Product scoring in PMax & more digital…

If you thought 2023 was a roller coaster ride for online retail, you ain’t seen nothing yet. 2024 brings a new set of challenges, but also even more profitable opportunities for online retailers. In fact, we covered more than two dozen of these emerging digital advertising trends and stats in our recent webinar: A CMO’s guide to what’s IN and what’s OUT in 2024 ecommerce.

That said, we’ve talked about 3 digital advertising trends in particular that we feel you should be paying attention to in the coming months. Number 2 will probably blow your mind, if you don’t mind me being a little click-bait-y here.

Diving into these trends, it’s clear we’re moving towards a more sophisticated approach in digital marketing. With automation at the steering wheel and the increased intransparencies of paid search platforms, it’s high time for marketers to fully embrace ecommerce’s new normal.

So without further ado, let’s break down these trends…

Good-bye ROAS,
hello Blended Metrics

If you’re a regular reader of our blog, you’re probably familiar with our cautious approach to return on ad spend (ROAS). It’s not that ROAS lacks value, because it does. The issue is its narrow focus on immediate returns. Which can obscure the broader, more complex picture of marketing’s impact on brand growth and customer engagement.

What are Blended Metrics?

In recent months, we’ve seen a significant shift in ecommerce towards blended metrics. In fact, it’s been such a hot topic of discussion among online retailers that we’ve covered it before in our Hot PMax questions Q&A session. So make sure to give this one a read as well!

To sum it up, blended metrics are comprehensive metrics that aggregate data across multiple marketing channels and customer touch points. They provide a more holistic view of marketing effectiveness and business performance. Above all else, they are a great way to measure the incrementality of your PMax campaigns. Especially compared to the narrow focus of classic ROAS on immediate returns. 

Marketing Efficiency Ratio (MER)

MER offers a broader perspective on marketing efficiency by evaluating the total revenue generated in relation to the overall marketing expenditure across various channels. Unlike standard ROAS, which often focuses on the return from individual campaigns or platforms, MER aims to aggregate data to provide a holistic view of marketing performance.

For instance:

  • Let’s say a retailer spends $2,000 on Google Ads and $3,000 on Meta Ads.
  • These combined marketing efforts lead to total sales of $10,000.

In this scenario, the MER would be calculated by dividing the total sales by the total marketing spend across both channels:

  • Total Spend: $2,000 (Google Ads) + $3,000 (Meta Ads) = $5,000
  • Total Sales: $10,000

MER Calculation: $10,000 (Total Sales) / $5,000 (Total Spend) = 2

This results in an MER of 2, indicating that for every dollar spent on marketing across Google and Meta Ads, the retailer generates two dollars in sales. This highlights that the performance of the entire marketing mix is considered, rather than evaluating channels in isolation.

Now, while this all sounds pretty good, it should be mentioned that we take MER with a grain of salt, as its broad evaluation leaves a lot of space for errors. There are, however, a lot of smart people who swear by it. Particularly businesses with a significant investments across various channels. As it’s designed to test your entire marketing portfolio and uses comprehensive simulations to draw conclusions. 

Media Mix Modelling (MMM)

Similarly, MMM’s holistic approach to analyzing the effectiveness of different marketing channels and strategies. It takes external factors such as seasonality and economic conditions into account. This analysis helps marketers understand which marketing efforts are driving sales and how external factors affect consumer behavior, allowing retailers to allocate their marketing budget more effectively. 

Relying solely on MMM can be a double-edged sword, as it’s heavily based on historical data. Which might not accurately predict future market behavior. However: accompanying MMM with MER can give you quite an impressive overview on the effectiveness of your paid ads campaigns.

The move toward blended metrics reflects a growing recognition of the limitations of siloed metrics among online retailers. As well as the need for a more integrated approach to marketing analytics. Blended analytics offer a more holistic, all-encompassing perspective on market dynamics that ROAS alone just can’t measure up to.

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Product scoring in PMax
in multiple dimensions

Another thing we see facing changes in 2024 is what we like to call simple product scoring. Paid ads platforms like Google’s PMax score products by mainly focusing on the “Heroes and Zombies” or “Bleeders and Leaders” in the retailers’ extensive catalogs.

The issue with this approach:

  • Redundant optimization: Google already optimizes for volume and efficiency.
  • Dependence on historical data: Lacks predictive capabilities since it’s based on past performance, which is problematic for products without historical data and makes evaluating underperformers (zombies) difficult.
  • Arbitrary thresholds: The process of setting benchmarks for what’s considered ‘good’ or ‘bad’ performance is not clear-cut, often feeling like guesswork.
  • Correlation issue: Volume and efficiency metrics tend to be closely linked to begin with. This means this framework is not even two-dimensional, but rather 1.5-dimensional at best.
  • Overlooked data: Fails to account for other crucial factors that could indicate a product’s potential value to the business or its appeal to consumers.

Case in point: paid ads platforms disregard a wider spectrum of products that have a high chance to convert. The “unsung heroes” hidden in the retailers product mix, if you will.

Examples of such products could be the less prominently featured items that cater to niche markets or specific customer needs, seasonal products that gain relevance during certain times of the year, and emerging trends that haven’t yet reached mainstream popularity. These products may not have the high volume sales of top performers but can offer significant conversion potential and profitability when targeted to the right audience.

