How to calculate absolute return on investment
Incremental Sales Lift has been the goal of marketing for decades, and Incrementality measurement has always been the goal of measurement.
Incrementality measurement until recently focused on segmenting audiences into a control group and showing those audiences with PSA or Ghost Ads, comparing the results of a campaign shown to the control group vs. the result of the general campaign.
This approach usually produced biased or inconclusive results, as there was no ability to know if the control group was “clean” and unaffected by other campaigns running.
Various other attempts to test incrementality were done by blacking out advertising all together for a period of time - but this approach had such high opportunity costs and only provided conclusive results for the time the test was performed - that most advertisers abandoned the idea of performing such tests.
Our challenge at INCRMNTAL was: How would we know if a user was going to perform an action, even if they were not advertised to?
The answer: we don’t
Our initial idea was: we will build “better attribution”. We wanted to build an attribution solution based on 1st party data, and apply machine learning to understanding the multiple touch points a user has with ads.
But this was a moot point - multi-touch is practically impossible in the mobile app ecosystem, as user data is becoming obsolete.
We also figured that attempting to help developers by offering a new measurement SDK is not helping the developers. No one wants to integrate another SDK.
Our research, had us understand that developers are not in need of “better attribution” - attribution as it is - is ok. But attribution can lead to terrible outcomes.
Once we established a few ground rules, we had our direction
Once we established our ground rules, the answer was found in data science and statistics with Causal Inference and Difference in Difference.
Causal inference is the process of determining the independent, actual effect of a particular phenomenon that is a component of a larger system. The main difference between causal inference and inference of association is that causal inference analyzes the response of an effect variable when a cause of the effect variable is changed.The science of why things occur is called etiology. Causal inference is said to provide the evidence of causality theorized by causal reasoning.
Difference in differences is a statistical technique used in econometrics and quantitative research in the social sciences that attempts to mimic an experimental research design using observational study data, by studying the differential effect of a treatment on a 'treatment group' versus a 'control group' in a natural experiment. It calculates the effect of a treatment (i.e., an explanatory variable or an independent variable) on an outcome (i.e., a response variable or dependent variable) by comparing the average change over time in the outcome variable for the treatment group, compared to the average change over time for the control group. Although it is intended to mitigate the effects of extraneous factors and selection bias, depending on how the treatment group is chosen, this method may still be subject to certain biases
Calculating incremental sales lift is very simple:
Total Sales – Baseline Sales = Incremental Sales
Now this is the hardest part. Marketing is affected by multiple variables: Seasonality, Competition, Media availability and media costs, external factors such as news, weather, the economy.
Campaigns also influence one another, and the most meta factor of them all: your marketing affects your own marketing results.
One method to create a baseline is to turn off all Advertising and allow yourself to monitor the sales results when no advertising activities are present.
Most marketers would cringe performing this test, as the opportunity cost may outweigh the gains.
INCRMNTAL is an incrementality measurement platform providing Advertisers with incrementality and cannibalization scores over their campaigns, ad networks and any marketing activity to unlock the full value of their marketing budget.
Our platform calculates incremental sales lift without the need to stop sources or campaigns.
The platform uses causal inference and difference in difference models to continuously create a “baseline” using synthetic audience groups and by simulating “what-if” scenarios.