December 6, 2023

Measuring Incrementality: The Ultimate Guide for Ecommerce Marketers Seeking True ROI

Mark Fauntleroy

Measuring Incrementality: The Ultimate Guide for Ecommerce Marketers Seeking True ROI

Are you spending your ecommerce budget wisely? Do you see additional gains for every distinct marketing investment? Are you achieving true incrementality?

The question of incrementality is one retail marketers seem to be increasingly asking themselves, and also asking of their agencies or marketing partners. It’s natural to anticipate that allocating a new budget will produce a lift in results unattainable without that investment.

Whether it’s an increase in spend on search, an allocation of budget in social marketing, bidding for placements in commerce content or on a new mobile shopping platform, incremental return is a primary focus. With so much fragmentation of choice in the marketplace, advertisers need to know what works and what doesn’t and you can’t be faulted for insisting that any new spend deliver additional returns.

How Do You Define Incrementality?

Whether incrementality is being achieved may initially seem to be a simple question. After all, there are many ways to measure marketing results these days. But incrementality is actually an elusive concept.

Consider first that incrementality has a variety of definitions. For some, incrementality is about a very specific and quantified measure of lift (10% increase in sales, 15% improvement in new customer rate, etc.). For others incrementality might be about something more abstract, difficult to measure and qualitative like diversification of audience segments.

By the strict definition of the word, any positive ROI is incremental. However, in the advertising world we ascribe a more difficult definition to incrementality. Here the test of incrementality is an outcome that wouldn’t have occurred without a specific marketing interaction. In other words, a particular product ad impression must contribute to a conversion to be counted as incremental.

Layered atop the requirement of an attributive interaction is the idea that a spend on marketing should not be duplicative. No one wants to pay twice for the same results. Some marketers take this further still to insist that to be incremental a marketing opportunity must be something they can’t get elsewhere, inaccurately confusing incrementality for exclusivity.

All of this inevitably leads to the search for guidance on incrementality and where to find a definitive method for measuring it. But reading any number of industry papers, case studies or blog posts you learn that there is no single definition of or measurement for incrementality within the ecommerce industry – at least not one that everyone points to as the agreed standard.

What We’ve Learned

Ask 10 marketers to define incrementality and you’ll get 10 different answers. That’s exactly what Connexity has done. In our experience, when marketers seek incrementality, what they ultimately articulate spans a number of different requests including, but not limited to:

Tap new sources of traffic

Increase impressions within a channel

Find new, unseen shoppers

Grow sales beyond previous results

Take market share from competitors

Lower my cost of sale

Beat the KPI of a campaign goal

Diversify to new market segments

What you see in these statements is a wide range of business needs. The measurements of each are so different they don’t fit under a single definition for incrementality. However, upon closer examination, all of these needs coalesce around two main focuses.

Increase opportunity – tap new sources, increase impressions, find new shoppers

Improve performance – grow sales, take share, lower COS, beat KPIs

As a marketing partner to all types of retailers with varying goals, Connexity thinks of incrementality under these two constructs – Incremental Opportunity and Incremental Performance.

Incremental Opportunity

Your end goal might be stated as an increase in new sales, but more sales requires finding additional chances to capture those conversions. Depending on the scope of your existing marketing efforts you may need to explore various strategies to gain incremental opportunities.

Maybe your current budget allocations are concentrated in only a few channels. Increasing the number and variety of traffic sources you access might deliver new shoppers. Different sources could also increase exposure at touch points in the shopper’s journey when they are more inclined to buy or more open to being influenced.

Perhaps you already spend in diversified channels, but aren’t seeing enough referred traffic from those sources. In a world where sites are scrupulously optimizing their content monetization, the answer could be finding ways to prioritize your consideration in placements or incentivizing publishers to create whole new content placements. Here, the measure of incrementality might be an increase in impressions or an increase in clicks on offers.

Incremental Performance

Once you begin expanding opportunities, you’ll want to understand how those opportunities are managed. Allocating budgets alone doesn’t get the job of incrementality done. Budgets need to be optimized to perform in the opportunities you access.

Setting a clear goal and identifying KPIs to track is the first step. This is how you’ll typically communicate about campaign success, whether internally or with a performance marketing partner. Those KPIs might be thought of as the final metric to use in measuring incrementality. However, there are more discrete markers of incremental performance to keep in mind.

A performance marketing partner carefully optimizing to your goals might talk to you about things like an increasing pace of sales as access to sources is added. They might point to metrics that indicate delivering a higher AOV than previous benchmarks or an improving COS trend over time as CPA or CPC rate ranges and placement bidding algorithms are continually refined. These and other metrics like them compounded together may drive progress toward a broader incrementality goal you set measured on sales targets or ROAS.

Finding Confidence In Measurement

You should be seeking confidence in measuring incrementality. It’s a topic you should discuss with agency and marketing partners. But keep an open mind. Some measures for incrementality may not fit into the narrow parameters for a classic holdout test or into complex marketing mix modeling methodologies. There are many more than one or two ways to think about and to measure incrementality, and incremental opportunity along with incremental performance should both be considerations in those measurements.

Measuring incrementality with confidence and learning where you can find incrementality will give you more control over how to spend your budget and will help your company gain market share. The sources you access and the partnerships you develop should be able to demonstrate their ability to scale incrementality and to meet or beat goals with consistency. At the end of the day good ROI and confidence in your ability to spend with certainty is ultimately how to find sustained growth.

Check back here for part 2 in our blog series to learn more about what you can do to enable incrementality.

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