The Problem With Channel Attribution: Developing Marketing Metrics for Future Spend and Budget Allocation
Consumers today interact with brands in a variety of ways and across multiple channels. With an abundance of touchpoints, how can marketers accurately attribute leads and conversions?
Attribution is the method by which sales revenue is tied back to various marketing initiatives. This often drives marketing metrics and enables future spend and budget allocation. Ideally, revenue dollars should only be counted once and linked to the appropriate marketing expenses to calculate an accurate ROI.
There are many different methods for attribution with different degrees of accuracy and complexity. Traditionally, revenue has been assigned back to the last marketing campaign prior to the consumer's purchase. The problem with this model is it ignores the multiplicative effect that more than one touch can have on purchase behavior and responsiveness, and the role of other broad-reaching media in the marketing funnel. The true cost per order is not taken into account and the various marketing efforts that led to the last touchpoint may not receive proper credit.
An example of this is commonly found with search terms. Many databases only store the search word used at the point of purchase. However, display advertising has proven to increase brand-related search terms. As savvy consumers research purchases, they're likely to have tried multiple search terms before arriving at a particular marketer. This information is lost and would not be considered in the traditional attribution model.
Many marketers intentionally or unintentionally target the same individuals multiple times. We're quick to look at overlap within a channel—through direct mail merge purge for a single campaign for instance—but rarely across channels and campaigns. Without proper attribution and a sophisticated marketing database, companies run the risk of overstating new customer acquisition totals when two different channels count the same buyer as a conversion. In addition, the impact of multiple marketing efforts can be more than the sum of the individual contributions. When this occurs, we see a "synergistic gain" in response and sales generated. Methods need to consider all touchpoints a customer or prospect encounters when determining the true profit/loss per sale.
"Fractional Allocation," which counts revenue only once and distributes the dollars proportionately to the appropriate channel to avoid double counting, is the preferred method. It provides the clearest view and takes into account activity across channels.
Testing helps marketers determine the impact of multiple channels on purchase and response rates, as the results may vary by company. However, for some this may be too complicated or they can't afford a system that does it for them.
Fractional Allocation can be quite complex. The good news is that marketers can still find answers to their questions by planning simple tests up front so they can track beyond a single mailing to count all of the media being received for a period of time in a controlled setting.
For example, during a 3-month period, Group A received one direct mail, 12 emails and 10 targeted ads, generating Y dollars. ROI is measured by totaling all costs and burdening it against all sales generated by that group. If the overall performance of Group A exceeds the performance of another test group with a different media/contact mix (Group B, Group C, etc.), then the marketer can compare the ROIs of the different strategies and choose the strategy that best meets his need.
We encourage our clients to leverage data about consumers to reach them across a variety of channels, when and where they want to interact with the brand. The same approach should be leveraged for attribution, whereby data is the key to understanding how each touch has impacted the relationship and ultimately purchase behavior. This data includes promotional history and advanced order placement details which can be maintained in a marketing database. As we look ahead and think about budget allocation, channel attribution should be a critical driver of your marketing decisions.