Incrementality

How To Measure & Act On Incrementality In Marketing

Published On: 01 Dec 2023

By:Lifesight

How To Measure & Act On Incrementality In Marketing.webp
Unlock the true impact of your marketing efforts with incrementality measurement. Dive deep into methodologies like Geo Testing, Audience Split Testing, and Marketing Mix Modeling. Optimize media investment based on data-driven insights for sustained business growth.

In an era where nearly 40% of digital ad spend is questioned for its true impact, incrementality provides the clarity needed to navigate the complex digital landscape confidently.

Incrementality goes beyond traditional metrics and superficial analyses, offering a deep dive into the actual effectiveness of your marketing campaigns. It answers the critical question: What tangible difference are your marketing efforts making? Are they just a drop in the ocean or driving real, measurable outcomes?

As we explore the world of incrementality, we will define and dissect its importance and guide you through the various methodologies to measure it accurately. This blog is your roadmap to understanding and implementing incrementality measurement – the key to unlocking the full potential of your marketing investments and driving sustained business growth.

What is incrementality in marketing?

At its core, incrementality in marketing refers to the additional impact or 'lift' that a specific marketing activity brings about, over and above what would have naturally occurred without that particular marketing effort. This concept is critical in deciphering the actual effectiveness of a marketing campaign, be it in driving sales, enhancing brand awareness, or increasing website traffic.

Incrementality provides a lens through which marketers can assess and validate their strategies, ensuring that each dollar spent contributes to tangible business growth. Moreover, this approach is vital in a landscape where marketing channels are increasingly diverse, and consumer journeys are more complex than ever.

Now let's look at three of the most common methods for measuring incrementality in marketing.

How do we measure incrementality in marketing?

1) Geo Testing

It's an advanced method to gauge the impact of marketing campaigns by observing changes in specific geographic areas. Within Geo Testing, we can delve into two primary types: scale testing and holdout testing. Both methods are crucial for understanding regional responses to marketing initiatives and optimizing campaigns for better performance.

Scale testing involves incrementally adjusting the marketing variables across different geographic regions to observe variations in campaign performance. For example, a beverage company might increase its ad spend in City X while keeping it constant in City Y. By analyzing the sales figures before and after the adjustment, the company can infer the scalability of its marketing efforts within that region.

On the other hand holdout testing within the geo framework refers to selecting certain areas where the marketing campaign is intentionally withheld. This creates a natural control group to measure the incremental impact of the marketing activity against the test regions where the campaign is active. For instance, a retailer may launch an online ad campaign in all cities except one. By comparing the sales data from the holdout city with the regions exposed to the ad campaign, the retailer can directly measure the campaign's incremental effect on sales.

2) Audience Split Testing

This involves reserving a portion of the audience (the holdout group) who are not exposed to the marketing campaign. This method effectively measures the incremental impact of a campaign by comparing the results of the holdout group with those who experienced the campaign.

To do this right, marketers must withhold the marketing activity from a subset within the same market or audience. For instance, a fast-food chain might send promotional coupons to a segment of its customer email list (Test Group) while excluding another segment of similar size and characteristics (Control Group). The difference in sales between the two groups would indicate the coupon's effect.

3) Marketing Mix Modeling (MMM)

Marketing Mix Modeling is a statistical technique used to quantify the impact of various marketing tactics on sales and predict the outcome of future strategies. It uses historical data to create a model illustrating how different marketing elements contribute to overall sales or other key performance indicators.

Using a measurement tool, you can automatically build marketing mix models in just a few minutes and gain access to insightful dashboards that help you optimize budget allocation.

Let's understand how.

Take a look at the stacked bar chart snapshot from one of the ecommerce brands. representing incremental revenue attributed to various marketing channels over several months. Some key insights that marketers can derive are:

Stacked Bar Chart Showing Incremental orders over Direct

  • Baseline Sales Stability: The "Direct" portion of each bar indicates a consistent baseline of orders achieved without any marketing influence. This stability suggests a loyal customer base or effective direct marketing efforts.
  • Channel Performance Over Time: The chart reveals how different channels contribute to incremental orders. It seems that LinkedIn, Pinterest, YouTube, Instagram, and TikTok all contribute to varying degrees, with LinkedIn and Instagram often being significant contributors.
  • Seasonal Trends: There may be seasonal trends in consumer behavior, as evidenced by fluctuations in incremental orders across the quarters. For instance, Q4 in 2021 and Q3 in 2022 show heightened increments, which could align with seasonal promotions or events.
  • Emerging Platforms: The presence of TikTok, which appears to have a growing contribution to incremental orders, suggests the brand is successfully leveraging emerging social media platforms to reach new or engaged audiences.
  • Channel Synergy: The combination of colors in each bar suggests that a mix of channels contributes to the total incremental orders. This synergy indicates that a multi-channel strategy is effective for this brand.
  • Optimization Opportunities: The varying contributions of different channels over time can provide guidance on where to optimize marketing spend. For example, if Pinterest shows a lower incremental value consistently, it might be worth reassessing the strategy or investment in that channel.
  • Data-Driven Strategy Refinement: The data can guide strategic decisions on where to increase investment or experiment with new content or ad formats to maximize incremental orders.

