digital marketing assignment 3 ROI

MKTG 367: Data Driven Digital Marketing Session 4: More Marketing ROI

Elea McDonnell Feit Assistant Professor of Marketing

Session 4 MKTG 367 DDDM 1 / 30

Marketing ROI

Topics

1 Marketing ROI Review of ROI Review of Examples 1 and 2 Example 3

2 A preview of A/B testing Obama Campaign Website Anthro Homepage Test Hilton Display Ads WhichTestWon.com Google AdWords

3 Assignment 3 and Project Task 1

Session 4 MKTG 367 DDDM 2 / 30

Marketing ROI Review of ROI

What did you think of the video on ROI?

“A simple calculation is better than none at all.”

Session 4 MKTG 367 DDDM 3 / 30

Marketing ROI Review of ROI

Marketing Return on Investment

a.k.a. Marketing ROI, Return on Marketing Investment, or ROMI

Why do marketers care about marketing ROI?

Session 4 MKTG 367 DDDM 4 / 30

Marketing ROI Review of ROI

Computing ROI

ROI = Gains from Investment − Cost of Investment

Cost of Investment

Session 4 MKTG 367 DDDM 5 / 30

Marketing ROI Review of ROI

Any questions about Example 1 and Example 2 from last time?

Session 4 MKTG 367 DDDM 6 / 30

Marketing ROI Review of Examples 1 and 2

Marketing ROI: Example 1

An entrepreneur has just developed an app that coaches you through a 7-minute workout and she sells it for $3 on the Apple App Store. To get more downloads, she tries a search campaign where she is paying on average $0.75 per click to get about 2000 clicks per month. The ads send those who click to the the app’s pages on the App Store. Her conversion rate on these leads is running about 30%. What is the ROI for this campaign? Is it worth it?

Cost of Investment = $0.75

click × 2000 clicks

month = $1500 per month

Gains from Investment = 2000 clicks

month × 0.30 conversion

click × $3

conversion

= $1800 per month

Session 4 MKTG 367 DDDM 7 / 30

Marketing ROI Review of Examples 1 and 2

ROI Calculation (continued)

Cost of Investment = $0.75

click × 2000 clicks

month = $1500 per month

Gains from Investment = 2000 clicks

month × 0.30 conversion

click × $3

conversion

= $1800 per month

Net Profit = $1800 − $1500 = $300 per month

ROI = Net Profit

Cost of Investment =

$300

$1500 = 0.20 = 20%

Session 4 MKTG 367 DDDM 8 / 30

Marketing ROI Review of Examples 1 and 2

Marketing ROI: Example 2

Source: American Eagle Outfitters

Suppose that American Eagle Outfitters has a mailing list with 35,000 customer email addresses and is planning to send out an email promoting their new denim. The campaign has a 50% open rate and a 7.3% click through rate. Of those who clicked, 9.2% made a denim purchase and on average they spent and average of $37.20. The average margin on denim orders is 36%. What is the ROI for this campaign?

What information are we missing?

Costs! Let’s assume it costs $1000 to hire an ad agency to create and send out the email.

Session 4 MKTG 367 DDDM 9 / 30

Marketing ROI Review of Examples 1 and 2

ROI Calculation

Cost of Investment = $1000 for this campaign

Revenue = 35, 000 emails × 7.3 clicks 100 emails

× 9.2 sales 100 clicks

× $37.20 sale

= $8, 744.23 for this campaign

Gains (profit) from Investment = $8, 744.23 × 0.36 = $3, 147.92 for this campaign

Net Profit = $3, 147.92 − $1000 = $2, 147.92 for this campaign

ROI = Net Profit

Cost of Investment =

$2, 147.92

$1000 = 2.148 = 214.79%

Session 4 MKTG 367 DDDM 10 / 30

Marketing ROI Example 3

Marketing ROI: Example 3

Mickey’s Pizza is offering a groupon for $10. If they get 2,000 people to buy the groupon and it costs them $6.30 to make the pizza, what is their return on the marketing?

Session 4 MKTG 367 DDDM 11 / 30

Marketing ROI Example 3

Groupon marketing ROI

Hint: Groupon takes half of the $10.

Cost of Investment = $0

Revenue = 2, 000 × $5.00 = $10, 000

Gains from Investment = $10, 000 − (2, 000 × $6.3) = −$2, 600

Net Profit = (−$2, 600) − $0 = −$2, 600

ROI = Net Profit

Cost of Investment =

−$2, 600 0

= undefined

Why would anyone do this?

Session 4 MKTG 367 DDDM 12 / 30

Marketing ROI Example 3

Customer lifetime value

Customer lifetime value (CLV) is the total value (profit) you can expect to get from a customer. When you are evaluating a marketing campaign designed to acquire customers, the net profit should include the total customer value.

Session 4 MKTG 367 DDDM 13 / 30

Marketing ROI Example 3

Groupon Marketing ROI

Suppose that the average customer lifetime value for the customers who came to Mickey’s for the first time because of the Groupon is $21. (They typically come back two - three more times and you make about $9 each time.)

Cost of Investment = $0

Gains from Investment = −$2, 600 + (2, 000 × $21) = $39, 400

Net Profit = $39, 400 − $0 = $39, 400

ROI = Net Profit

Cost of Investment =

−$39, 400 0

= undefined

Some marketers recast this so that the first transaction is the “cost” of getting people to try Mickey’s and the subsequent sales as the “gains”.

