MediaMarkt - Moving from ROAS to POAS
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Year
2019
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Company
MediaMarkt
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Services
Google ads, Marketing tech
Problem
Not all products are created equal. While some products are good revenue generating drivers, they are poor at generating profit. The simple reason for that is that not all products have the same margins. This was a challenge that MediaMarkt was also experiencing.
SOLUTION
For each online sale, we knew what product IDs were part of that transaction. These was also true for Google Search Ads and other advertising platforms like Meta and YouTube. This information was exported on a daily basis to Google Bigquery.
Next, internal product data was merged with this dataset (also in BigQuery). Having the product margins for each product ID now allowed us to understand how much margin was generated from each product. With a straightforward formula (product value * margin percentage) we could calculate how much absolute margin was generated. On top of that, a general percentage was applied for costs that weren't covered by the product margin. By dividing this number (sum of margin - additional costs) by the total ad spend, a metric that we can call profit on ad spend was generated.
Impact
The entire spend mix changed upon adding this metric. Product (categories) that were good in generating revenue effectively, were not necessarily good in generating profit. Simply said, because their margins are much lower. Profitability on ad spend increased by ~70% in a head to head experiment setup where we had one algorithm bidding on tROAS and the other on tPOAS.
