Beyond Incremental Revenue: A Nuanced Approach to Assessing Marketing Channels

One of the biggest questions brands ask when considering a new marketing channel is, “How much incremental revenue is it expected to contribute?” It's certainly an important consideration, as incremental revenue directly influences retailer margins and profitability. However, incremental revenue isn't the only game in town which is why retailers should adopt a more layered approach when evaluating the effectiveness of new marketing tactics.

It’s best to take a nuanced approach to assess incrementality, including the impact of new vs. returning customers, average order value (AOV) increases, and conversion rate improvements. There a few areas in which brands can successfully leverage an incrementality strategy to achieve revenue goals over the long run. Here are three tips for doing so:

1. Address the unique value of new and returning customers.

When evaluating performance, it's essential to distinguish between new and returning customers referred from a new tactic. Each type of customer offers unique value to the retailer.

New customers represent successful branding and pricing/promotional strategies, and indicate market growth. They typically increase the size of the customer base, creating another entry in the opt-in email database, text messaging program, or catalog mailing. Ideally, the brand can next begin following up with those new customers in the hopes they will become repeat customers over time, contributing to future sales without the cost of new customer acquisition.

These returning customers indicate brand loyalty and recurring revenue. They typically have higher lifetime value, and retaining them costs less than acquiring new customers. Another “sub-metric” that indicates incremental success of returning customers is whether those customers are returning to purchase more often, or are increasing the size of their purchases.

Retailers should analyze how a marketing tactic influences both new and returning customers. Did the tactic primarily attract new customers or drive existing ones to buy again? A marketing tactic that brings in a significant number of new customers can be invaluable for long-term growth, even if the immediate incremental revenue isn't substantial. Conversely, channels that excel in re-engaging past customers might lead to more consistent, predictable returning customer sales, and can boost those customers’ lifetime values.

2. Evaluate impact on average order value. 

Another crucial metric to consider is AOV. For this metric, incrementality isn’t just about bringing in more customers; it’s about increasing the value of each customer’s transaction. Marketing strategies that encourage customers to spend more per order can significantly improve total revenues. Personalized recommendations, bundling, upselling, and “buy-more-save-more” promotions can be effective ways to increase AOV.

Retailers should evaluate how their marketing channels influence AOV. Those that increase the average spend per customer can be highly valuable, as greater AOV ultimately enhances total revenue without necessarily increasing per-customer acquisition costs.

3. Utilize tactics to drive conversion rate increases.

Conversion rates are another consideration for assessing marketing channels. A high conversion rate from a given channel indicates that a significant portion of website or app visitors from that channel actually complete a purchase. It’s a clear indicator of the effectiveness of the marketing strategy and success at reaching the intended target market with appealing products.

Various tactics can drive higher conversion rates, such as optimizing landing pages, enhancing the user experience — including delivering personalized offers, recommending  products, and improving the checkout process — limited-time offers/promotions, offering loyalty rewards or cashback, and employing retargeted ads.

Retailers should measure how well each of their marketing channels convert referred visitor interest into sales. For instance, a well-executed email marketing campaign might not only bring customers back but also convert those visits into purchases at a higher rate.

The Big Picture

While incremental revenue is definitely important, a singular focus on that metric can lead to missed opportunities. Retailers must take a holistic view when assessing the impact of their marketing channels. By considering factors such as whether a shopper just made their first purchase or is a repeat customer, impacts on AOV, and per-channel conversion rates, retailers can make more informed decisions that allow them to think beyond incremental revenue alone. Adopting this nuanced approach allows for a more comprehensive understanding of each marketing channel's true value, ultimately leading to more effective and successful marketing efforts.

Michelle Wood is vice president, merchant development at Wildfire Systems, which helps companies monetize their users with white-label cashback and coupon services.