How to approach the measurement of Campaign ROI
This is the latest in a series of articles designed to help shopper marketing managers and directors optimise their work and deliver a positive and increasing ROI for their businesses. The author is co-founder of shopper agencies Capture and Lobster and is a director of Shopper Media Group.
Shopper marketing, as regular readers of this blog will know, is the most measurable form of advertising there is. But with shopper teams in FMCGs often placed - or should that be caught? - in between sales and marketing, the question of how to provide robust and comprehensive campaign ROI measurement can be tricky. The purpose of this article is to give a primer on how to bring the various data sources available together to produce a measurement that can help the whole organisation.
Start with what happened in-store
Using activity store lists we first construct an activity overlay Venn diagram and select groups of stores (sometimes called ‘cells’) to serve as potential Test and Control groups.
The analytics based on these groups give us very accurate measurements of sales uplift, but this is only part of the equation of measuring the ROI of the total campaign.
ROI is defined as total benefit divided by total cost. If the answer is greater than 1, the activity generated more benefit than it cost. But there are many definitions of benefit, so it’s crucial to capture them all.
Our first task is to quantify all the sources of benefit. In a typical grocery or convenience shopper marketing activation campaign these can be broken down into
1. Price promotion / deal
2. Creative overlay
3. Secondary display
4. Retail media
1 and 2 are factors that are ‘national’ or account-wide whereas 3 and 4 are store-specific. Let’s assume that the objectives of the campaign in crude driving sales volume and reaching shoppers with a campaign message:
The effect of price
Reading the table above, we can see that there are 3 different ways of measuring performance. The effect of price will always be felt in all stores, so it’s necessary to approach this looking at the whole sales line using a pre-post methodology. By its nature this will include the effect of all advertising activity including shopper marketing activity which may have a disproportionate effect, especially if it involves secondary display. So it’s important to try and get to a ‘clean’ understanding of the effect of price. This may already exist in your business - if not, start a project now to continually gather a record of price deal activity and use time series sales data and an understanding of what other activity has taken place to create some internal benchmarks on what happens to sales when different deals are used. Hint: looking at online sales can offer an easier environment to isolate price since there is usually only one version of the e-commerce site.
The effect of creative
In this example we’re assuming there is a single creative execution, so the comparator here will be previous activity using the same touchpoints. So we approach this as an indirect measurement, by comparing the performance of other, repeatable and comparable elements with benchmarks. Eg. we can see that Digital 6 Sheets performed slightly better or worse than the benchmark norms, and the difference in performance we can attribute to the essential nature of the campaign: the idea or shopper overlay, remembering of course that brand and category will play a role.
Secondary display and shopper media we can approach via a straightforward Test and Control study. It’s essential here to try and isolate the effect of the variable we are attempting to measure. This depends on an accurate Venn diagram campaign plot being constructed (see example).
Whole vs ’sum of the parts'
The final factor is the interplay between different elements. For instance, the Secondary display may deliver a huge incremental sales benefit, but was actually negotiated not just with the directly applicable gate fee, but also the shopper media investment being factored in. That’s why it’s essential to assemble all the elements in one table. We’ll now add on two more columns as shown below.
* See explanation below for recognising the cost of a promotion.
** See explanation below for Leveraging
Why price activity is different
There are many ways of running and funding price deal activity. We’re assuming a margin maintenance promotion, which means the cost is the 'loss of realisation’ (LOR) of gross (Retail Selling Price) and net sales to the manufacturer, which is offset by the increase in sales volume. In this example, a 25% discount to the shopper and % margin maintained to the retailer, a 150% increase in sales volume would be offset by a 25% reduction in gross and net sales per unit because of the promotion.
Promotional strategy and planning is a huge topic, so for the purposes of this campaign ROI calculation we will assume that the price deal agreed as part of this campaign returns a net positive gross and net sales position for the brand with no other activity supporting it. The key point here is that since the promotion is in all stores, its role in this calculation is to change the baseline upon which everything else operates.
Retail Sales Value and Net Proceeds of Sales
Now that we have calculated our weighted ROI in the table above, we can bring in a net sales calculation to reflect the net proceeds of sales position by removing the retailer margin. This is as simple as taking the manufacturer’s gross margin rate and calculating the result from RSV, remembering to factor in any price deal margins and volume overriders.
Leveraging spend in the commercial agreement with the retailer
The other piece of the puzzle that is often missed off is the power of leveraging. This particularly applies to shopper media, where the negotiation of the promotional and secondary space slots may be subject to a commitment of a particular £ amount investment in shopper media - the revenue of which goes, of course, to the retailer. It’s crucial to capture this information as it can often make an enormous difference. You can see in this example above where the secondary display delivered an ROI of £7.50 and the shopper media only £1.40. However, without the investment in shopper media, the display would not have been secured. This shows why we need to consider the full, weighted ROI and not break it into parts that can’t function independently.
- Define benefit measurements up front. Not all campaigns will have sales uplift as the source of ROI (it could be impressions or trial for instance)
- Track costs and benefits line by line. Understand the numbers and commercial commitments behind the promotional plan
- Calculate a ‘campaign weighted ROI’ by performing ((sum of benefits) / (sum of costs)) not an unweighted average
- Show ROI at both RSV and NPS levels
- Track commercial leveraging and show this in the table
If done correctly, the shopper marketing team can make a huge difference to the objectives of both the sales team and the marketing team. It may sound fiddly, but a sound approach to ROI measurement is a big piece of the puzzle. If you need any help with this, please get in touch. And as ever, good luck!