The incrementality information advantage

The power of robust measurement isn’t just in providing you with better information about media performance; it's in providing asymmetrical information, or information only you know. In biddable advertising, where advertisers make competing offers based on their own information on expected performance and returns, asymmetrical information can generate a significant advantage.

With retail media spend set to cross $160 billion globally this year, fortunes will be made and lost based on having an information advantage. History has given us numerous examples of how potent asymmetrical information can be. Whether it was Nathan Rothschild’s early knowledge of Napoleon’s defeat at Waterloo, the Allies decrypting the Enigma code, or Michael Burry’s analysis of mortgage-backed securities before the market realized they were toxic, having better information is a massive advantage.

While the fate of countries may not hang in the balance, billions of dollars of advertising spend and hundreds of billions of dollars in ecommerce sales do. How can brands leverage an information advantage to their benefit in retail media?

ROAS arbitrage

Beyond incrementality measurement’s clear utility as a more robust performance metric than return on ad spend (ROAS) for media planning, it also provides an information advantage in media buying over those still using ROAS to value advertising inventory.

In a bidding media environment where everyone is evaluating the performance of advertising inventory based on ROAS (or a similar set of shared metrics), those who have visibility into iROAS or incremental return on investment (iROI) have the opportunity to find inventory that is misvalued by ROAS.  

It’s very similar to a strategy I saw a pioneering advertiser use with its data management platform (DMP) nearly a decade ago. The global head of digital media there once told me, “I don’t want access to the same audience data everyone else has – it's crowded and expensive. Find me audience data no one else has so I can buy inventory against it for pennies on the dollar.” Incrementality measurement offers advertisers a similar opportunity in retail media, allowing retail media buyers to take advantage of the inefficiency between cost and value, or cost per click (CPC)/cost per mille (CPM) and iROI.

How does it play out? The Incremental team looked closely at the data for one of our clients, a large top-two market share brand. Let’s compare two groupings of Sponsored Products campaigns running in its category on Amazon.

Unsurprisingly, the brand had piled 93% of its spend into campaigns that targeted the top volume keywords in its category. The brand’s demand, along with the demand of every other brand in the category, had driven up the CPC. A high click-through rate (CTR) on these advertisements generated a significant number of touches to drive up ROAS. However, these campaigns did not drive incremental sales efficiently. Being one of the three dominant brands in the category, the vast majority of consumers had already purchased from these brands and had preexisting brand preferences and loyalties. The result? These ads only generated $1.20 in incremental revenue growth for every dollar spent on them.

Analysis of the longer tail of lower-volume keywords tells a very different story. These keywords were often feature- or use case–specific. Less competition resulted in a much lower CPC. Yet there was a significantly higher iROI. This indicates that consumers shopping these keywords were undecided on a brand or product. They entered the category through a particular need, searched for that need, and advertising had the opportunity to nudge them towards one product over another. The result was nearly 2x the incremental revenue generated compared to a broad, top keyword campaign.

Incrementality measurement doesn’t just enable retail media buyers to find undervalued audiences and keywords; it can also be used to justify investment in expensive ones that ROAS undervalues.

For the same brand, the Incremental team analyzed nearly 800 search campaigns over the past two years. Once CPCs exceeded $2, only one campaign had a ROAS greater than three, yet 12 campaigns had an iROI greater than three.

While there tends to be a very strong negative correlation between ROAS and CPC (the lower the CPC, the higher the ROAS), this does not always hold true for iROI and CPC. In other words, there are more exceptions where a high CPC is justified by a high iROI. Looking closely at conquesting campaigns highlights a few of these areas where ROAS undervalues the true incremental value.

While the significantly cheaper CPC of the Sponsored Product campaigns looks appealing, especially given the higher ROAS, these campaigns don’t generate incremental revenue as efficiently as Sponsored Brands. The larger “above the fold” Sponsored Brands ad format costs more per click but far more efficiently captures a competitive shopper’s attention. Also, given that clicks are the unit of cost, the impression value of Sponsored Brands is effectively “free” when you win the bid but don’t generate a click. These free impressions can generate an impact on consumer behavior even if they end up scrolling and converting through an organic or paid Sponsored Product listing. The net effect of both the direct clicks and these “free” impressions is that this brand’s Conquesting Sponsored Brand campaigns generated nearly 50% more incremental revenue per dollar invested.

Simply put, ROAS misses numerous opportunities to invest in driving incremental growth.

First-mover advantage

What does this mean for brands today? While robust incrementality measurement has existed for decades, it has historically lacked the granularity and frequency required to be used directly as a signal within day-to-day media buying, leaving ROAS to reign. The greatest advantage will occur when there is the largest relative difference in information—when a few first movers have visibility into iROAS or iROI, but most of the market is still clinging to ROAS. Results have validated that this advantage translates to significant financial gains, with an adopter seeing a 32% gain in media efficiency.

As brands are caught between increasing pressure from retailers to invest more and macro-economic factors compressing their bottom line, any scalable advantage will become an existential requirement. As history has shown, the first mover with an information advantage often wins.