Measuring the ROI of In-store Retail Marketing Investments

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In any business initiative, the return on marketing and advertising efforts should exceed its costs for it to be worthwhile. Measuring the progress of in-store marketing efforts can be tricky. One should have a thorough knowledge of utilizing key performance indicators (KPI) to evaluate marketing or advertising success, while also understanding that online and offline attribution and influence can be hard to manage. 

Many retailers have traditionally thought of in-store display investments as an operational cost center while creative in-store designers push that it is a key contributor to brand equity.   With newer technologies, you can measure real sales lift and ROI and realize that in-store investments are indeed a profit generator.   Comparing interactive digital displays on a cost basis to static physical ones will never make sense.  But looking at additional profit generated against the incremental cost might yield surprising results.

If you are keen on monitoring your progress, here is a concise walkthrough for measuring the return on investment (ROI) of your in-store marketing effort.

 

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Set Your Expected Results and Target Goals Beforehand

Too often I see companies go through projects without setting expectations of success ahead of time.  This seems to be convenient at first, but leads to dangerous behavior.  Too often the goal posts are moved to justify pre-conceived notions or to align with political or personnel changes.  

Further, if you tell your vendors and partners what you are trying to optimize for, you further empower them to come up with solutions.  What gets measured, gets managed, as Peter Drucker famously wrote.  

Before implementing any marketing programs, do your research on similar businesses and your competitors and ask the vendors for baselines and metrics they usually manage to. It will give an idea of what to expect, so you will not set easily attainable nor impossible goals.  You don't have to start from scratch with a wealth of information available to you.

 

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Measure Before And After AND Versus a Control Group

The retail industry is rapidly changing.  It's seasonal.  Consumer behavior is changing and competitors are acting quickly.   What this means is that there is naturally a great deal of variability in business results.   In order to ensure your project data isn't tainted by variability, it's critical to pick a control group to see how KPIs change and provide a comparison.   Looking at both before and after results and comparison to a control group will provide a more accurate picture and confidence in attribution.  

In marketing, sales lift refers to the improvement a business garners in its sales after any advertising initiative. To accurately measure sales lift, it is important to know the relevant range metric that is apt for the size of your business and the rate of growth that you aim for.

 

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Metrics for ROI - Measuring Multiple Forms of Contribution

For starters, here are some ROI points and strategy used to gauge the success of marketing programs like Perch.

Sales Lift - The most common measure we see for measuring pure business ROI is sales lift.  We usually see 30-80% sales lift, and while sales lift percentage is good because we see a relatively consistent range, it's best to look at total sales lift and then the margin contribution of that lift.  That's the additional Return - the R in ROI.   

Cost per Customer/Interaction Equivalents - Doug Jones, the "Retail Prophet," pointed out that the captive audience in store is almost always larger than a company's Facebook page (active last 30 days).  So another way to measure is in-store marketing success is by standard advertising metrics.  Online will always win in terms of CPM impressions, because garbage impressions are plentiful.  That's why the entire marketing industry  has shifted to more meaningful metrics closer down the funnel.   Looking at the cost per customer acquisition or cost per interaction (similar to a click) lets marketers compare effectiveness to other campaigns.  We are finding CPAs and CPIs that are significantly lower than online advertising. 


Offline to Online Conversion - A lot of companies are beginning to understand the connection between online and in-store interactions. Advertisements made online can translate into
purchases made in-store and vice versa.  Some of our implementations are designed specifically to drive online conversions.  At Kate Spade, for example, the Make It Mine purse personalization lets you email yourself the purse to buy online.   The percentage of customers engaging to fulfill online is substantive.  Tracking that sales funnel (email --> shopping cart -->purchase) is a critical contributor to ROI.  Often that alone pays for the installation.

In-Store Conversion - The level of intent of your customers entering the store can lead to vastly different ranges on in-store conversion.  Most customers who enter a grocery store or a big box retailer will make a purchase while conversion rates in apparel can be as low as 15-20%.   Moving this conversion number can be extremely meaningful.

Lifetime Value and Cost of Acquisition - If you are calculating additional customer acquisition, it's important to understand the lifetime value of a customer.   It's not just the value of the first purchase that is influenced but the future value of the customer for the long term.  Studies show that experiences in-store influence customer loyalty far more than online or mobile experiences.  So another key way to look at ROI is the lifetime value of customers acquired and influenced.

Additionally, you may find that in-store efforts effect the Lifetime Value of a customer either by increasing Customer Loyalty though repeat purchases or increasing the average basket size.  Some experiences focus on cross-sell and can be measured by average number of items in the basket

Build a Case Study That You Can Share Internally and Externally

Gaining consensus in large siloed organizations is a lot of work and sometimes can require spending political capital.   Often, you want to make sure that the case study for your program can reach the widest audience and be digestible to gain support internally.  And, even though the retail industry tends to be secretive, it's important to reward the vendors you work with so they can build their business and invest more in the products and technology you come to rely on.   

Here are some of the case studies we have made that are short and to the point.  Explain the goals, explain the results and outline next steps.