Intro

We already know that not all products are the same. Their unique characteristics also have very specific effects on marketing performance. It's important to mention that:

High price products (often high monetary value [e.g. profit focused], sometimes high margin*) move slower because people are price sensitive and think about the purchase more (you may buy a biking t-shirt every month, but you buy the whole bike only once in five years).

High-value products need more marketing exposure and more evolved marketing strategies to sell.

Since low-priced products (often low monetary value [e.g. profit focused], sometimes low margin*) move faster, they are therefore preferred by ad systems and can boost positive marketing performance (from the perspective of ROAS or Conversion rate)

Media channels distribute budgets unequally, while businesses don’t affect the priority at all if they’re using dynamic ads
- Meta shows products based on inventory distribution and conversion rate
- Most of product inventory shows on Google based on search intent

Problems leading to this product strategy

The profit of retailers is going down due to the fact that an increasing amount of products are sold with markdowns
Marketing departments (optimizing ROAS) are working in separate information silos from Buying departments (optimizing Profit)
Retail has zero control over inventory promotion distribution
Poor quality products cause high return rates and further degrade profitability

Why ROI Hunter?

Completes the picture of margin calculation with the marketing costs per SKU, brand, or category
Allows affecting what products are promoted (e.g. prioritizing high margin/ high value products)

Setup

1. Create margin / profit buckets (e.g. high, medium, low) to segment the products

2. Shape the needs of Buying and Marketing departments following these best practices

Understand the current investment and performance
Enrich margin / profit segments with other performance metrics you care about (like conversion rate, ROAS or spend)
Identify the worst offenders (e.g. low margin, low conversion)
Identify the underpromoted potential stars (e.g. high margin, low spend)

Example of the worst offender (Segment 5) and underpromoted potential star (Segment 0)

3. Set performance targets for each bucket:

Set higher performance targets for low margin/profit items
Set lower performance targets for higher margin/profit items
WHY? - A bike can spend more money with low ROAS, but a bike bell needs to perform above average pretty fast to be kept in the loop

4. Set up bucketed campaigns with different budget

Control budget to maximize the impact of each segment - fuel higher budget into higher value products, lower budget to lower value products.

5. Set up Stop Loss: Exclude the worst offenders, which has 0 value for your marketing activities (don't forget to report these back to commercial teams)

Example

Here we have two margin buckets. There is 13,000 GBP total spent on the bucket with low margin and low conversions, alongside a bucket of high margin products that have not been adequately promoted.

When you are analyzing segments like these, some of them might help you to understand your performance and opportunities but are not ideal for further execution. We call them analytical segments.

Let's take this case as an example.

This segment will show you how many of your High-Margin products are not promoted at all. This is how you can create segment like this:

Even though this segment is essential for your analysis, as it uncovers the opportunity lying under your most valuable products, it's not ideal for an execution.

Why?

After you set this segment as your Product Set for Meta Campaigns or Product Group for Google Ads, your campaign will start pushing these products and spending on them.

Only one cent spent on these products will cause exclusion of the product from your campaign and your product set will diminish in very short period of time without proper impact on your performance.

For executional segments, we recommend the higher spend rule ( e.g. 100 EUR), or to use % ( e.g. bottom 10%)

This is how you can create a segment for execution of this strategy

Evaluation

ROIH offers you several analytical tools that help you monitor your marketing and business performance. Every choice you make can be tracked and monitored using Charts in the Segments dashboard. Let's take as an example our case of excluding Low margin, Low conversion products and adding more budget behind High Margin products.

Here we can see, that our decision influenced spend into Low Margin products (purple line). But we also can see that excluding the worst offenders, not only saved money, but improved overall ROAS for this particular segment. (blue line)

2. By boosting investment into "High margin" products which did not have any marketing support up until now, we not only invested more money into these valuable products (blue line), but also managed to increase ROAS in that particular segment (purple line). These small marketing strategies and tweaks managed to not only boost overall business profitability, but also support our key marketing metrics (such as ROAS).