Marketers: Stop Obsessing About ROAS... Focus On THESE Metrics Instead

TL;DR

Relying solely on ROAS can limit growth potential.

Transcript

all right on today's show we're here to tell you that as marketing you've been measuring the wrong advertising metric this entire time we're going to tell you what you should be measuring and how you should be measuring and it's all inspired by something we read on LinkedIn and it was about a company we're going to tell you who who really messed up... Read More

Key Insights

• Focusing exclusively on Return on Ad Spend (ROAS) might not be the best strategy for long-term growth, as it often prioritizes easily measurable metrics over more impactful ones.
• The shift from ROAS to incrementality models can better capture the efficiency of growing new demand rather than just capturing existing demand.
• Incrementality models require measuring indirect returns through conversion lift studies, which can help understand the true impact of marketing efforts.
• Nike's reliance on programmatic advertising and ROAS led to a significant waste of resources, as highlighted in a critical LinkedIn post, emphasizing the need for a balanced approach.
• A marketing strategy should include direct ROAS, incrementality, and brand awareness, with each playing a vital role in capturing and creating demand.
• Relying solely on advertising can limit a company's growth potential, as it depends on external platforms to grow the audience rather than building an internal growth engine.
• Warning signs of an over-reliance on ROAS include rising costs per conversion and a focus on discrete measurement, which can hinder effective growth.
• Burst tests can help determine the maximum efficient spend on a platform, highlighting the need to invest in brand and incrementality to grow the market beyond direct ROAS.

Questions & Answers

Q: Why is relying solely on ROAS not ideal for marketers?

Relying solely on ROAS is not ideal because it focuses on easily measurable metrics that capture existing demand rather than creating new demand. This approach can lead to a saturation point where the market is exhausted, and growth becomes limited. A balanced strategy that includes incrementality models and brand awareness can help overcome these limitations.

Q: What are incrementality models in marketing?

Incrementality models in marketing measure the indirect return on ad spend by assessing the additional demand generated through marketing efforts. Unlike direct ROAS, which tracks immediate conversions, incrementality models use conversion lift studies to determine how marketing campaigns impact overall demand, providing a more comprehensive view of marketing effectiveness.

Q: How did Nike's marketing strategy become a cautionary tale?

Nike's marketing strategy became a cautionary tale because it heavily invested in programmatic advertising and performance marketing, which were easier to measure but less effective. This led to a significant waste of resources, as highlighted in a critical LinkedIn post, emphasizing the importance of balancing measurable metrics with impactful strategies.

Q: What is the significance of burst tests in marketing?

Burst tests are significant in marketing because they help determine the maximum efficient spend on a platform by saturating it temporarily. This allows marketers to understand the platform's demand capacity and plan their investment in incrementality and brand awareness to grow the market beyond direct ROAS, ensuring sustainable growth.

Q: Why is building your own audience crucial for growth?

Building your own audience is crucial for growth because it allows a company to control its growth trajectory rather than relying on external platforms to expand the audience. This independence enables businesses to grow faster and more sustainably, as they can create demand and engage with potential customers directly, rather than being limited by external factors.

Q: What are the warning signs of over-reliance on ROAS?

Warning signs of over-reliance on ROAS include a focus on the most direct and discrete measurement, rising costs per conversion, and an emphasis on minimizing overlap between marketing efforts. These indicators suggest a limited approach that prioritizes easy-to-measure metrics over a comprehensive strategy that includes creating new demand and leveraging brand awareness.

Q: How can companies avoid the pitfalls of Nike's strategy?

Companies can avoid the pitfalls of Nike's strategy by balancing their investment in easily measurable programmatic advertising with more impactful strategies like incrementality models and brand awareness. This involves understanding the true impact of marketing efforts beyond immediate returns and focusing on long-term growth by expanding market demand and building a strong brand presence.

Q: What role does brand awareness play in a marketing strategy?

Brand awareness plays a crucial role in a marketing strategy by creating a strong brand presence and engaging with a broader audience. It complements direct and indirect ROAS efforts by ensuring that the brand remains top-of-mind for potential customers, ultimately leading to increased demand and sustainable growth. Investing in brand awareness helps build long-term customer relationships and loyalty.

Summary & Key Takeaways

• Kipp and Kieran discuss the limitations of focusing solely on Return on Ad Spend (ROAS) for marketing success. They highlight the importance of incrementality models to capture new demand and emphasize the need for a balanced approach that includes brand awareness.

• The podcast episode critiques Nike's marketing strategy, which prioritized easily measurable programmatic advertising over more effective, but less easily measured, strategies. This serves as a cautionary tale for companies to avoid similar pitfalls.

• To achieve sustainable growth, businesses should not rely solely on advertising but also focus on building their own audience. This involves leveraging incrementality models and brand awareness to expand beyond the current market demand.