Over the past few years, performance marketing has taken centre stage. There are many specialist agencies in the market today; their claim to fame is helping brands improve on leads or sales. I was also influenced during the initial days of this fervour, but over time I realised that there is something really wrong with the approach.
What is performance marketing?
Let us look at the various variables that come into play in performance marketing.
1. Input Cost - Cost per click (CPC) or Cost per mille impressions (CPM) or Cost per Install/Transaction, etc.
2. Click through rates (CTR) - this defined the number of clicks that were delivered per 100 impressions.
3. Click to Visits - The number of website or app visits that resulted from the clicks that are delivered.
4. Conversion Rate - The number of actions like leads, transactions, installs or downloads that are achieved for every 100 clicks or visits to the website.
As far as performance marketing goes, focus rests on the input cost with no understanding or analysis of rest of the parameters. This is precisely the reason why platforms like SEO, SEM, Facebook Ads, Ad Networks and Programmatic Buying, typically come under the purview of Performance Agencies.
Imagine a scenario where the input cost is really low, but CTRs or Conversion Rates are high. What happens in such a scenario? The CTRs could be low because of wrong targeting or wrong communication. Similarly, the Conversation Rate can be low because of wrong targeting, bad website experience or wrong product communication as well. Performance Agencies don't always have a say here as these parameters are controlled by another team or other agencies.
I have worked with an e-commerce company in the past for a performance campaign, where we did not know what happens to the user once he/she lands on the website or app. This means, we could only think of reducing the input cost. The pertinent question was - how much can one reduce input cost?
Today, anyone who has ever visited any e-commerce or travel site would have definitely been chased across the web with respective banners. It doesn't matter whether your intention was only research or research-and-purchase, or maybe you have already bought the product... the re-targeting ads will chase you regularly. The communication is often incorrect.
This means brands aren't able to understand the consumer's needs. The current hypothesis that every brand uses for implementing illogical re-targeting possibly is - 'The consumer has come to my website or app at least once. The chances of him/her buying are higher than for a new user.'
This assumption would have worked if there was only one e-commerce or travel site at the consumer's disposal, or if each user who was researching, bought products only online. Neither of these is true. So users are simply bombarded with ads for that one purchase.
The retail report by Google-AT Kearney says there will be a three-fold increase in online shoppers by 2020. The report also points out that a third of this segment will account for two-thirds of the transaction value. What this means for marketers is that there isn't much of an increase in the pool of e-commerce users.
In such a scenario, fragmentation of the ecosystem, which is on the rise today, will be one of the biggest challenges for marketers. Every data point that is being seen today throughout the customer journey is seen in isolation as the responsibilities rest with different stakeholders, internal or external.
The other challenge that agencies face today is - considering digital as an advertising medium, whereas it needs to be considered as a medium that impacts business. If that happens, then every stakeholder will have to start seeing things holistically rather than stick only to media or performance or creative or social.
The other challenge which performance marketers are going to face is - increasing the size at the top of the funnel. By investing a majority of the budget in re-targeting, Google, Facebook and programmatic, marketers are going back to the same valuable customers repeatedly.
This brings me to the question - 'How many shoes will you buy online in a year?' Unless brands start investing in getting newer customers to the sales funnel, they will face a tough situation in the days ahead.
Performance marketing is important, sure. However, the question that needs to be asked is - 'Is the current approach the right solution or should performance marketing teams integrate with the business completely to start seeing all the variables together?'
Only time will tell.
(The author is founder and chief executive officer, What Clicks, a digital media audit and strategy firm)