Marketers are told time and again to factor return on investment (ROI) into their media planning decisions, but putting this into practice can be daunting. It doesn’t help that the media landscape is more fragmented than ever, making it difficult to isolate the impact of any given ad placement, let alone optimize for it.
At Google, we work closely with clients to improve media measurement and have come to recognize marketing mix models (MMMs) as the most comprehensive way of understanding ROI measurement across different media channels, spanning online and offline.
Analyzing a range of advertiser MMM results over the years has also helped us identify the key contributors to ROI growth for YouTube in particular. Our research shows that there are four primary levers of video ROI: creative, ad format mix, reach and frequency, and audience.
Of course, optimizing each of these levers can look quite different from one advertiser to the next. Every marketer should experiment to understand what works best. Doing so will help them confidently make decisions around their campaigns, resulting not only in better ads but better returns.
To understand how each of these work, let’s walk through the stories of four brands that discovered firsthand how these levers increased their ROI.
4 primary levers of video ROI
Research has shown that effective creative accounts for almost 50% of ROI.1 Google analysts and researchers have studied thousands of ads to understand what specific elements drive performance on YouTube. We call these elements the ABCD principles: attention, branding, connection, and direction. According to research conducted by Nielsen, ads following the ABCD principles saw a 30% higher sales lift than ads that didn’t adhere to them.2 Google sales teams are equipped to help brands analyze and optimize their creative for YouTube to drive greater business impact.
Shapermint, a global e-commerce brand, wanted to both boost its brand and drive product sales. Over the course of seven weeks, it ran experiments to understand what combination of creative drove the best results in its YouTube ad campaigns. By alternating among user testimonials, product demos, and a special offer, each video had its own unique angle. Shapermint tested the impact of its messaging along with other creative levers, such as length and pacing. As a result, the brand found its optimal combination of creative, assembling a powerful mix that lowered its cost per acquisition (CPA) by 21% and drove 50% more purchases.
If you’re not sure where to begin, start by building out the foundation of your video creative according to the ABCDs, and then try experimenting with various creative elements to see what works best for your audience.
2. Ad format mix
Different YouTube formats serve different objectives, but research shows that full-funnel strategies consistently deliver higher ROI. Brands that combine both awareness and action YouTube ad formats as part of a full-funnel strategy see higher ROI than when using either one in isolation. Based on a custom Nielsen meta-analysis, a full-funnel YouTube strategy drives 10% higher ROI compared to awareness advertising alone.3
Sulwhasoo is a South Korean luxury skin care brand from Amorepacific. Having surpassed $790 million (1 trillion KRW) in annual sales, it is quite well known. However, it wanted to try leveraging YouTube ads to drive more conversions beyond the awareness campaigns it had historically relied on. For this experimental campaign, Sulwhasoo first used a foundation of awareness and consideration formats to maximize its audience reach. Then it layered in action formats for the first time, turning attention into action. With this YouTube full-funnel strategy, the brand saw a staggering 91% decrease in CPA and a 13.8X increase in conversion rate.
While it might seem intuitive to primarily buy action formats in the pursuit of tangible ROI, advertisers will see higher returns by adding awareness formats. In fact, a recent study shows that YouTube advertisers see Awareness formats driving 28% of their conversion assists.4
3. Reach and frequency
Though reach and frequency are closely knit, each impacts ROI quite differently. All else being equal, increasing reach usually maintains ROI, while increasing frequency past a specific point usually diminishes ad effectiveness. For many advertisers, this well-known rule of thumb can make them fearful of increasing their frequencies. However, most advertisers overindex on cautiousness, and, in reality, have more breathing room to increase frequency on YouTube than they might think. On average, brands can increase average weekly frequency on YouTube from one to three ad exposures without diminishing YouTube ad effectiveness, according to an MMM meta-analysis we commissioned from Nielsen.5
To simplify the process, we’ve recently started letting advertisers using Video reach campaigns choose a frequency target of up to five impressions per week, helping them to achieve maximum reach while setting a desired weekly frequency. This leads to a more efficient spend and a better experience for viewers. And we’re piloting YouTube reach and frequency data availability through our MMM data platform to help advertisers understand their measurements better.
For example, after including reach and frequency data in its commercial mix modeling program with Analytic Partners, Peloton discovered that its ideal optimization strategy was more nuanced than it had expected. The results showed that there was an opportunity to drive incremental reach after optimizing frequency, leading to a potential ROI improvement of 15%.
Last but not least, who you show your ads to significantly affects your ROI. Every brand has at least one demographic audience, but adding in audiences based on interests and behaviors can help you reach more potential customers. For example, a beauty brand might want to show its ads to viewers who are watching makeup tutorials on YouTube. Or a pet food company could choose to show its ads to those who recently searched for “best organic dog foods.” These nuances can make all the difference in final purchase decisions.
The Insights Finder tool helps marketers uncover actionable audience insights related to interests, demographics, and more, using aggregated and anonymized signals from Google and YouTube. These insights allow brands to add new audience segments and to see how their ROI is affected. Oreo used Insights Finder to break down their audience into four segments: Entertainment Fans, Trendsetters, Gamers, and Foodies. The brand created personalized creative for each of these segments and saw an impressive 100% year-over-year improvement in YouTube ROI.
Constantly improving ROI
By focusing on creative, ad format mix, reach and frequency, and audience, advertisers can better understand the contributors to their ROI. Google teams can help brands that are on this journey figure out how to optimize each of these four levers. Recent meta-analysis of 600 MMMs across APAC showed that YouTube is a key channel for generating incremental sales. YouTube generated 3.9X greater incremental sales versus TV, and ROI was 1.2X greater than that of TV for brands in the region. Furthermore, brands saw return on ad spend grow by 108% after collaborating with Google — a 7X increase compared with brands that did not collaborate with Google.6 Close partnership with our media customers is key to capturing the power of media mix modeling and driving business outcomes for brands.