Marketers are no longer asking, “To personalize or not to personalize.” According to Statista, 33% of marketers in the United States and United Kingdom spend more than half their online marketing budgets on personalization. Message personalization is the leading tactic used by email marketers to improve their campaign performance. Accenture data reveals that 91% of consumers are more likely to shop with brands that provide relevant offers and recommendations. But how can marketers measure the ROI of personalization? How can we prove that our efforts are working and worth investing in?
In this article, I want to talk about the ROI of personalization and what marketers can do to measure effort and fine-tune personalization strategies in the wake of privacy concerns. We’ll also cover zero-party data, the near-death of the third-party cookie, core metrics for 2022 and, how to better quantify the impact of your marketing campaigns.
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Measuring the impact of personalization
Personalization can open up new ways to boost revenue and conversions. It can also help you acquire and retain customers and stretch your marketing spend further. But evaluating the ROI of personalization isn’t easy, especially with siloed data and tools.
Siloes stand in the way of a fluid customer experience. Fragmented tools hinder cross-communication and leave marketers with an incomplete picture of their customers, resulting in broken customer experiences and irrelevant messaging. Removing these silos and the friction between systems enables you to finally see the compound effect of personalization on your bottom line.
The compound effect of personalization on revenue
Conversion Rate and Average Order Value (AOV) are two key metrics that directly impact revenue, and which can be easily increased through personalization. In the above example, which is based on a mid-size ecommerce business, row one represents the company’s baseline, pre-personalization. In the second row, we see that boosting the conversion rate by 10% through personalization results in a 10% uplift in both revenue and Return on Ad Spend (ROAS).
If the business then also boosted its Average Order Value (AOV) by 15%, again through personalization, the compound effect of these changes results in a 26.5% uplift in both revenue and ROAS. Although Return on Ad Spend (ROAS) is not directly impacted by the changes in the conversion rate and AOV, by improving the funnel a business will automatically make its ad spend more efficient.
By identifying the right audience segments and serving them personalized ads, you can avoid marketing waste, and no longer throw money away by serving ads to users with little to no chance of converting. This will, of course, also have a positive impact on Customer Acquisition Costs (CAC). It’s important to note that these figures can vary from industry to industry, but it is clear to see that implementing a personalization program can have a huge impact on the key metrics and KPIs.
iOS15 and the shift to zero-party data marketing
We can’t talk about personalization without talking about privacy. Apple’s latest update for iPhone, iOS15, introduced enhanced privacy updates, including Mail Privacy Protection, that make it more challenging for marketers to measure their campaign effectiveness due to restrictions on access and identifiers. iPhone users can also use the Hide My Email feature to mask their actual email address from a website.
But Apple isn’t the only company embracing privacy updates that will fundamentally alter the way marketers do their jobs. The next big thing on the chopping block: the third-party cookie.
Google had originally scheduled to terminate third-party cookies in January 2022, but pushed back the date to late 2023. While some marketers sighed in relief, the urgency hasn’t gone away. Time is of the essence to move to invited personalization, also known as zero-party data.
Unlike third-party cookies, invited personalization is built on trust and value exchanges because customers have consented to its collection. It enables marketers to build highly relevant and personalized journeys and enhance each customer’s experience.
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As a result, we’re seeing more marketers shift their focus to retention and metrics such as customer lifetime value, click-through rates, and conversions to measure the effectiveness of personalized marketing campaigns.
Zero-party data includes data collected from consumer actions or behavior from apps, products, or websites. Information is collected through customer feedback methods including polls, forms, and surveys.
Different ways to measure personalization ROI
McKinsey states that personalization can deliver 5-8x times the ROI on marketing spend and lift sales by 10% or more. While marketers have been employing forms of personalization for the last two decades, meaningful personalization—which involves testing ideas with customers and quickly iterating—wasn’t possible until recently. The stark reality is that the tools simply didn’t exist to deliver truly relevant content and offers to customers across channels.
Average order value and conversion rate directly impact revenue. Using personalization, you can boost your impact in these two areas. But marketers can track other metrics to maximize the ROI of their personalization efforts.
Key metrics to track to gauge your personalization efforts
- Incremental Conversions: net conversions that come from personalization which are over and above the control group’s conversion value. They are expressed in numerical terms over the benchmark number.
- Incremental Revenue: the net revenue generated from personalization over the control group, usually expressed in monetary terms, cumulative or absolute, over the benchmark value.
- Conversion Rate Uplift: This is the change (increase or decrease) in the personalized version’s conversion rate over the control group, and it usually displays as a percentage. By tracking conversion rate uplift, marketers know how effectively their personalization strategy contributes to revenue.
- Average Order Value Uplift: This metric provides the net increase in the average order value of a test group against the control group. It is expressed either as a percentage or in monetary value. In industries like eCommerce, it quantifies the personalization-led extra order values from the same set of customers.
- Significance: A campaign or personalization is said to have high significance (or statistical significance) if a particular personalization has shown visible effectiveness over its control group. This effectiveness usually measures a positive change in impressions or increased uplifts like conversions or average order value.
- Email ROI: Despite the recent changes, email remains one of the most popular communication channels. Along with engagement metrics like open rates, conversion rates, CTR, and ROI-focused metrics, such as Click-through-revenue help to attribute revenue generated by email personalization
- Sales /revenue from clicks: This metric provides your personalization campaigns’ total sales or revenue figures and represents gross sales or revenue figures. Usually, these metrics track sales or revenues that are the outcome of specific personalization efforts.
- Web push ROI: This is one of the best-performing channels for engaging your opt-in subscribers. Successful web push strategies revolve around one-to-one individualized messaging based on a customer’s needs and historical or predictive behaviors. Combined tracking of opt-in and engagement metrics help measure the ROI of web push personalization
- Mobile app ROI metrics: Mobile apps are an essential part of an omnichannel marketing strategy. While you spend time and money building your app and getting downloads, it’s essential to understand and measure your mobile app’s performance to determine ROI. One of the core metrics is new user acquisition and recurring engagement on the app. By tracking the acquisition, engagement, and retention metrics, you can determine the success and ROI of your mobile app campaigns.
Marketers may also want to track micro-conversion goals, such as page views, add to cart ratio, sales ratio, and other custom-defined metrics.
To succeed in 2022 and beyond, it’s essential that you integrate and unify your marketing channels to deliver relevant and personalized offers and communications.
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