Thanks to AI advances, costly mistakes and the rise of customer-centricity, finance departments will dominate the future of performance advertising.
As recently as two years ago, boardrooms everywhere had their media strategy all worked out. When it came to performance marketing, ROAS was the goal and the sky was the limit. Executives sank their budgets into lower-funnel campaigns guaranteed to deliver. Budgets soared.
Some of the biggest names in retail swore by this approach. They had the sharpest PPC brains at their disposal. All they had to do was execute – and trust in the numbers.
Then things fell apart. Gradually, companies realized an uncomfortable truth. The numbers meant nothing – they had been burning their budgets for years. Headlines on Topshop, eBay and Adidas told the same story: they’d backed the wrong horse, overinvesting in areas with little value. Swift divestments followed. In some cases, budgets for display retargeting rolled back as much as 80%.
“Upon review, we didn’t’ believe [retargeting] was driving the revenue we were led to believe it was”
Sabino Petruccelli – Arcada’s group head of digital marketing.
But old habits die hard. Agencies know that the bigger the budgets, the better they do as a result. Unsurprisingly, many push retailers to spend heavily despite little tangible return. A vicious cycle ensues. Marketers given tough ROAS targets will reach for the most efficient lever to hit them (spoiler: it leads to more of the same).
Thankfully, a collision of two major elements should shake the industry into action. It will lead to a very different future in terms of how decisions are made.
Performance advertising: catalysts of change
Firstly, retailers are finally wising up to what they spend their budgets on.
Costly mistakes have delivered a wake-up call in the form of forensic measurement standards – and the adoption of customer-centric as opposed to top-line, revenue-oriented campaigns. ROAS still dominates today’s conversations, but leaders now recognize that it doesn’t align marketing execution with organizational goals.
You can still be wildly efficient in your performance marketing campaigns, but fail as a business. Smart advertisers know that the inclusion of margins and new customer value as a metric can align marketers and finance towards the same objectives.
Furthermore, ushering in Customer Lifetime Value as the default goal ensures that all parties pull in the same direction. And for good reason. It moves them from short- to long-term value, from top- to bottom-line numbers and changes the measurement conversation from conversion to customer.
Even private equity firms have woken up to this. At a recent Q&A on the subject, Wharton School of Business Professor Peter Fader advised investors to measure company valuation by customer, as opposed to brand, equity.
Then there’s AI. Media management platforms like Google’s Smart Bidding continue to improve. When Crealytics’ BI team first explored the latter’s effectiveness last year, the jury was out on certain features. It now outperforms third-party tools comprehensively, albeit for ROAS targets.
At face value, this “leveling up” for retailers who use it is a good thing. However, it also eliminates any competitive differentiation that came from out-of-the-box bidding strategies. Shrewder performance marketers – those looking to stand out in an AI-driven world – have learned to adapt these systems to achieve smarter goals.
The process for achieving this deserves its own article. But rest assured, by using smarter data ingestion, advertisers can quite easily incentivize algorithms to chase down more valuable targets.
Finance skills: more important than ever
This sets the scene for more than just convergence between Finance and Marketing departments. Now – and in the future – the latter must adopt Finance’s best practices to get ahead. If they don’t, strategic decision-making might well fall to Finance exclusively.
How so? Simply put, the rules of the game have changed. When campaign-centric, top-line revenue called the shots, the marketing toolkit at the time (composed of pre-AI bidding systems, retargeting techniques and non-incremental metrics) did its job perfectly.
Today, customer-centricity and bottom-line numbers hold increasing sway. In a world where automation can take care of campaign (i.e. marketing) nuances, the modern-day toolkit fits more naturally in the hands of Finance.
Think about it. Accounting for exact margins suits a culture of precise measurability. Driving new customers and repeat purchases aligns with long-term, financial health planning. And customer lifetime value dovetails with enterprise-wide objectives.
A Data-Driven Future
A desire for fully attributed numbers – ones corrected for incrementality and with a view toward long-term value – stands to change company dynamics forever.
Organizations will simply set up their media management platform and let it run. The logical conclusion? It falls to Finance teams to pick a scenario in line with company requirements, and use the resulting numbers to forecast appropriately.
Say a retailer overestimates their lifetime value; they notice from their reports that shoppers in LA are more loyal than those from Boston. In this case, all they’d need to do is adjust their CLV models to be more reflective of that reality.
It’s the same for tweaking incremental value. Adjust the numbers, refine the ingestion and hey presto: optimal decision making.
In the future, AI will erode any real need for tactical considerations. As such, we should anticipate a far greater data play. Tomorrow’s performance marketing winners will be those who can measure most accurately, ingest the right data, and make better budgeting decisions as a result.
Of course, this won’t happen overnight. Plenty of retailers still worry about operational headaches. But shifting ad groups from A to B will only remain so long as an existential challenge. And when mindsets change, we can expect Finance to play a bigger role than ever before.
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