category, and how the shopper shops the category, is extremely important when optimizing budgets and determining how much should go to each stage of the funnel.
It’s especially important to understand the percentage of branded vs generic searches. In a category such as diapers, over 50% of searches are branded, which means investing in brand awareness and branded searches is essential.
In other categories the percentage may be closer to 20%, meaning there’s less pressure to invest in the awareness stage of the funnel. Instead, you’d be better off investing mainly in generic terms, market targeting, as well as some conversion tactics to capture people if they happen to search for your brand.
At CommerceIQ, the key tool we use to help brands build their category knowledge is the Category Leaderboard. It allows you to surface who your top competitors are within each category, where you sit against your peers, and the percentage of branded searches within the category.
Our Category Leaderboard also tells you the keywords you should be targeting, as well as their incremental fraction and your current organic share of voice on those search terms.
An easy way to determine how much you should spend
Brands are always looking for better ways to gauge how many dollars they need to spend to hit their sales target.
Historically, pulling together a ‘good, better, best’ budget recommendation would involve a highly laborious process. You’d have to go into multiple platforms to get historical data, as well as reaching out to Amazon for some of the category benchmarks. Collating the data and extracting the right insights would easily take hours.
This is where CommerceIQ’s Media Planner Tool makes a big difference. By leveraging machine learning from all the historical data within CommerceIQ and from your Amazon account, the Media Planner Tool can spit out exactly how much you need to spend in order to achieve your specific sales goals. It will even tell you how many dollars to allocate to generic and branded terms, ad types, and the anticipated return on your investment.
Plus, you can output all the recommendations into an hourly bidder sheet, which can be uploaded directly into the platform to automatically pace your bids and budgets to reach your goals.
Curious to find out how CommerceIQ’s powerful tools can help you optimize your retail media budgets?