Tuesday, September 28, 2010

eCommerce Rule #6: Only lemmings focus on last-click marketing

Since the advent of online advertising, the conventional wisdom among Web marketers is that the provider of the “last click” that delivers a user to a particular Web site before a purchase “closed the deal”, and therefore deserves all of the resulting ROI credit. Consequently, for years, Web marketers have been determining where to invest their online marketing dollars based on the last thing someone clicked on before converting.  This methodology has serious shortcomings.

One is that it discounts the classic “marketing funnel”. The marketing funnel is a relatively old-school marketing concept but remains very relevant today. It describes the manner in which most consumers go about making purchasing decisions. In the beginning, consumers cast a wide net—just like the wide top of a funnel. They do broad-ranging research and consider a number of products from a number of providers. But then most consumers start to narrow their choices. Their research becomes more targeted, and they look at fewer products as they figure out what they really want. Finally, they’re at that narrow bottom of the funnel, having decided on the one product that best suits their needs.

But the last-click methodology ignores this critical funnel concept. If a consumer visits, say, a number of Web sites several times over many days (including a few visits to BestBuy.com), weeks or even months before making a purchase—and is exposed to a wide variety of online media during that time period—why does the keyword he clicked on right before buying a new computer at Bestbuy.com get all the credit for his new laptop purchase? It doesn’t make sense.

Another big problem with last-click marketing is that last clicks are often just “navigational” searches: Consumers use sites like Google and Yahoo as search engines, but also as navigation engines. What we mean by “navigation engine” is that a user already knows where he wants to go (to look at a particular printer on the Staples Web site, for instance) but is using a search engine to get there quickly. Consumers have been trained to behave this way because the internal-search capability on most Web sites is quite poor. Consider: A Google search for “Staples HP Laserjet 1200 toner” yields a link to the relevant page on Staples.com as the 6th result. But a search for “HP Laserjet 1200 toner” on the Staples.com web site yields 15 incorrect links ahead of the target page. Searching with Google is actually more efficient than searching the retailer’s web site directly. This is important because it means the marketing channel that drove a customer’s first visit (e.g., a comparison shopping engine (CSE)) might be more valuable than the channel that drove the last visit (e.g., Google search for “Staples HP Laserjet 1200 toner”).  But again, with last click, marketers are told to invest more in "Staples HP Laserjet 1200 toner", and less in the CSE, even though that CSE was what exposed the consumer to Staples in the first place.

None of this mattered much until recently. Through 2008, traditional, last-click online marketing had consistently provided a highly attractive ROI with ever-increasing customer volumes. But lately, competition for customers among online marketers has intensified; more marketers are buying online keywords and bidding up their prices. As a result, e-tailers have to spend more money to acquire the same number of customers. What was once a highly attractive ROI has become less compelling. It’s time to sharpen your pencil.

It is becoming increasingly clear that attributing “conversion credit” to the last marketing link a user clicks before making a purchase is highly flawed. More often than not, the last-click approach rewards navigational keyword searches. More troubling, it incents online marketers to stop investing in the top-of-the-funnel marketing sources that actually acquired the customer in the first place. Nonetheless, the last-click methodology is ingrained in widely used Web-analytics offerings like Adobe SearchCenter (fka Omniture) and Google Analytics. These analytics companies make recommendations about keyword bidding and other online marketing strategies based on that obviously flawed methodology.

A new breed of marketing analytics vendors including Convertro (another BVP portfolio company) are pioneering a much more intelligent approach. These companies adhere to a concept called, fittingly, “multi-attribution.” In multi-attribution, credit for a purchase is distributed across every marketing event that drove a consumer to a particular Web site, instead of just allocating credit to the last one.

You’ll be shocked by how the multi-attribution approach will prompt changes to how you allocate your online marketing dollars. (Hint: most affiliates won’t like it, and neither will Google’s AdWords team.) We’ve seen companies use this new approach to suddenly increase their return on ad spend (ROAS) by more than 50%, even though they thought they’d tapped out their online-marketing effectiveness.

Speaking of online marketing allocations, display advertising has played the part of the ignored, ugly sibling of search advertising for far too long. Marketers have often embraced a spray-and-pray approach to display ads and haven’t known how to measure their ROI (a cause that wasn’t helped by the last-click paradigm). This is changing thanks to retargeting companies like Criteo (in the BVP portfolio). With retargeting, a merchant is able to show a display ad to users who visited the merchant’s site but didn’t buy anything. Later, when those users are on a third-party site, a retargeting ad promotes the merchant’s brand. The hope is that the ad will draw the user back to the merchant’s online store. Some retargeting companies, like Criteo, take retargeting one step further. Instead of showing only the company’s brand in the display ad, they show the actual products the consumer browsed (or, even better yet, related products that the consumer may have missed). Retargeting has fast become a must-have tool in any online marketer’s toolkit. If you don’t retarget your visitors, your competitors will.

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