What marketers must evaluate to make a decision based on economic impact
The modern marketing department is rapidly shifting from cost to profit center, and marketers are scrambling to understand and use data to optimize outcomes. Performance marketing is fast becoming the priority. In email, search and display channels, the trend has been first to outsource due to the limited availability of specialized knowledge and skill sets. Then as channels mature, skills in the market increase, and technology drives efficiency.
Those with the most to gain have developed teams in-house or developed a much closer working relationship with their digital agencies. In the search for incremental growth and a better understanding of their ROI, marketers are now applying performance-based commercial models to a much wider range of third-party online and mobile marketing partnerships, including traditional media partners, comparison engines, shopping engines, aggregators, apps, education partners, retail partnerships, meta-partners and social media portals.
This drive for measurable outcomes along with continued growth in global e-commerce means marketers must now seriously evaluate the strategy and technologies they use to drive growth. The question for advertisers is whether to take closer control of these types of partnerships in-house or continue to outsource to third-party network providers.
There are cases for both sides depending on – but not limited to – the size and type of partnership, overall channel size, and growth ambitions. As digital partner marketing has developed over the last 20 years, there are now lots of highly skilled people available to work brand side. At the same time, a number of specialized SaaS solutions that improve channel relationships and efficiencies allow these skilled teams to easily consolidate and bring in-house mature partner programs.
Traditional third-party network solutions are a fantastic resource if you’re just getting started, as they have an existing network of partners already to tap into and can help you to build up your knowledge on what works and more importantly what doesn’t – especially if you’re considering advancing your reach outside of your core territories. Third-party networks can also be a good solution if many unknown marketing partners are being bundled, if a new market is being explored, or if the revenues derived out of partner programs are relatively small.
However, with consumers using so many devices and channels to shop, it increasingly makes sense for large advertisers to connect directly, at scale, globally with all of their marketing partners, including offline, online, social, mobile, and even out of home. This is especially true for advertisers where a small number of partners drive significant revenues, potential for revenue growth exists, the advertisers and partners operate in a very competitive landscape, and surprisingly, where new partner models such as meta search engines, emerge.
While some of these considerations are clearly intangible, considering the economic impact should help drive the decision to manage digital partner marketing in house or continue to outsource.
Before we jump in, some qualification is in order. When we say, “bring digital partner marketing in house,” we mean that an advertiser should connect directly with some or all of their marketing partner programs and manage them with a dedicated in-house team or a dedicated digital agency partner.
Current Digital Partner Marketing Program
We recommend that advertisers evaluate and consider the following short-term and long-term factors when making the decision.
Short-Term Objectives
The first thing an advertiser should consider is its current program. Priorities and outcomes differ and depend on variables such as:
- Vertical: High-growth areas like travel, finance and retail generate significant revenues, operate on tight margins, generate a ton of rich data and are well suited for an in-house solution. Different verticals all have unique concerns (e.g. coupon code management in retail, compliance in finance), but they can all drive higher margins by creating one-to-one strategies for their key marketing partners.
- Revenues: As a baseline, you need to understand how much current revenues your performance marketing efforts drive, as well as the percentage of revenues each partner channel (and even individual partner) drives.
- Partners: You need to know exactly how many partners you work with and in which channels. Industry averages show that about 80 percent of an advertiser’s performance-based revenues are generated by 20 percent of its key partners.
- Conversions: You need to know how exactly how many individual conversions your performance-based channels really drive over a certain time period (monthly, annually), as this is ultimately what you’re paying for as an advertiser in performance-based commercial models.
Long-Term Objectives
Next, it’s important to think about your intent. Are your goals to simply improve current business that your digital marketing partners drive? Are you looking to introduce your products and expand your digital marketing into a new country or region? Do you seek to drive more margin or top-line growth? Having the ability to collect and connect more data points can lead to gains in revenue, profitability and productivity (i.e. economic impact, which is the litmus test).
The latter point is critical because with the right software solution, advertisers can get much more granular data about conversions that help them understand when, where and how their digital partners are driving sales, and the profitability of each sale. This isn’t to say that more data is automatically better, but with the right data and the right analysis, it’s much easier to get a highly detailed picture of partners, conversions and customer behaviors all in one place.
Assumptions
While advertisers should consider the above factors and objectives when determining the potential economic impact to the business of bringing digital partner marketing in house, the impact on revenues and profitability are based on several assumptions such as:
- Are the digital marketing partners that drive 80 percent of your revenues willing and able to follow you as you move to an in-house solution?
- Are your revenue and profitability targets projected far enough out after initial migration to an in-house solution (e.g. 6 – 18 months after moving in house)?
- Does the vendor provide the required initial training and ongoing support (technical and best practices) in order for your team to get up to speed and optimize revenues, profitability and overall growth?
To summarize – there many things an advertiser needs to consider when making the decision to take digital partner marketing in house. There’s no cookie cutter answer for all advertisers and some are even working with a hybrid of both in-house and third party networks. However, for large global advertisers, the shift toward in house makes sense in terms of productivity gains. After all, at a certain point it doesn’t make sense to work with your most profitable partners directly on one platform and indirectly on dozens of others.
To some extent there are lots of analogies to the programmatic media space a few years ago. While media buying technology matured and in-house expertise accrued, leading advertisers began to manage their media buying with their own teams using best in class technology reducing their reliance on ad networks.
The overarching truth for all advertisers is that changing market demands and consumer behavior continues to transform the broader marketing space, and performance-based models are evolving faster than ever supported by improvements in technology. As such, advertisers who demand a deeper understanding of the path-to-conversion and how digital marketing partners play a role in order to drive high-value sales is on the rise. Bringing digital partner marketing in house to help achieve this is a natural evolution, but the right understanding of the economic factors driving this choice is essential to help guide a rational decision based on data and business-driven outcomes.
This article originally published on MarTech Advisor on March 1, 2016