Beyond vanity metrics: Measuring real incrementality in retail media
Understanding the true impact of your marketing efforts is critical, but how can consumer brands measure the real incremental value generated by retail media campaigns? Jordan Gisch, retail media expert at CommerceIQ, explains how incremental ROAS (iROAS) is helping brands optimize campaign spend and deliver measurable incrementality.
“Half the money I spend on advertising is wasted; the trouble is I don’t know which half.”
This quote, often attributed to US department store pioneer John Wanamaker, has become somewhat of a cliché in advertising circles. But cliché or not, it puts its finger on an enduring problem: More than a century on from Wanamaker’s death in 1922, far too many brands continue to fly blind when it comes to their advertising spend.
The problem is especially acute in retail media. Retailers are extremely reluctant to share insights with brands that could help them optimize their retail media campaigns. Their objective is to keep brands spending, not to help them spend smarter. And with global retail media revenue forecast to exceed TV advertising revenue by 2028, the stakes couldn’t be higher.
As a result, retail media management (RMM) is moving up the agenda for many brands. Unfortunately, standard metrics do a poor job of helping brands understand whether they’re spending their retail media dollars correctly.
Brands are usually given some sort of ROAS (return on advertising spend) calculation by retailers, but good luck trying to compare ROAS across retailers and ad networks. Everyone’s attribution methodology will be slightly different.
What’s more, ROAS is surprisingly limited in what it can and can’t tell you. Crucially, it cannot tell you what percentage of your sales would have occurred organically anyway, regardless of any advertising. In other words, ROAS doesn’t help you understand how much of your ad spend is driving incremental growth for your business.
To measure true incrementality, a different approach is needed.
How iROAS helps brands optimize their retail media spend
Incremental ROAS or iROAS is a new, unique metric developed by the data science team at CommerceIQ. It’s designed specifically to give brands a consistent KPI for measuring retail media spend performance across retailers and ad networks.
iROAS removes attribution differences to create a single, easy-to-understand metric that helps brands answer one crucial question: Where does my advertising spend have the largest impact on growth?
At the heart of iROAS is what we call our ‘incremental factor’, which enables us to estimate the percentage of sales that you would not have had without advertising.
Let’s say you are spending $100k each on two keywords. The first keyword drives $800k in sales; the second drives $500k. Seeing those ROAS differences, you’d probably be tempted to put more dollars into the first keyword. However, once we start layering in incrementality, you may well find the second keyword does a better job of driving sales that you would not have had without advertising.
iROAS quantifies incrementality by considering several key inputs and signals from the digital shelf, including share of voice weighted by position on page; keyword traffic; propensity to buy; and relevance or text match similarity with the actual keyword.
The result is an always-on model that allows brands to optimize their retail media spend in real time, based on incremental signals.
A key advantage of iROAS is that it is much less expensive and time-consuming than existing methods of proving incrementality such as media mix modelling (MMM). It also empowers brands to be proactive rather than reactive: Whereas MMM can help you analyze historical data, iROAS tells you the best place to spend your next advertising dollar – today.
2 common myths about measuring incrementality
To appreciate the step-change that iROAS represents for brands’ retail media management efforts, it’s worth being clear about how it differs from other ways brands currently try to measure incrementality.
Two myths in particular loom large:
Myth #1: Tracking ‘new to brand’ sales is the same as measurable incrementality
This is a common misconception in the market. Lots of brands we talk to tell us they are measuring incrementality by looking at ‘new to brand’ sales.
But while this approach can give you the number of new sales to your brand over a 12-month rolling period, it does not tell you whether those ‘new to brand’ sales would have happened organically anyway. Not every ‘new to brand’ sale will be incremental from an advertising perspective.
Tracking ‘new to brand’ sales can be useful for other reasons – but it’s not a good way to gauge whether you’re spending your retail media advertising dollars in the right place.
Myth #2: Tracking ‘share of voice’ is a good way to estimate incrementality
If you’re just tracking share of voice, you are missing two essential pieces needed to measure true incrementality: Propensity to buy and keyword relevance.
If someone searches for ‘BRAND ketchup’ and ends up purchasing that particular brand of ketchup, the relevance is very high. This, in turn, means incrementality would likely be much lower. If they buy that same brand of ketchup after searching for a more generic term, chances are the incrementality is higher.
None of this is to say share of voice doesn’t matter. On its own, however, it is not enough to measure whether your retail media spend is truly driving incremental business growth.
What’s next for measurable incrementality
Right now, CommerceIQ’s incrementality tool is focused on search and keyword-based incrementality, based on 14-day direct sales conversions due to specific advertising activities. In other words, it’s measuring short-term sales conversions tied to advertising and paid search efforts.
This on its own represents a huge breakthrough for brands looking to optimize their retail media spend. Indeed, our incrementality model is the only such model available in the market today.
However, our data team is already working on what comes next. They’re busy evolving the tool to include an estimation model for the long-term effect of incrementality and lifetime value.
Our ultimate goal is that this will complement our existing incrementality model to help brands identify sales opportunities, organic ranking improvements, repeat purchases, and lifetime value driven via marketing.
Curious to find out how iROAS and CommerceIQ’s unique incrementality models can take your retail media management to the next level? Book a demo with our consultants today!