(It's important to note that these insights are specific to the brand in question and should be interpreted within the context of its unique market dynamics and overall marketing strategy.)

MMM can therefore help marketers see incrementality at a large scale by combining different data sources to get a full picture. But it's not enough to just measure incrementality; you also need to know what to do with incremental results.

How do we optimize media investment based on incremental results?

Optimizing media investment based on incremental results means reallocating your marketing budget to give you the best return on investment (ROI). Your measurement should tell you three key things:

  1. The total ROI of your complete marketing program,
  2. The ROI by channel or medium in isolation
  3. The diminishing returns curve on spend + ROI

Example scenario for optimization:

Let's consider a hypothetical business scenario to understand how to act on incrementality results effectively:

1) Assessing Total ROI:

Your current marketing strategy yields only 2x incremental ROI and your business needs to maintain a 4x ROI to stay profitable. Faced with this situation, you have a few options.

  • You could completely stop your marketing efforts, which might seem drastic.
  • Alternatively, you could optimize your tactics to enhance their effectiveness.
  • Consider adjusting your overall marketing mix to align with your profitability goals.

However, before making a final decision, it's crucial to take a step back and thoroughly examine the ROI delivered by each marketing channel. This detailed analysis will provide a clearer understanding of where adjustments can be most effectively applied.

2) Evaluating Channel ROI:

In your marketing strategy, let's assume an initial allocation where you're spending an equal amount of $4,000 on each of three different channels: Google Ads, Meta Ads, and TikTok Ads. Upon analyzing the return on investment (ROI) from these channels, you discover varying levels of success.

Google Ads generate a 1x ROI, indicating that the revenue generated equals the amount spent. Meta Ads are performing slightly better with a 2x ROI, doubling the investment. TikTok Ads, however, are the most successful, yielding a 3x ROI.

Given this scenario, a strategic shift might seem tempting, such as reallocating the entire budget to TikTok Ads to capitalize on its higher ROI. However, this shift would only elevate your overall ROI to 3x, which is still short of the 4x ROI your business requires for profitability. This calls for a more nuanced approach than simply funneling all resources into the best-performing channel.

3) Understanding Diminishing Returns:

An exciting pattern emerges upon conducting a more detailed analysis of your Meta-spending. When you spend up to $2,000 daily on Meta Ads, your ROI reaches or exceeds 4x.

However, your current spending on Meta Ads is double that amount, at $4,000 daily. This over-investment doesn't proportionally increase your ROI. To address this, a clear course of action for optimization presents itself: reducing your daily spend on Meta Ads from $4,000 to $2,000.

Diminishing Return Curve for Meta Ads Spending

The diminishing return curve above illustrates the ROI for Meta Ads spending. As shown, the ROI reaches or exceeds 4x when the daily spend is up to $2,000, depicted by the green dashed line. However, when the spending increases to $4,000 per day, as indicated by the red dashed line, the ROI doesn't increase proportionally but rather starts to diminish.

This adjustment is not about cutting costs arbitrarily; it's about reallocating your budget to where it yields the highest return. Doing so will likely achieve a higher overall ROI, aligning your spending more effectively with your profitability goals.

Reallocating Budget Based on ROI Curves:

Old Mix (2x ROI):

  • Google Ads: $4,000 spend/day
  • Meta Ads: $4,000 spend/day
  • TikTok Ads: $4,000 spend/day
  • Total Spend: $12,000/day, yielding $24,000 of incremental revenue

New Mix (4x ROI):

  • Google Ads: $1,000 spend/day (reduced spend on lower ROI)
  • Meta Ads: $2,000 spend/day (optimized to peak ROI spend)
  • TikTok Ads: $3,000 spend/day (increased spend on higher ROI)
  • Total Spend: $6,000/day, yielding $24,000 of incremental revenue

To ensure your marketing efforts remain effective and relevant, adopting a practice of ongoing optimization is essential. This means committing to a schedule of regular testing and re-measurement of incrementality. Such diligence allows for continually refining your marketing mix, ensuring your strategies always align with the most current data and trends.

Final Thoughts:

Navigating the complexities of incrementality can be challenging, but with the right tools and expertise, it becomes an achievable and invaluable part of your marketing strategy.

If you want to learn more about incrementality measurement and how it can benefit your business, contact industry experts like Lifesight, who can provide valuable insights and solutions tailored to your needs.

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