According to a September Fed survey, there’s a 52% chance the U.S. could enter a recession in the next 12 months. Already, many of us feel the pressures of rising inflation, a declining stock market, and growing unemployment. During downturns, marketing budgets are often the first to get slashed — so how can organizations effectively alter their paid media strategy?
1. Don’t increase return on ad spend (ROAS) targets
Often marketers approach economic downturns by increasing ROAS (return on ad spend). This is the wrong move as it prompts Google and Meta bidding algorithms to go for the lowest-hanging fruit, with these results:
- Conversions of existing customers: AI bidding systems tend to maximize conversions for existing customers rather than new customers, as there’s a lower cost per action. This approach means that there’s less budget to target new customers, which are essential to growing your business. AI bidding systems also can’t recognize the future value that might come from repeat purchases.
- Conversions of customers that don’t need ads: While retargeting and brand search campaigns deliver ROAS, they also take credit for conversions of individuals that might not have needed ads to convert. Lowering ROAS targets without recognizing impact means that paid ad budgets will be spent on campaigns with a low incrementality.
- Lower profit margins: Campaigns that promote discounted products often see a higher ROAS. However, they may be attracting customers that are only attracted by the sales, and are unlikely to have a high customer lifetime value (CLV).
So, even if ROAS increases, the overall business suffers with fewer new customers, lower incrementality, and smaller profit margins.
See how eCommerce brands drive more profits using CLV and Google Ads the right way in their paid media strategy.
Rather than ROAS, your marketing measurement toolkit should account for these metrics:
- New customers: Everyone knows it’s better to acquire new customers than to simply sell to existing ones. Step one must be to focus sales efforts on buyers who have never bought from your before.
- Long-term profit: Measure which campaigns attract new loyal customers with the most predicted repeat purchases, or a high CLV.
- Incremental impact: Know which campaigns to turn off first with little impact to the business, as these attract shoppers would still buy from you, regardless. Often, these are retargeting or brand search campaigns.
- Selling Costs and Returns: Measure which campaigns drive conversions with higher margins. To do this, deduct the cost of goods sold and predicted returns.
3. Prepare to adjust your paid search campaigns
Before tightening ROAS targets or switching off paid search campaigns:
Ask your marketing and analytics team to rank the performance of paid channels and campaigns based on both new customer acquisition and long term profit
Run incrementality and conversion uplift tests
Run a holdout trial to see which of your campaigns directly contribute to conversions.
Find out what uplift you can achieve if you provide the Google and Meta AIs with conversion data that includes the additional marketing KPIs above.
Use our free data audit to find out
Ready to boost your paid media marketing strategy further?
In order to benefit from predictive CLV on Google Ads and other ad platforms, retailers can equip their marketing technology stack, with the right tools, including Crealytics iCLV platform.
With Crealytics iCLV platform in-house marketing teams can:
- Bid higher whenever ads can target and convert new customers
- Save costs by reducing ad spend on low incrementality ad campaigns
- Supercharge performance reports with lifetime value and incrementality to see which channels drive true ROI
- Use a time-tested approach that has helped leading retailers, like Lands End (read the case study) and Foot Locker, grow ROI by double and triple digits by acquiring more high CLV shoppers.
Ready for more tips to drive profitable growth with CLV on Google Ads?
Download our free report on effective eCommerce marketing.
Geared to ramp up your paid media strategy?
Talk to our team at Crealytics.