Budget Allocation Isn’t the Issue, It’s Measurement

Amazon Ads is the third most popular digital ad channel, as one in every eight digital ad dollars now goes to it. It’s a win-win for everyone involved. Consumers find the right products more easily, brands reach online shoppers closer to the point of purchase, and retailers have new high-margin revenue streams.

While every new advertising channel has its challenges, marketers are facing a new kind of problem with retail media. Unlike with paid search or social that have very few publishers, the proliferation of retailer networks can be overwhelming. According to a report from Merkel, it seems like every one to two months, a new retail media network is born.

Skai integrates with Amazon, Walmart, Target, Instacart and 30-plus other retailers. While this growth signals a very healthy future for the channel, the proliferation of publishers creates new complexities to unlock its maximum value. One such area is in budget allocation.

Budget Allocation: Fixed or Fluid Approach?

The No. 1 question for most retail marketers is how best to allocate the annual budget. Is it all set beforehand, or should the team have the fluidity to move budgets around? 

We asked marketers about budget fluidity in a retail media survey conducted earlier this year. Less than 2% reported having completely fixed budgets. 

To better illustrate why fluidity is becoming the dominant approach, let’s first examine the pros and cons of a fully fixed plan. 

In a fixed model, publisher budgets are set annually and only reconsidered at key times throughout the year. Pros: The retail media team doesn’t get distracted by where to allocate the budget. Rather, they can be laser-focused on optimizing these fixed investments for maximum return. Cons: This approach presumes all retailers will continue to drive value at the performance levels which were evaluated during the planning phase. Also, it doesn’t allow for flexibility to move budgets around throughout the year to follow the best-performing campaigns and retailers — or to take advantage of emerging publishers entering the market. 

With a fluid approach, retail media marketers allocate budgets based on results. If one publisher begins to outperform against expectations, money can be pulled from low-performing retailers and reinvested. Budget fluidity ensures that spending is not siloed, which could limit the total return. It enables the investments to follow performance and opportunity.

Another question from our survey points to the heart of the problem here. When asked what their biggest media challenges were, the top two answers were measurement and optimization. 

This is highly worrisome because results drive fluid allocation decisions. If you can’t measure success, your optimization decision-making is flawed. 

Best Practices for Measuring Retail Media Performance

Bad marketing measurement is like trying to navigate in the woods with a compass that you have no idea isn’t working right. You’ll be very confident in your decisions, but the chances of making it back to your car become slim to none. 

The end results of poor measurement? A misunderstanding of the customer experience, misaligned data & measurement, and missed opportunities for new engagements with your customers.

Here’s what we’ve seen from our most successful retail media clients: 

Set metrics at the business goal level. Don’t limit goal-setting/allocation purely based on advertising KPIs. Maybe in paid search or paid social it’s all about vanity metrics, but online retail is a completely different ecosystem. You have to consider stock, inventory, retailer profitability and the supply chain. 

Maybe your brand teams are trying to grow market share or build awareness for new products? Bad optimization efforts could limit their success in a major way. Make sure you’re taking into account all factors and downstream impact before you evaluate a campaign.   

Stay customer-centric. The marketing funnel may be a bit outdated, but it still offers a wise perspective. Retail media marketers should understand and split their budget “by programs by publisher” into the four classic AIDA buckets — awareness, interest, desire, and action. This is a much more granular approach and allows for the budget to flow to the most optimal areas. 

For example, on Amazon.com, your daily vitamin program might need more awareness media, but on Walmart.com, it needs less. Maybe your prenatal vitamin program needs more consideration/interest investment on Walmart.com — and on Target.com too. 

By staying consumer-centric, you can ensure that your entire retail media is holistically healthy. Marketers must use the right metrics for each stage — awareness media shouldn’t be held to the same KPIs as conversion media and so forth. 

Test-and-learn. Not only should budgets remain fluid, but the measurement philosophy should be fluid too. Why? Because no measurement framework is perfect. The retail market is simply too volatile, too complex, and evolves too quickly for marketers to rely on fixed measurement.

Great marketers know that a test-and-learn approach is critical to success for two reasons. First, testing hypotheses enables marketers to continuously calibrate their measurement approach. Am I bidding too much or too little? Does message A or message B work better? If I double my investment, does it also double sales?

Second, a test-and-learn mindset helps marketers to generate insights they don’t have. Let’s say you want to put up a shelf in your bathroom, but you don’t know what size to buy. Just like measuring the wall space helps you make that decision, marketing experiments can get you the data you’re missing.

Solve Measurement, and Budget Allocation Is Easy

These are just a few ways that we’re seeing our top clients approaching marketing measurement/allocation. Ultimately, the right approach is never one-size-fits-all. It requires each organization to understand the brand-customer relationship and how it’s best impacted and influenced along the way by advertising.

Publishers are growing so it’s important now for marketers in this channel to find a solution to proper budget allocation. But it’s not hard when your measurement is on point. 

About the Author: Nich Weinheimer is general manager, strategy & commerce, at Skai.