Balancing Reach and Conversion: A Guide to Digital Advertising Strategies

Introduction

Nearly all advertising budgets on digital platforms (such as Google, Meta, and programmatic advertising) are allocated to one of two bidding strategies: conversion-focused or reach-focused. While both aim to improve business outcomes, they differ significantly in their methods and objectives. To maximize the effectiveness and efficiency of online advertising budgets, it's essential to understand how these optimizations function.

But before we explore this topic in depth, will spend some time categorizing target audience into two segments: In-Market Prospects & Non-In-market Prospects.

Understanding In-Market Prospects & Non-In-market Prospects

In-market Prospects: Prospects who are actively looking to make a purchase. They have either decided or are in the process of deciding the product variation & brand they will be purchasing.

Non-In-market Prospects: ?Prospects who have not yet expressed interest or awareness in the product/service but have the potential to become a customer in the future. They have the characteristics, needs, or behaviors that align with what the product/service offers, but are unlikely to make a purchase at present. They will be a combination of:

• Latent Prospects: prospects have the potential to become interested in the product or service but have not yet shown active interest or engagement.
• Out-of-market Prospects: currently not interested in the product or service and do not have the potential to be interested in the near future.

For majority of the industry verticals, number of Non-In-market prospects will be significantly higher than in-market buyers at any given point of time. ?Refer figure 1.

Conversion-Focused Campaigns

Conversion campaigns prioritize showing ads to users who have been deemed likely to engage with your ads & subsequently convert by platform’s algorithm. While this strategy theoretically will significantly increase conversions by allocating your entire media budget, there are a few reasons why this won't be the case:

• Diminishing returns with scale

Due to the nature of Conversion optimised campaigns, platform algorithms will look out for ‘most likely to convert’ audience to target. This means they will be heavily relying on in-market audience which is almost always less than 10% of overall target audience.? As long as campaign budget is sufficient to reach this in-market audience, the Cost per Acquisition (CPA) remains controlled. However, if the budget is significantly increased, the campaign will begin to reach audiences outside the in-market segment, leading to lower conversion rates and higher CPA. This is illustrated in Figure 2: as the proportion of Non-in-market Prospects is increased, the average cost per acquisition rises exponentially as the campaigns will start reaching out to audience currently not looking for a purchase.

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• Incrementality of Conversion focused campaigns.

As mentioned, Conversion campaigns prioritise reaching out to users who are already interested in buying. Chances are if your conversion campaign has delivered a number of sales, a portion of these would have still reached your website/app and converted if there were no campaigns. Hence test for incrementality become extremely important.

Typically, you will notice that the larger and more popular a brand and it’s product/service is, the smaller the incremental impact of its paid conversion campaigns. For example, a well-established brand/product like Apple iPhone may see less incremental sales share from conversion campaigns compared to a new brand, as many of its potential customers are already familiar with the product and would have purchased irrespective of being exposed to the ad or not.

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Reach-focused campaigns

Reach-focused campaigns aim to maximize the number of people reached within a given budget. These campaigns typically select individuals randomly from the available audience base, resulting in a mix of in-market and non-in-market audiences similar to the overall target audience (as illustrated in Figure 3). This means the majority of ads are seen by non-in-market audiences, making Cost per Acquisition (CPA) an inaccurate measure of campaign relevance.

Couple of reasons why it is important to have 'always-on' campaigns focusing on reach:?

• Audience Churn

When targeting future buyers, there will always be prospects who exit and enter the audience base. For example, an entry-level car manufacturing brand may see exits from the audience base due to people moving out of the country, or shifting their interest to mid-tier car segment etc. At the same time, new entries will occur, such as individuals obtaining their driver's license.

• Time Decay of Advertising Impact

Just as you wouldn't expect taking a shower once will keep you clean for a lifetime, showing an ad once won't make a user remember the proposition forever. Consistent exposure is important to maintain awareness and recall among potential customers who would be making a purchase decision at a later date.

Factors that control effectiveness of Reach/Conversion campaigns:

Brand Strength: Established, popular brands need to take into consideration incremental impact on acquisitions. If not, they will end up overspending on conversion campaigns. New, unknown brands will face less of this problem and can use one/both campaign types based on their objective.

Media Budgets: Larger budgets will allow for a mix of both awareness and conversion campaigns, maximizing overall impact. What you need to focus on is coming to a budget distribution where the effectiveness and efficiency of both these campaigns can be maximized to deliver on objectives. ?

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Conclusion

In conclusion, both conversion-focused and reach-focused optimization techniques play crucial roles in digital advertising strategies. Conversion-focused campaigns are highly effective in driving immediate sales from in-market buyers but can lead to diminishing returns and higher costs when overextended. Reach-focused campaigns, on the other hand, ensure broad audience exposure, maintaining brand presence and engaging potential future buyers. The key to successful advertising lies in balancing these approaches based on media budgets, brand strength, and campaign objectives. By understanding the strengths and limitations of each strategy, marketers can make more informed decisions, maximizing the efficiency and impact of their advertising efforts.