WRITTEN BY: Ben Cedarberg
Most retailers and industry publications are now sliding into full-time holiday planning mode. While there is no question the peak sales weeks in November and December are critical for retail sales, I shake my head each year at the mistakes repeated by digital marketers. Like a herd of reindeer harnessed together, many retail marketers cannot seem to resist following their competitors.
Just today, for instance, I read a report indicating that the peak days from Black Friday to Cyber Monday will again experience the largest paid search ecommerce revenue growth of the quarter. The misguided interpretation I most commonly observe is “I’d better plan to ramp up my search spend even higher those days: I don’t want to lose share to my competitor!”
While this plan seems intuitive to many marketers, Ovative’s years of experience advising and managing digital media for many national retailers lead us to often recommend the exact opposite action.
Our testing and analysis make it clear it is usually more profitable to leave the after-Thanksgiving bidding mania to your competitors.
So, what is the rest of the herd missing? Simply put, most retail marketers are targeting the wrong objective.
Caught up in the holiday-ecommerce-sales-driving excitement, they believe (or misguided leaders told them) their job is to drive the most ecommerce revenue during the most important days of the year.
There are two major flaws in that objective:
- It focuses on the wrong revenue metric.
- It fails to consider profitability.
Target the Right Revenue Metric
When thinking about revenue, marketers should focus on driving incremental enterprise revenue with their media investment.
- Think incrementality: A huge proportion of revenue traditionally attributed to paid search comes through brand keywords. Our controlled testing shows very little of this revenue is incremental, particularly during peak sales periods. Meaning, something else drives much of the paid search revenue proudly reported by the industry, and that revenue would have happened anyway. Seasonal consumer behavior should get most of the credit, not paid search ads customers click after they decided to buy. In fact, we have found the same low incrementality is often present in all forms of media and even the promotions many retailers run during peak. With effective measurement in place to remove non-incremental revenue from ROI figures, peak days are not nearly as attractive for investment in media or promotions.
- Think enterprise (ecommerce + stores): Most retailers drive far more revenue through stores than online. Even in paid search, we typically see several times more revenue driven via stores than through websites and apps. By considering ecommerce alone, not only do marketers under-value their media’s impact, they invest in the wrong tactics at the wrong times. In particular, non-brand search and product ads drive a far higher proportion of revenue in store than online, and as a result are often underfunded relative to other media tactics during holiday. In addition, while ecommerce sales peak in the days immediately after Thanksgiving, store sales and new customer acquisition are heavier in the following weeks, suggesting an entirely different investment timing.
While ecommerce sales climb fast during peak days, costs climb faster. Holiday peak can be the least profitable time of year to compete in paid search. We recommend letting your competitors win the race to unprofitability while you invest during more profitable times.
- Consider media costs: Manic competition drives paid search cost per click far above normal levels. While conversion rates and revenue per click rise, we see many marketers increase bids even more, resulting in lower ROI. Most marketers would be better shifting their limited media budget into lower-cost periods before and after peak days.
- Consider promotion & fulfillment costs: Media is not the only thing with higher cost during peak ecommerce days. Some of the deepest discounts of the year and highest fulfillment costs cause after Thanksgiving days to have some of the lowest profit margins of the year.
After measuring revenue properly and accounting for the extra costs, we typically find that retailers will drive far better total results by shifting a substantial portion of their paid search and other media budget out of the peak ecommerce sales days and into the weeks before and after.
As tempting as it is to “beat” your competitors during some of the most important days of the year, challenge yourself and your leaders to break from the herd. Ask critical questions about how you are measuring revenue and counting costs, then set a thoughtful plan that maximizes your enterprise’s results for the full holiday season.
Leave the reindeer games to your competitors. Let them celebrate this peak’s record wasteful media spend without you.