Now, there is a way to score products beyond just looking at volume and efficiency. One that also factors in profit margin and stock levels to give you a more complete overview of your catalog’s potential impact.

We call it: n-dimensional product scoring.   

But what’s n-dimensional product scoring exactly?

Moving to n-dimensional, or rather multi-dimensional product scoring is a big step up from the old ways of just looking at sales numbers or how cost-effective products are. Now, we’re looking at everything—how much profit a product makes, how many we have in stock, what the competition is doing, and more. Essentially, it’s a way to evaluate products by looking at many different factors, not just one or two. This method examines things like: 

  • Profit margin: How much money a product makes.
  • Stock levels: How many are in stock.
  • Competitive pricing: How it stacks up against competitors.
  • Volume: How many are sold.
  • Efficiency: How cost-effective they are.

Say you’re selling sports shoes. Traditional scoring might only show you how many shoes you’ve sold. Multi-dimensional scoring would tell you which shoes are high-margin winners, which ones are selling fast, and which ones face stiff competition.

n-dimensional product scoring ensures you’re not just throwing money at every product but investing wisely in those with real potential. It’s about being smart with your budget and ensuring you’re reaching the right audience with the right products.

paid ads trend 2: n-dimensional product scoring

But as so often, there’s a catch …

The complexity of handling vast amounts of data is overwhelming. It is certainly more than a human brain can comprehend – crunching all the numbers and amounts of data required to properly score products within multiple dimensions is impossible. This is where specialized technology becomes quite handy.

Like written above, PMax’s 2-dimensional product scoring approach focuses solely on volume and efficiency. Our software solution, by contrast, is designed to accompany PMax’s shortcomings by filling the gap with broader business data, from profit margin to stock levels and seasonality. This way, retailers gain complete control over their scoring methodology with the necessary tools to effectively score products across multiple dimensions.

All roads lead to PMax

This is the big one. The paid ads trend that’s going to last. Like it or not. Google’s Performance Max is the digital advertising powerhouse that’s here to stay. And yes, it’s only getting bigger. It’s the all-in-one solution that advertisers love to hate – and often for good reason. Its highly automated approach to ad delivery takes away any semblance of control marketers once had over their paid search ads. But despite marketers’ legitimate complaints, it’s like the more you fight it, the stronger it gets. Even if it eats your brand search for breakfast.

PMax this, PMax that

Remember Smart Shopping? Google’s once highly praised precursor to PMax? Gone! Local campaigns? Absorbed! Display ads and dynamic search? Sorry, they too are on their way out. Google’s PMax is the new advertising platform hatching inside all the old advertising platforms. So get ready for a bumpy ride.

But it’s not just Google. Microsoft has introduced its very own “Performance Max” platform, and with Bing’s impressive traction, expect to hear more and more about it in the not-too-distant future. Then there are platforms like TikTok, Meta and Amazon, all with their own all-in-one campaign solutions. The move towards these highly automated “black box” campaigns signals a dramatic shift in advertising, where simplicity and AI-driven efficiency are paramount, albeit at the expense of granular control and transparency.

Regaining control ain’t easy … but it’s possible

By managing and analyzing data from more than 3,000 PMax campaigns, we at smec know the pros and cons of these “black box” campaigns all too well. To navigate this new terrain and take back control for online retailers, our model integrates superior data from 1st, 2nd and 3rd parties to add new layers of transparency and manageability to PMax’s algorithms.

By integrating data-driven insights into product performance, strategic importance, and stock levels, online retailers can add a layer of specificity and relevance that can shed some light on PMax’s black box. This strategy ensures that advertising efforts are not only aligned with the retailer’s specific goals but also adapt to the nuanced demands of their product range, making campaigns more effective and attuned to the retailers’ unique market positions.

Paid ads trend 3: All roads lead to PMax

What does
this all mean?

If there’s a common thread running through these digital advertising trends, it’s the emerging importance of comprehensive, holistic solutions that provide broader insights across multiple channels. Often with the help of AI. AI is not a digital advertising trend that’s going away. AI automation is a significant and lasting change in the field of online marketing. It’s a powerful tool that online marketers are smart to adapt to in order to stay competitive and vigilant in the ever-evolving realm of ecommerce. 

But one factor that’s definitely not going away anytime soon is the necessary prevalence of human input. AI is amazing at crunching big numbers and condensing massive amounts of data. It’s certainly doing a more efficient job than any human ever could. But to do this, it needs those data sources and numbers in the first place, and that’s only possible with the guiding hand of marketers feeding the algorithms with superior data. 

From the emerging importance of blended metrics, to multidimensional product scoring, to harnessing the vast potential of PMax to stay competitive. These digital advertising trends are all about blending AI efficiency with human intuition. Shameless plug ahead: that’s what we specialize in.

To make the most of these trends, it’s good to have a partner on your side that’s well-equipped to deal with the rapid changes in ecommerce efficiently. If you need help incorporating these trends into your ecommerce strategies, or if you’re struggling to get the most out of your paid search campaigns, give us a call.

Our PPC experts will be happy to take a look at your current setup, show you how to get the most out of your campaigns, and help you take advantage and regain control of your paid ads campaigns.