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The Outside View: Marketing Costs and Complexity in a Digital World

Evan Clark and Farla Efros

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In the brick-and-mortar era, retailers knew exactly who their competitive set was. The malls drove traffic to their stores, enticing retailer window displays attracted customers to cross their lease-line and the resultant cost of marketing for most mall-based specialty and for big box retailers was often less than 2 percent of total sales.  

Marketing spend was simpler, more efficient, easier to measure and much less costly.

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With the rapid growth of digital retail, the universe of competitors has become endless and consumers have much less attention span given the “always-on” nature of their digital devices and the endless barrage from influencers, Instagram and Facebook feeds, retailers and their friends. 

The result of all this is that marketing must work harder to reach customers. The cost of digital marketing is much higher depending on a retailer’s e-commerce penetration as a percentage of its total sales and most digital spend is controlled by Google, Facebook and Amazon, leaving retailers with little ability to negotiate rates. Retailers now rely heavily on performance marketing to drive traffic to their digital channels. This is a relatively new and rapidly growing form of digital marketing in which advertisers (aka, “retailers” or “merchants”) pay marketing companies (aka, “affiliates” or “publishers”) when a specific pre-defined action is completed; such as a sale, lead or click. The more effective performance marketing is, the higher the return on advertising spend. These affiliate programs are growing rapidly.

The number of additional media vehicles has increased significantly in this new digital world. Mobile, where consumers increasingly start their journey, is very inefficient with generally much lower “traffic to order” conversion rates than any other customer journey.

The increased complexity and cost of digital marketing (often as high as 10 percent of digital sales), combined with the retention of much of the off-line marketing spend, has increased marketing costs for many retailers from 2 percent of total sales in the brick-and-mortar era to as much as 4 percent to 5 percent of total sales. As many retailers know, most digital sales are essentially a shift from physical store sales. As a result, total marketing spend has increased significantly without an increase in retailers’ sales. Further, the massive proliferation of marketing channels is making it harder to measure true ROAS.

While these new marketing vehicles provide additional — perhaps even more creative — opportunities to reach consumers, they bring greater complexity and cost.

Effective marketing is even more of a priority given the proliferation of competitors for retail and the vast increase in the choices consumers now have.

Personalization Is Increasingly Crucial

It’s increasingly important for brands to know their consumer and target market well to engage with them in a way that’s clear and mindful of their unique habits, needs and demands. How one communicates and the graphics you use must be tailored to each audience. Increasingly, consumers want to be engaged, not spoken to on a generic/broad base — they want offers to be tailored to them based on their lifestyles

Millennials and younger generations, for example, prefer small bursts of information with fewer words and more imagery. Older generations are typically more attracted to longer stories. Coupons and flyers remain popular among these shoppers, albeit slightly less relevant than in the past. Electronic flyers and coupons are gaining over traditional paper mediums.

No matter the marketing tool utilized, targeted content and engagement are crucial to personalize marketing messages and offers by market, weather and often by individual consumer based on data analytics.

What’s Driving Your Traffic? 

Traditional marketing requires a very different skill-set than digital marketing. That’s why it’s common for brands to employ traditional marketing, public relations and digital marketing agencies simultaneously. The hope is they can work together toward one goal. But no one said it would be easy. 

Back in the day, TV advertising was the go-to for marketers looking to drive traffic. And measuring success was relatively clear and straightforward: Correlate the higher gross rating point to traffic into the store. 

Today it’s all about streaming, with fewer commercials reaching eyeballs and even fewer having any impact. The attention span of younger shoppers is particularly limited. The key question for digital and performance-based marketers becomes: What’s bringing the biggest return on advertising spend? 

It’s a tough question and the answer is not always clear. Nevertheless, the question is significant and must be at the heart of any strategic marketing plan.  

Test and Measure, Then Adapt

It is becoming more challenging for marketers to measure the true ROAS of individual campaigns. Add to that our obsession with speed, the need to keep up with the rapidly digitizing retail marketplace, and it’s no surprise that testing the market is often neglected. 

That reality makes it especially difficult to discern what you’re doing right. Are your Facebook ads or Instagram posts having their desired effect? Are in-store promotions at the heart of driving more sales? With all the layering, converging of marketing efforts, it’s harder to get answers.

But without testing, and testing some more, those answers will remain unknown. Of course, what works one year may not work the next and, as quickly as technology evolves, that’s how fast one needs to decipher new information. 

Develop and Implement a Strategic Marketing Plan 

To help mitigate the effects of a rapidly changing retail environment, retailers should plan 12 months ahead, outlining the specific marketing vehicles they plan to use, while keeping enough room in the budget to pivot given more current information. Keep in mind that you’re devising a plan, using the past to help define the future, and it may not always be the best course. So be sure to remain flexible.

Marketing is now much more complex than ever before. The need for brands and retailers to evolve is paramount. The importance of understanding one’s customer and what they respond to is equally vital. 

Indeed, the challenges are immense and the need for a fluid, nimble and flexible marketing vision and strategy is more important than ever.  

Whatever form of digital and off-line marketing you decide to invest in, test, track, measure and optimize. 

 

Farla Efros is president of HRC Retail Advisory, a leading specialist retail consulting firm that works with retailers to help them profitably adapt to the complex, changing digital retail environment.

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