Integrate performance marketing and merchandising to drive margins in 2018

2018 Predictions: Performance Marketing

2017 has not been an easy year for retail. With tighter margins squeezing the industry forcing big name retailers such as Toys R Us filing for bankruptcy in 2017, getting the right balance of marketing spend and sale margins is going to be paramount going forward.

Performance Marketing will remain an essential part of every successful online sales strategy.

Performance marketing affects and is affected by two other key areas within retail: product price and inventory turnover. Yet, while pricing and inventory are often well integrated, performance marketing is left in its own silo. That will have to change in 2018.

In order to compete with powerhouses such as Amazon, retailers will need to expand their use of data and performance marketing will need to move out of it’s silo to work in concert with the other departments under a unified set of KPIs.

Performance Marketing and Pricing

Google, and other PLA (product listing ads) networks, include price competitiveness as an algorithm signal — if your product is priced much higher than the average, it is prohibitively expensive and ineffective for you to compete in the product auction, no matter how high you put your cost-per-click (CPC).

In 2018, more performance marketing teams will gain access to competitor pricing information and will be able to adjust bids based on how competitively priced their products prices are. Forward thinking companies will also begin to factor in advertising into their Price Elasticity Models allowing them to find the optimal price that will bring in the greatest margins at the lowest advertising cost. New elasticity models will be able to recommend optimal prices based on demand, competition and performance drive profitability.

Performance Marketing and Inventory

Managing the rate of inventory turnover is a constant struggle for merchandising teams, yet in 2017 our research discovered that 40% of product advertising budgets were being spent on products with good organic sell through and didn’t need the extra marketing push.

In 2018, performance marketing teams will gain access to ERP data allowing them to adjust advertising spend based on real-time stock levels and inventory turnover rates. To manage their inventory most effectively, retailers will learn to use stock level/turnover and competitor pricing data to determine which products would benefit from increased marketing activity or price adjustments for the greatest margins.

Performance Marketing and Automation

Fueling this shift to a more integrated retail marketing system will be an increase in Performance Marketing Automation. Everyone (especially Google) is talking about the automation of pay-per-click (PPC) and that soon menial task-type performance marketers could be out of a job. 2018 will see greater numbers of retailers move their day-to-day performance marketing activities to algorithm driven software. This shift will allow marketers the freedom to focus on driving ROI through better attribution modeling, increased collaboration with other teams and new KPI tracking.

Performance Marketing KPIs

Digital ‘maturing’ through automation and increased cross-departmental co-operation will bring more integrated KPIs which are meaningful to the business overall, instead of single department silos. For performance marketers in particular, this will mean a move away from return on advertising spend (ROAS). Instead, marketing activities will be measured against profit-driven KPIs such as Customer Lifetime Value (CLV) and New Customer Rates.

These new KPIs will mean the development of new more robust attribution models that can incorporate more data and the insights from which can be applied across the organization. New models will especially be looking to solve the incremental issue of making sure each advertising touch point adds enough value.

Unified Performance Marketing

It’s impossible to make smart decisions if you don’t understand each piece of the marketing trifecta (advertising, pricing and inventory) and how it relates to the other parts. We are now likely to will see more retailers taking steps to align these channels and focus their whole business on a single set of mutually beneficial and coordinated metrics.

A truly effective performance marketing strategy will be one that makes decisions based on price competitiveness, inventory sell-through rates and stock levels. Marketing departments will work towards new, company-wide metrics that promote true profitability instead of individual siloed success.

Andreas Reiffen, Founder and CEO, Crealytics.

Join Crealytics at The Drum's Predictions Breakfast on Thursday 25 January.

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