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In a report completed by ExchangeWire in 2015 on the state of the global DMP landscape it was clear that ROI was a major, and divisive element when it came to making a decision on whether or not to implement a DMP.
In the report (full write up here) 24% of marketers responded to to the question of major DMP driving forces by stating that the primary reason for implementing a DMP was “improved ROI”. However, later in the report, 32% of marketers surveyed cited that the largest barrier to implementing a DMP is a lack of understanding and inability to “determine the ROI”.
In short, marketers appear to believe instinctively that the DMP could and indeed should have a positive impact on media and communications efficiencies and yield a positive ROI, however they do not quite understand how that improved ROI would be actualised in reality.
Most of us know what ROI is, it stands for return on investment and it is a metric used to determine and measure the efficiency of one investment compared to another. To calculate ROI, we look at the profit (benefit) from an investment as a proportion of its cost:
What is clear from this equation is that there are two basic variables which influence the total ROI for any campaign. The total investment (cost) and the total return (revenue), and by adjusting either of these variables there will be an impact on ROI:
Investment (Cost) – If I am able to reduce my overall investment, whilst maintaining my return then ROI will increase
Return (Revenue) – If I am able to increase my return, whilst maintaining my investment then ROI will increase
Breaking Down ROI
Before we look at the role the DMP plays in improving ROI, I think it’s important to break ROI, investment and return down into more commonly understand concepts within media and communications, those concepts are; media efficiency and lifetime customer value.
- Media Efficiency – Media efficiency is best characterised by the simple notion of spending less to achieve the same return. It can be demonstrated effectively by the metric cost-per-acquisition (CPA). If I spend less to achieve the same level of conversions, my CPA is reduced and my media efficiency increases.
- Lifetime Customer Value – Lifetime customer value is quite self explanatory; it is the value (typically described in dollar terms) of an average customer across his/her lifetime with my brand as a customer. That final nuance in relating Lifetime Customer Value to existing customers will become more important later.
The DMP Effect
When we look at the DMP in the context of the above definition of ROI and its application to media and communications, it becomes clear that to have a positive impact on ROI the DMP must either improve media efficiency, lifetime customer value, or both. Furthermore, the gains it makes in each of these areas must outweigh the investment cost of the DMP itself.
A Worked Example: Breaking Even on DMP
Advertiser A is thinking about installing a DMP and wants to work out the ROI implications of the DMP. Advertiser A is seeking to determine the “break-even” point of the DMP. In other words, how much value needs to be recouped in either increased media efficiencies or increased lifetime customer value, to pay for the DMP. We’ll take each in turn:
Firstly, the advertiser looks at how the DMP can improve media efficiency, in other words how can the DMP be used to prospect for new customers more effectively and reduce CPA, and how would we quantify this.
Let’s pick 3 simple DMP-driven initiatives:
- Excluding existing customers – Advertiser A can effectively unify all existing customer data (digital, mobile and non-digital) to effectively exclude all existing customers from new customer prospecting, reducing impression wastage and increasing efficiency by X
- Cross device activation – Advertiser A could activate campaigns across screens and get a global view on unique user frequency (as oppose to device frequency) through using DMP cross-device capabilities. By stitching multiple devices to a single user, the advertiser will be able to frequency cap more effectively and mitigate over exposure and media wastage, they reduce the overall impression delivery and increase efficiency by Y
- Content and creative optimisation – Advertiser A could tap into the DMP’s audience insights and analytics capabilities to gain a better understanding of audience composition across the user journey, funnel and purchase cycle etc. and better tailor creative messaging and on-site experience to improve the overall conversion rate of media efforts and increase efficiency by Z
If we aggregate the value of X, Y and Z, and it is greater than the cost of the DMP then the DMP has a positive ROI associated.
Lifetime Customer Value
The DMP is a vital tool in not only understanding but also optimising towards lifetime customer value.
The DMP provides a centralised solution for customer base segmentation and analysis. Through the DMP, Advertiser A would be able to segment and profile separate customer groupings to build rich insights, for instance segmenting and analysing audience composition based on average basket value, past purchases, lifecycle stage, brand engagement rates etc. Furthermore, the DMP provides unified and agnostic activation, allowing for audience delivery and targeting within digital, search, social, email and direct mail channels to name but a few.
When we talk about lifetime customer value we are talking about the total revenue accrued from an average customer across their lifetime as a customer. There are therefore two ways in to look at increasing lifetime customer value; (1) increase the revenue associated with each customer, maintaining the average life expectancy, or (2) increase the average life expectancy whilst maintaining the average revenue.
- Increase revenue – Through the DMP, Advertiser A would be better placed to employ effective cross-sell opportunities, deliver tailored sales and deal messaging, and make better product recommendation. By capitalising on DMP look-a-like and act-a-like facilities, Advertiser A may also generate predictive models by evaluating their current customer base, and create new prospecting audience groupings optimised towards attracting high revenue and high average basket targets.
- Increase lifetime – By understanding customer lifecycle stage, Advertiser A would be better placed to initiate renewal communications, deliver loyalty scheme programmes, encourage mobile app download/adoption, and generally improve brand experience through more tailored and personalised communication mechanics
I want to conclude by saying that the ability to determine, forecast, monitor and optimise ROI is vitally important to any decision to implement a DMP. At Lotame, we are working with clients and prospects to shed light on the question of ROI, and to work with them to deliver data-driven strategies to improve media efficiencies and increase lifetime customer value, and to prove the value the DMP can bring to their businesses.
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