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The Limits of ROAS: Why a Multi-Metric Approach Wins in Retail Media

Retail media is going through a renaissance right now. It's attracting consumer goods brands with its precise, data-driven advertising capabilities. These brands can target different groups of customers at different stages of the buying journey by utilizing the wealth of first-party data held by retailers. Plus, they get clear insights into whether their efforts actually lead to sales. It's no wonder that Return On Ad Spend (ROAS) is such a popular metric. But retail media has evolved, and the old methods of measuring effectiveness no longer apply.

 The Evolution and Limitations of ROAS

In the early days, retail media mainly used simple pay-per-click ads, and ROAS was a reliable indicator. However, with  connected TV video ads and programmatic off-site display ads, things are more complex. Retail media strategies now involve retargeting and engaging with multiple retail media networks.

This represents a significant shift in strategy. According to LiveIntent, 73% of brands plan to increase their investment in retail media networks next year. ROAS used to be a straightforward measure of profitability. Now, it seems inadequate for the needs of modern marketing campaigns. ROAS inherently prioritizes profitability, which makes it useful for maintaining margins on established products. But it's less effective for new initiatives trying to raise awareness and capture market share.

The key is to know exactly what you want to achieve. In this blog, we'll explore the drawbacks of only using  ROAS as a metric. We'll present some alternatives and dive into the technology you'll need to get the insights you're looking for.

In the complex world of retail media, ROAS falls short for several reasons.

1. Limited Scope: ROAS only focuses on directly attributable sales. It overlooks the impact on brand awareness, customer acquisition, and long-term loyalty.

2. Profitability Blindspot: A high ROAS might look good, but it doesn't take profit margins into account. Spending a lot to acquire customers with low margins can lead to financial loss.

3. Attribution Challenges: It's tricky to figure out the exact influence of an ad on a purchase within a retail media network. Relying only on ROAS can lead to a "performance marketing trap" where all campaigns prioritize immediate sales, as opposed to long-term brand building. A multi-metric approach gives a holistic view of campaign success because it considers brand awareness, customer acquisition, profitability, and sales effectiveness.

 Alternative Metrics to ROAS

Several alternative metrics have emerged that navigate this new landscape and offer unique insights aligned with diverse marketing objectives.

1. Marketing Efficiency Ratio (MER): MER provides a holistic measure of marketing performance. It's a calculation of Total Sales divided by Total Marketing Spending. It takes into account all customer touchpoints, not just those directly tied to specific campaigns. This broader view helps brands move beyond the narrow focus on daily ROAS, which can be misleading and oversimplified.

2. Detail Page View Rate (DPVR): DPVR is particularly valuable for retail marketplaces like Amazon. It measures the effectiveness of creative content and how well it resonates with target audiences. It works particularly well with upper-funnel tactics like online video or programmatic display. For instance, a high DPVR but low conversions could indicate issues with product detail pages. Using this data, your team can make improvements to enhance the customer journey.

3. Incremental Profitability: Incremental profitability ensures that marketing investments are adding value and are sustainable. (Unlike ROAS, which can be misleading by solely focusing on revenue.)

4. New To Brand (NTB): When it comes to categories like confectionery, where it's important to reach as many households as possible, the new-to-brand (NTB) metric is essential. NTB tracks how many new shoppers a campaign attracts. It gives a clear idea of how well you are expanding your market.

 The Role of a Flexible OMS and Composable Tech Stack

Retailers need a solid Order Management System (OMS) that can handle all their needs. And to really make the most of those fancy metrics, they also need a composable tech stack. A flexible OMS works seamlessly with different retail media networks and connects with other components of the ad tech stack. This way, data flows smoothly and we get actionable insights. A composable tech stack lets retailers customize their technology, like playing with Lego blocks. It gives them the flexibility and scalability they need. These composable commerce systems are built to be modular and cloud-native, which means retailers can adapt quickly to changes in the market.

A composable tech stack lets retailers customize their technology, like playing with Lego blocks. It gives them the flexibility and scalability they need. These composable commerce systems are built to be modular and cloud-native, which means retailers can adapt quickly to changes in the market.

 Practical Considerations for Implementing Composable Commerce

When it comes to implementing a composable commerce strategy, there are a few important factors to consider:

1. Stay Flexible: You need to adapt to new technologies and market trends. That's where a flexible Order Management System (OMS) comes in handy. It offers customizable solutions and integrates smoothly with other tools. (Boostr's integrations team excels at this!)

2. Focus on Your Business: Your technology stack must align with your business needs and goals. One-size-fits-all solutions won't cut it. You need something made specifically for you.

3. Embrace Modular Architecture: A modular approach lets you add and subtract components. This ensures that your tech stack can evolve with your business, keeping you ahead of the game.

4. Embrace an Open Ecosystem: An open ecosystem promotes compatibility between different systems. This leads to comprehensive data analysis and better decision-making.

With composable commerce, you get a strong foundation for modern retail strategies. This approach allows for the integration of any metrics and includes analytics tools. You'll get a deeper understanding of campaign performance and customer behavior.

Overcoming the Pitfalls of ROAS

Now, let's talk about the limitations of Return on Ad Spend (ROAS), and what you can do about it.

While ROAS is still valuable in certain contexts, it has its limitations. Relying only on ROAS can limit your marketing strategies to mere performance media efforts. In addition, it ignores the broader goals of brand building and market penetration.

To overcome these issues, we recommend a multi-metric approach. This way, you get a more holistic view of your campaign performance. This ensures the accuracy of performance measurement and supports long-term goals.

Because the retail media industry is moving so quickly, it's essential to evolve. While ROAS used to be a crucial metric, it no longer works with today's omnichannel media strategies.

A flexible OMS and composable tech stack provide the technological foundation you need. They help you build robust, adaptable systems, to drive long-term success. In the new age of retail media, the ability to pivot is paramount. With the right tools and metrics, retailers can navigate the complexities of modern retail media--which means that every dollar you spend has impact.

With our retail-in-a-box solution, Boostr offers your retail media team the integrations you need for your composable tech stack. We also have the flexibility and scalability to meet your needs as you grow. Ask for a demo today.

ABOUT BOOSTR

Boostr is the only platform that seamlessly integrates CRM and OMS capabilities to address the unique challenges of media advertising. With boostr, companies gain the unified visibility necessary to effectively manage, maximize and scale omnichannel ad revenue profitability with user-friendly workflows, actionable insights, and accurate forecasting.

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