The economics of addressable marketing

This blog explores the importance of precision targeting and addressable digital media in digital marketing campaigns, highlighting how it can significantly reduce costs and increase the effectiveness of customer acquisition efforts.

I speak with lots of marketers over the course of any given month, and I’m always interested to know about their addressable marketing mix. Let’s take one of my typical questions: “Tell me about your digital advertising.” A common answer is “We do keyword research, email, social, display, and retargeting”.

Addressable marketing tactics

Drilling deeper, I’m then interested in learning how those tactics are allocated across the marketing funnel. While there are several variations of the funnel, let’s settle on awareness, consideration, trial, and repeat. More often than not, marketers allocate their tactics as follows:

  • Awareness driving tactics (targeting prospective customers) include social and display,
  • Consideration and trial tactics (to incent conversion) include social and keyword search, and…
  • Repeat tactics (targeting existing customers) include email and retargeting.

Customer acquisition programs

Let’s consider customer acquisition programs or prospect marketing. Prospect marketing is a critical tactic in the addressable marketing mix. There is an unavoidable degree of churn in any customer base – to grow market share over time, brands not only have to replace those dollars lost to churn but also acquire new customers. Experienced marketers know the old rule of thumb: “Selling $1 of our product or service to a new customer is 10X more costly than selling $1 to an existing customer.”

Kalibrate’s precision targeting solutions are why so many clients use us to help reduce the inefficiencies inherent in any customer acquisition effort. We help clients reduce that “10X” cost burden.

How do we do that? Let’s focus on digital display tactics as an example. When I ask marketers if their digital display buys are targeted, the answer is almost always “yes”. But further probing uncovers the fact that their buys are at the ZIP Code level. Just like saturation direct mail programs, saturation digital buys mean large chunks of your budget are wasted on sub-optimal targets.

Consider the hypothetical example of a digital campaign to acquire new customers for a grand opening:

Spending $0.35 to deliver 100 digital ads over time sounds like good economics, right? But saturation buys mean you’re targeting households unlikely to become your customers.

Customer profiling

Kalibrate’s approach to customer profiling provides immediate benefit. First, we eliminate households outside of your location’s trade area—that geography from which you don’t draw meaningful customer traffic. In this example, only 80% of the saturation buy falls within this location’s trade area, resulting in an initial cut to 8,000 target households. Second, our profile analysis eliminates households that are out of profile (not a fit with the brand) from being targeted. For this example, let’s say half of the remaining households are out of profile. Now we’re talking about 4,000 households. But don’t stop there.

Prospect acquisition models

Next, our prospect acquisition models take the remaining 4,000 households and ranks them using advanced statistical modeling. Then we target only those with the highest predictive score. Assume the model scores half of the in-profile households as having the highest scores. Now, instead of targeting 10,000 households, we’re focused on the 2,000 best households—those who most closely resemble your current customers, and who are therefore more likely to find your value proposition compelling.

Let’s be very conservative and assume this precision targeted display buy comes in at $10/M, or almost 3X the $/M of the saturation buy. Remember—this is addressable media. We’re delivering digital ads to specific households (and skipping others) using geofencing technology. Is it worth it?

The saturation buy only cost $0.35/household—how is a targeted buy at $1.00/household a better deal?

The answer is that in the saturation buy—ads were served to 10,000 households, when the actual target should have been 2,000 households. The $3,500 ad buy—which appeared to cost $0.35 per household—actually had an effective cost of $1.75/household.

The benefits of precision targeting and addressable digital media should not be overlooked as you develop your marketing programs. Contact us to understand how to put these economics to work in your campaigns.

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