Imagine a supermarket rewarding its staff for selling ice creams during a heat wave, or a retailer launching a massive ad campaign for the latest must-have toy in the run up to Christmas, even though it is continually sold out.
Both of these situations seem nonsensical given these products will practically walk off the shelves by themselves – when in stock – yet this is exactly what brands are doing every day in their digital marketing campaigns.
Advertising popular products that are in high demand is an easy win for marketing teams, as these ads appear to perform exceptionally well, driving engagement and conversions. Ad management tools and bidding technologies are programmed to target revenues or margins, which naturally incentivises promotion of top-selling products. But these products don’t actually require advertising, as they will sell regardless. What’s more popular products often sell out quickly, meaning ad budgets are wasted promoting SKUs (Stock Keeping Units) that are low in stock or unavailable.
With other factors such as ad fraud, viewability, ad placement, brand safety, and audience targeting to worry about, it’s no surprise this particular issue is slipping under the radar for the majority of brands. But it is a key cause of ad budget wastage and – with digital ad spend increasing every year – the stakes are continually getting higher.
There are two steps that must be taken to avoid misusing ad budget, and to allow spend to be reallocated to products that are harder to shift:
1. Link inventory data with ad strategy
The main reason brands continue to waste marketing budgets promoting top-selling products is that inventory information such as stock-level forecasts and SKU availability is not accessible to be actioned by the ad tech stack. None of the advertising or attribution tools currently available take inventory data into account when measuring performance of campaigns.
To really understand how ad campaigns are performing, marketers must integrate inventory data with ad tech tools, so it can inform advertising strategy in real time. Ad spend can be increased for high-stock products that need a little help to sell, for instance, or suspended for products that are about to sell out. Many brands already have a similar process in place where inventory data informs pricing strategy – prices are reduced when product stock levels are high – and this thinking could easily be applied to ad spend.
2. Replace revenue with yield-based KPIs
The success of ad campaigns is currently measured by their impact on revenues or margins, which inevitably incentivises marketers to promote the highest-performing products. Ads for products that are in high demand will generate boosted levels of engagement and increased margins, which looks great on those all-important marketing reports. The fact that the product would have sold just as well without advertising, and that the ad spend allocated to it would have been far better invested elsewhere, is largely ignored.
Rather than relying on revenue and margins to measure advertising performance, marketers need to come up with a new yield-based metric that takes account of stock levels in determining success. The industry has yet to devise an exact formula for determining yield, but it might be on a scale of zero for products that will sell easily and can’t be reordered, to the full net sales price for high-stock products that will be tricky to sell. Optimising to yield-based KPIs (Key Performance Indicators) will ensure ad strategies focus on products that are hard to sell rather than those in high demand.
It may not get the media attention of ad fraud or viewability, but promoting popular, high-performing products is a major cause of wastage in digital advertising and is something brands must address. By making inventory data actionable in the ad tech stack and adopting new yield-based KPIs that reward the promotion of hard-to-sell products, brands can make their budgets work harder and allocate ad spend to the SKUs that really need it.