Session 4 MKTG 367 DDDM 14 / 30

Marketing ROI Example 3

Groupon’s business model

This little example helps explain why Groupon isn’t growing as fast as everyone hoped.

If the CLV for Groupon-acquired customers is high, then small businesses won’t need to run many Groupons to get a good customer base.

If the CLV for Groupon-acquired customers is low, then small businesses quickly figure out the Groupon has low ROI.

See Goltz (2010) Doing the Math on a Groupon Deal, New York Times

Session 4 MKTG 367 DDDM 15 / 30

A preview of A/B testing

Topics

1 Marketing ROI Review of ROI Review of Examples 1 and 2 Example 3

2 A preview of A/B testing Obama Campaign Website Anthro Homepage Test Hilton Display Ads WhichTestWon.com Google AdWords

3 Assignment 3 and Project Task 1

Session 4 MKTG 367 DDDM 16 / 30

A preview of A/B testing

How are you doing on forming project groups and finding organizations to work with?

Session 4 MKTG 367 DDDM 17 / 30

A preview of A/B testing

Key project requirement: A/B test

An A/B test is a way to make a rigorous comparison between two advertisements (or marketing campaigns).

The key idea behind an A/B test is to take two groups of customers and randomly show the A ad to one group and the B ad to another group. If the groups are randomly assigned, then they must be similar. If one has better response than the other, then that ad must be the better ad.

Session 4 MKTG 367 DDDM 18 / 30

A preview of A/B testing Obama Campaign Website

Obama Campaign Website: Images

Two versions of the Obama Campaign “Splash Page”:

Source: kylerush.net/blog/optimization-at-the-obama-campaign-ab-testing/

Visitors who saw the “Image Variation” made 19% more donations.

Session 4 MKTG 367 DDDM 19 / 30

A preview of A/B testing Obama Campaign Website

Obama Campaign Website: User Process

Two versions of the Obama Campaign donation form:

Source: kylerush.net/blog/optimization-at-the-obama-campaign-ab-testing/

Users who saw the “Sequential” form had a 5% higher conversion rate.

Session 4 MKTG 367 DDDM 20 / 30

A preview of A/B testing Anthro Homepage Test

Anthro Homepage Test

Thanks to Julie Albers for sharing this example.

Session 4 MKTG 367 DDDM 21 / 30

A preview of A/B testing Anthro Homepage Test

Homepage Test: Pre-Test Details

Test Length: 3 subsequent tests of two weeks each (each with a different creative style)

Assignment: 33%/33%/33%

KPI: % of sessions to category pages

Session 4 MKTG 367 DDDM 22 / 30

A preview of A/B testing Anthro Homepage Test

Homepage Test: Results

(As reported by email to marketing.) Summary: The single image homepage had significantly lower interaction with features than either of the multi-image home pages. Details: The single image homepage had a feature click-through rate of 5% while both multi-image home pages had a click-through rate of 8% (-43%, p99.) The single image homepage sessions were also less likely to get to the product detail (52% compared to 53%, p95.) Conversion, AOV and $/session were not significantly different between the three home pages.

Session 4 MKTG 367 DDDM 23 / 30

A preview of A/B testing Hilton Display Ads

Hilton Display Ads: Test Design

Loyalty Program Hotel Benefits

Source: Paul Wezner, Organic, Inc

Response measures:

Hampton Inn bookings

Registrations for HHonors program

Session 4 MKTG 367 DDDM 24 / 30

A preview of A/B testing Hilton Display Ads

Hilton Display Ads: Results

Loyalty Program Hotel Benefits

Source: Paul Wezner, Organic, Inc

Version Impressions Bookings Registrations $/Booking $/Reg. Loyalty Pgm 12,503,702 1x 1x 63.24 150.27 Hotel Benefits 18,560,660 2x 3x 30.98 62.86

The advertisement promoting the features of Hampton Inn drives more bookings and more registrations for the HHonors program. Session 4 MKTG 367 DDDM 25 / 30

A preview of A/B testing WhichTestWon.com

WhichTestWon.com

Check out WhichTestWon.com

Session 4 MKTG 367 DDDM 26 / 30

A preview of A/B testing Google AdWords

Testing is built in to digital advertising platforms

If you put several ads within an “Ad Group,” Google AdWords will run an automated experiment to figure out which is best.

Source: Google AdWords InterfaceSession 4 MKTG 367 DDDM 27 / 30

Assignment 3 and Project Task 1

Topics

1 Marketing ROI Review of ROI Review of Examples 1 and 2 Example 3

2 A preview of A/B testing Obama Campaign Website Anthro Homepage Test Hilton Display Ads WhichTestWon.com Google AdWords

3 Assignment 3 and Project Task 1

Session 4 MKTG 367 DDDM 28 / 30

Assignment 3 and Project Task 1

Assignment 3

Assignment 3 will be due before our next session. Any questions?

Session 4 MKTG 367 DDDM 29 / 30

Assignment 3 and Project Task 1

Project Task 1

You should be planning to meet with your client early next week. To gather the information you need for Project Task 1.

Reminder: we will not have class on Tuesday next week.

Session 4 MKTG 367 DDDM 30 / 30