Measuring Incrementality in Performance Marketing: The Key to a Confident CAC

With new privacy legislation and features, attribution by itself doesn’t cut it. We cover how to measure paid campaigns' performances with incrementality testing instead.

In the dynamic realm of performance marketing, the term "incrementality" is gaining traction. But what does it mean, and why is it pivotal for setting a confident Customer Acquisition Cost (CAC)? Let's delve into the intricacies of incrementality and its profound impact on marketing strategies.

At its core, incrementality refers to the additional outcomes—be it sessions, conversions, or other metrics—that result from a specific marketing strategy. It represents the difference between the outcomes with a particular marketing activity versus the outcomes without it. Incrementality seeks to illuminate the areas often overlooked or missed by traditional attribution methods.

A Real-World Scenario: 

The strategy that was attributed the conversion is not necessarily the strategy that drove the conversion

Imagine you run an e-commerce store specialising in handcrafted jewellery. One day, a potential customer searches for your brand name, "Elegant Gems," and clicks on a paid brand Search result, leading them to your website. This session is attributed to paid search. 

However, earlier that day, they watched a YouTube ad showcasing a necklace from "Elegant Gems." While they didn't click on the ad immediately, it planted the idea and influenced their subsequent branded search. 

Now, some customers who made a purchase might have discovered "Elegant Gems" organically even without the ad. Yet, there's a segment who would never have sought out or purchased from your store without that initial nudge from the YouTube advertisement. This group represents the "incremental customers" – those who became buyers solely due to your marketing efforts. Incrementality aims to pinpoint this nuanced influence, revealing the true impact of your advertising

The Importance of Measuring Incrementality

Incrementality  provides a clearer picture of your marketing efforts. By understanding the true incremental impact of your campaigns, you can:

1. Gain Confidence in Your CAC: Without measuring incrementality, you might think you're acquiring customers at a certain cost, but in reality, the cost could be higher or lower. This clarity is crucial for budgeting and strategy.

2. Navigate Platform Discrepancies: Different platforms might report different results. By understanding incrementality, you can reconcile these discrepancies and get a clearer picture of your marketing's true impact.

3. Optimise Marketing Spend: If you're spending heavily on strategies that don't bring in truly incremental users, you're wasting money. By identifying and focusing on strategies that bring in new users, you can optimize your budget.

Pitfalls of Ignoring Incrementality: Imagine spending $100 on Google search for brand search, expecting to receive 100 site visitors. If you're not considering incrementality, you might be celebrating too soon. If only 50 of those visitors are incremental, then your real cost per session isn't $1—it's $2. Recognising that only a portion of these visitors are incremental can drastically change your perception of a marketing strategy's success.

Understanding Net Negative and Net Positive Strategies

Audience capturing strategies are net negative by default. The question: is how net negative are they?

The marketing realm encompasses a broad spectrum of strategies, and understanding their actual impact versus the reported results is crucial. This is where the concepts of "net negative" and "net positive" come into play.

Net Negative Strategies: Simply put, these are strategies where the true incremental results are fewer than what platforms report. Examples of such strategies include:

• Brand Search: Often, a brand search campaign might get more credit than it's due, overshadowing organic search results.

• Retargeting: While it seems effective on the surface, it might be attributing users who would have converted even without the retargeting ad.

Net Positive Strategies: These are strategies that often yield more incremental results than what's typically reported. Some classic examples are:

• Awareness Campaigns: Targeting fresh audiences, these campaigns usually bring in new users, sometimes more than metrics indicate.

• Lookalikes: By targeting users similar to your existing customers, you tap into a potential pool that often provides higher incremental results.

• Competitor Search and Generic Search: When users look up competitors or generic industry terms, campaigns targeting these searches can pull in more incremental users than reported figures suggest.

Three Different Methodologies to Measure Incrementality

Several methods can help businesses measure incrementality:

Geofencing relies little on tracking so it’s becoming a popular form of measuring incrementality

Ghost Ads:

• Concept: Ghost ads involve serving a portion of your audience with unrelated ads, essentially acting as a control group. The idea is to compare the conversion rates between those who saw your actual ad and those who saw the ghost ad.

• Application: For instance, if you're advertising a new shoe line, half of your audience might see this ad, while the other half might see an ad for an unrelated product, like a book. By comparing the conversion rates of both groups, you can discern how many in the actual ad group would've converted even without seeing your shoe ad.

• Benefits: This method provides a direct comparison and can offer insights into the true incremental value of your ad. It's especially useful when you want to measure the direct impact of a specific campaign.

Holdout with Retargeting with Segmented Lists:

• Concept: This technique involves creating a retargeting list (based on either emails or unique UIDs) and then targeting only a subset of them.

• Application: Whether using an email list of 10,000 customers to target only 5,000 of them with a new promotional offer, or using cookie IDs to serve a new ad to half of your website's daily visitors, the principle remains the same. By comparing the behavior of targeted vs. non-targeted segments after the campaign, you measure the incremental impact. 

• Benefits: It provides precision in audience targeting. Segmented lists offer a controlled environment, making it easier to measure incrementality.

Holdout with geofencing:

• Concept: This involves withholding a campaign from a certain segment of your audience to create a control group. For example, running ads in Portland while stopping them in Austin.

• Application: If launching a new product campaign on social media, you might choose to serve the ad to 80% of your followers, withholding it from the remaining 20%. Usually, holdouts are defined on a geo-level. Meta has an open source solution for this in GeoLift.

• Benefits: Holdout testing provides a clear picture of what would happen in the absence of a campaign, making it easier to measure the campaign's true impact. This is the best solution for top of the funnel campaigns where you have less control over who receives ads.

Conclusion

With new privacy legislation and features, attribution by itself doesn’t cut it. It will offer you a skewed view towards click-based and bottom-funnel strategies.

Incrementality enables a deeper, more nuanced understanding of marketing efforts, ensuring that businesses aren't just spending blindly. As we move forward, adopting a holistic approach to marketing, considering both discrepancies and incrementality, is the safest bet.