By Stephan van den Bremer, Managing Director, Europe
The online media world is changing rapidly. Technology is playing an important role here. Homepage take-overs, video pre-rolls, dhtml banners: all examples of technology innovations of the last couple of years seducing marketers to spend more of their media budget. Data has also changed the digital media landscape, where retargeting was a buzzword three years ago, nowadays it is offered by almost everybody. Real-time bidding, which has existed for awhile in paid search, is another innovation that impacted the display media buying, stimulating performance based marketing even more.
With so much media technology available, sometimes it seems like marketers forget that the ROI of media spend largely depends on what happens on the site as well. Recently, we had a discussion with a client who experienced more and more difficulties getting additional traffic to the site below a certain Cost Per Acquisition (CPA). Their logical conclusion was to focus on conversion optimization now and allocate budget accordingly.
This principle is exactly what we learned in school under Gossen’s First Law, named after the German economist Hermann Gossen. Very basically described, it means that every additional euro spent adds less value than the previous one. For example, the first media euro that you spend will bring ten new visitors to your website, where the second euro perhaps will generate nine additional visitors. The hundredth euro may only deliver one extra visitor. That last additional visitor cost 1 euro, whereas the first visitor cost just 0.10 euro. Alternatively, that euro could also have been spent on conversion optimization (optimizing forms, order pages, pro-active engagements, content personalization, etc.). If, for example, this investment improved the conversion rate from 10% to 11%, that would have been the equivalent of one incremental sale based on 100 visitors. This would result in an ROI that is ten times higher than spending that euro on media.
Of course, for conversion optimization, this principle is valid as well. The ROI of every additional euro will decline as more money is spent. But there is an additional effect: an increase in conversion rate will bring the CPA of media down as well, which perhaps, in turn, makes it viable again to raise media spend.
My point is not to prefer conversion optimization above trafficking, but to take a holistic view as a marketer. Putting media and conversion optimization in silos will lead to a sub-optimal allocation of marketing budget. To start with, there should be one budget, one responsibility and one integrated technology. Each company will discover which starting point works best, whether it is on the media side or conversion side.