What is Incrementality? Understanding and Measuring its Impact in Marketing
Incrementality is a crucial concept in marketing, enabling businesses to understand the effectiveness of their campaigns and tactics by measuring the lift in desired outcomes.
This comprehensive guide will explore the concept of incrementality, the importance of incrementality measurement, and various methods for calculating incremental sales driven by media tactics.
When you think of Incrementality, one word should follow: Testing.
Incrementality in marketing refers to the lift or increase in the desired outcome (e.g., awareness, web visits, conversions, revenue, profitability) provided by marketing activity. Essentially, it helps us determine the true incremental contribution of paid media at the channel, tactic, campaign, or ad set level. This is especially crucial for channels where user-level ad impressions are difficult to map and measure, such as "walled garden" social channels like Facebook, Snap, and Pinterest, or even TV and direct mail.
Importance of Incrementality Measurement:
So, why is incrementality such a big deal? Well, it's all about quantifying the real impact of your marketing via test and control experimentation. For marketers who rely on either ad platform last touch reporting or attribution modeling, it is a critical point of feedback.
Whether you use multi-touch attribution, marketing mix modeling, or any other attribution approach, incrementality testing is a critical calibration and enhancement mechanism. Multi-touch attribution faces ongoing challenges in collecting user-level clicks and impressions across the ad ecosystem, especially with walled garden social media networks that do not allow user-level impression tracking. Evolving privacy regulations also make it more difficult to accurately track user-level data. Marketing mix modeling does not rely on user-level data but requires years of historical data variation to quantify the impact of media, making it less responsive to changes in brand or product strategy or market-level shocks like COVID-19 or iOS14.5.
Aside from these methodology-specific challenges, all attribution models suffer from the problem of correlation ≠ causation. Just because media spend or clicks are highly correlated with sales does not necessarily mean they cause those sales, or in other words, are incremental. Incrementality testing provides a solution to this problem by measuring the in-market causal impact of media, allowing marketers to calibrate and enhance attribution models using test results.
Incrementality testing and measurement help ensure that media spend is optimized for true incremental impact by maximizing ROI, identifying and eliminating waste, where to scale, expand, and reallocate our budgets for maximum growth.
Incrementality measurement can help answer questions like:
- What is a media channel, tactic, or campaign contributing to my desired outcome (leads, LTV, ROAS, revenue, net profit, etc.)?
- What happens if I start scaling spend with a platform or reduce or stop buying ads with a platform?
- Will launching new campaigns or ad products increase contribution to conversions at the portfolio level or will it cannibalize from other channels?
Measuring Incrementality of Media:
The most accurate way to measure incrementality of media is through test and control experimentation. To measure incrementality, start by splitting target audiences into test and control groups. For most marketers this can be done in three ways, via measurement products offered by ad platforms, using known customer lists, or via geo matched market testing. Once test and control groups have been created, apply a different media treatment to the test group, leaving the control group treatment unchanged. The difference in conversion rates between the two groups demonstrates the marginal incremental contribution of that media channel. When carefully designed and cleanly executed, test and control experiments reveal the incremental impact of media on the outcomes that matter most to marketers.
Example 1: Incrementality Measurement in Action
Suppose a brand wants to assess the effectiveness of its retargeting campaign. To measure incrementality, the brand would hold back a small but statistically significant group of its audience (usually 10%) from receiving retargeting ad impressions. Among this control group, 10% repurchase the products without seeing the ads. Meanwhile, the test group that received the ads repurchases at a rate of 14%. Using these figures, we can employ the incrementality formula to calculate incrementality
The incremental lift formula is calculated as follows: (%CR Test - %CR Control) / %CR Control.
In this example, the incremental lift is 40%, which indicates that users who viewed the retargeting ads converted at a rate that was 40% higher (14% vs. 10%) than the control group that did not see the ads.
The incrementality formula is expressed as follows: (%CR Test – %CR Control) / %CR Test.
In our example, the incrementality is 28.6%, meaning that roughly 29 out of every 100 users who saw retargeting ads and converted would not have converted without seeing the ads. However, it's important to note that the remaining 71 users would have converted regardless of whether or not they saw the ads.
By using incrementality testing, brands can gain insights into the true incremental value of their advertising efforts and optimize their campaigns accordingly.
Let's consider a women's clothing retailer, Soft Surroundings, that sought to improve their retargeting strategies. They partnered with Measured to conduct a retargeting experiment. Surprisingly, they discovered that their incremental cost per acquisition (CPA(i)) significantly exceeded both their CPA targets and vendor-reported figures. The primary retargeting vendor, responsible for most of their spend, was over-indexed and often exceeded recommended ad serving frequencies.
Based on these insights, Soft Surroundings decided to cut their retargeting budget by 52% in the following months. They reallocated the saved budget to more effective prospecting tactics, such as Facebook advertising. As a result, the company's top line revenue increased by 17% month-over-month, while their yearly sales comparisons rose by 12%.
The Impact of Incrementality Measurement in Marketing
Incrementality enables marketers to identify the most suitable ads and platforms for each audience segment. Traditional attribution methodologies like media mix modeling (MMM) and multi-touch attribution (MTA) have strengths and weaknesses but both fall short in being able to determine the causal impact of media. Incrementality measurement, on the other hand, uses carefully designed in-market experiments to determine the true impact of media. This provides both a more accurate representation of the media's overall contribution as well as a pathway to enhancing your attribution models.
It is crucial for marketers to grasp and measure incrementality to optimize media spending and boost ROI effectively. By using incrementality measurement in conjunction with traditional attribution approaches like Marketing Mix Modeling (MMM), marketers can uncover the genuine influence of their marketing strategies and make data-driven decisions for resource allocation and growth. As the marketing ecosystem continues to evolve, incrementality remains an essential metric for assessing the performance of campaigns and tactics across a range of channels and platforms.
Partner with Measured for Incrementality Success
Measured is an advanced marketing analytics platform that specializes in incrementality measurement, helping brands optimize their marketing strategies and media spend. Using state-of-the-art techniques such as Design of Experiments (DoE) and Marketing Mix Modeling (MMM), Measured equips marketers with the insights needed to make informed decisions and drive growth. With our team of experienced marketing and data science experts, we're committed to helping you unlock the full potential of your marketing efforts.
If you're looking to better understand and optimize your marketing tactics through incrementality measurement, trust Measured to be your partner in success. Discover how our advanced analytics solutions can help you maximize your ROI and drive sustainable growth for your business.
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