The Limits of ROAS: Why a Multi-Metric Approach Wins in Retail Media

Retail media is evolving rapidly. It's attracting consumer goods brands with its precise, targeted ads. Retailers can target different groups of customers at different stages of the buying journey by using first-party data. Even better, they can draw a clear path from the ad to a sale.

Return On Ad Spend (ROAS) used to be the gold standard, but retail media has changed. Therefore, the old methods of measuring effectiveness no longer work.

‍ The Evolution and Limitations of ROAS

In the early days, retail media mainly used simple pay-per-click ads, and ROAS was a reliable indicator. However, with  connected TV and programmatic off-site ads, things are more complex. Today's retail media strategies involve targeting and engaging with multiple retail media networks (RMNs).

This represents a significant shift in strategy. According to LiveIntent, 73% of brands will increase their investment in retail media networks next year. ROAS used to be a straightforward measure of profitability. Now, it seems inadequate. ROAS prioritizes profitability, which makes it useful for checking margins. But it's less effective for trying to raise awareness and capture market share.

The key is to know exactly what you want to achieve. In this blog, we'll discuss why ROAS is no longer the best measurement metric. We'll give you some alternatives and tell you about the technology you'll need to get the insights you want.

In the complex world of retail media, ROAS may fall short.

1. Limited Scope: ROAS only focuses on directly attributable sales. It overlooks brand awareness, customer acquisition, and long-term loyalty.

2. Profitability Blindspot: A high ROAS might look good, but it doesn't account for profit margins.

3. Attribution Challenges: It's tricky to figure out the influence of an ad on a purchase within am RMN. Relying only on ROAS means that campaigns prioritize sales. (As opposed to long-term brand building.)

We recommend you use a multi-metric approach. It gives a better view of campaign success because it considers multiple factors.

‍ Alternative Metrics to ROAS

There are several alternative metrics that offer unique insights, depending on your marketing objectives.

1. Marketing Efficiency Ratio (MER): MER measures marketing performance. It's a calculation of Total Sales divided by Total Marketing Spending. It looks at all customer touchpoints, not just specific campaigns. This gives your team a broader view of overall performance.

2. Detail Page View Rate (DPVR): DPVR works well for retail marketplaces like Amazon. It measures the effectiveness of creative content because it measures how well it resonates with your audience. It works particularly well with upper-funnel content like programmatic display. For instance, a high DPVR but low conversions could mean that you have issues with your product detail pages. Your team can then use that data to make improvements.

3. Incremental Profitability: This metric tells you whether marketing investments add value and are sustainable. (Unlike ROAS, this metric doesn’t focus solely on revenue.)

4. New To Brand (NTB): This metric is great for categories like confectionery, where audience extension is the main goal. NTB tracks how many new shoppers a campaign attracts. 

‍ The Role of a Flexible OMS and Composable Tech Stack

Retailers need a solid Order Management System (OMS) to handle all their needs. And to get the most bang for the buck, they also need a composable tech stack. A flexible OMS works with any retail media network and connects with all components of your tech stack. You ensure data flows smoothly, and you get the insights you need. A composable tech stack is like playing with Lego blocks, because it lets retailers build their own tech. They get flexibility and scalability. The best part is that composable commerce systems are modular and cloud-native. That means retailers can adapt quickly to changes in the market.

‍ Practical Considerations for Implementing Composable Commerce

When implementing a composable commerce strategy, here are some things to think about.

1. Stay Flexible: Adapt to new technologies and market trends. That's where a flexible Order Management System (OMS) comes in. It's a customizable solution and integrates perfectly with all your tools. (Boostr's integrations team excels at this!)

2. Focus on Your Business: Make sure your tech stack meets your business needs and goals. Cookie-cutter solutions won’t work. Instead, you need something made specifically for your business.

3. Embrace Modular Architecture: A modular approach lets you add and subtract components as your needs change. This means your tech stack can evolve as your business grows.

4. Embrace an Open Ecosystem: An open ecosystem promotes compatibility between different systems. This leads to better data and better decision-making.

With composable commerce, you get a strong foundation for your RMN. This allows for the integration of any metrics and includes analytics tools. You'll get a deeper understanding of campaign performance and customer behavior.

Overcoming the Pitfalls of ROAS

Now, let's talk about the limitations of Return on Ad Spend (ROAS), and what you can do about it.

While ROAS is still valuable in certain contexts, it has its limitations. Relying only on ROAS limits your marketing strategies to performance-based data. It ignores long-term goals like brand building and market penetration. To overcome these issues, we recommend a multi-metric approach. This way, you get a more holistic view of your campaign performance.

A flexible OMS and composable tech stack provide the technological foundation you need. You get a robust, adaptable system and drive long-term success. In the new age of retail media, the ability to pivot is paramount. With the right tools and metrics, retailers can navigate the complexities of modern retail media--which means that every dollar you spend has impact.

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With our retail-in-a-box solution, Boostr offers your retail media team the integrations you need for your composable tech stack. We also have the flexibility and scalability to meet your needs as you grow. Ask for a demo today.

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