Presenting the updated 60/40 paradigm: A recommended budget division for driving retail traffic

Jonas Christensen and Pablo Perez, top retail researchers at Google operating in Europe, the Middle East and Africa, provide a fresh perspective on the optimal division of marketing budget for omnichannel retailers.

According to a recent study by Analytic Partners, sponsored by Google, they propose that 60% of the budget should be allocated to digital marketing and the remaining 40% to traditional marketing channels.

At first glance, this may seem counter-intuitive as the majority of retail sales are still taking place in brick-and-mortar stores. In 2022, in-store purchases account for 80% of the market, despite a growing number of people shopping online. However, online sales are where significant growth is noticed, exhibiting a 25% year-on-year increase in Sub-Saharan Africa, which is significantly higher than the 9% in-store retail growth.

Contrary to popular belief, digital marketing isn't solely responsible for driving online sales. The study at Google found that digital marketing initiatives such as paid search, digital display and online video, are important drivers of both online and in-store shopping. Traditional marketing methods, like print, TV and radio advertising, also play a considerable, yet lesser role in driving e-commerce traffic.

Determining the correct division of marketing spend can be challenging, particularly when both digital and traditional marketing can stimulate e-commerce traffic and boost in-store visits. So, how do you optimise customer traffic and boost revenue?

Introducing the 60/40 model (or the 50-70/30-50 model)

For the first time, a study commissioned by Google and undertaken by Analytic Partners, reveals the ideal split between digital and traditional media and demonstrates the impact various marketing channels can have across multiple platforms.

Google’s conclusions draw from an analysis of over 150 major retailers' marketing mix models from Europe, the Middle East, Africa, and the U.S., representing billions in marketing investments. We suggest that retailers should dedicate between 50-70% of their marketing budget to digital channels and 30-50% to traditional channels, hence proposing a mid-way model of a 60/40 split.

Certainly, there's no universal solution that would suit every industry and retailer; it's imperative to regularly reassess the right investment mix according to each retailer's unique circumstances.

Additionally, this model does not guarantee success; several other factors such as the creative and the target audience also influence the effectiveness of a campaign. Nevertheless, this research provides a reliable starting point. Understanding what truly drives online and in-store sales is essential for retailers to calculate their ideal budget split.

Navigating the omnichannel maze

For retailers who have a significant online presence alongside physical stores, it's crucial to determine which marketing channels will be most effective in increasing traffic for each platform.

For example, the analysis shows that e-commerce revenue relies 2.75 times more on digital marketing channels than traditional ones. Therefore, having an efficient digital marketing presence is crucial for impacting online sales.

However, the complexity increases as the sales stimulated by digital and traditional marketing are captured differently. Sales generated through channels like paid search and online video are divided almost evenly between e-commerce and in-store, while sales driven by traditional marketing channels are predominantly captured in-store.

Mastering your retail marketing blend

The aforementioned chart demonstrates how the income produced via digital marketing is distributed relatively evenly between in-store and online sales, whereas the bulk of the revenue derived from traditional marketing is primarily captured within physical store locations. A detailed analysis of individual marketing channels follows below.

Achieving Equilibrium in Your Retail Marketing Strategy

Recognising the crucial role of digital marketing in enhancing your omnichannel performance is key. But how should retailers decide on balancing their marketing mix.

Digital marketing, in particular, is a significant driver for online success; it represents 22% of all e-commerce revenue for omnichannel retailers, compared to the mere 8% directly attributed to traditional marketing. By contrast, in-store sales rely equally on both digital and traditional marketing channels.

Retailers must make strategic investments in the right channels to efficiently capture revenue growth.

Decoding the route to success

Retailers are keen to identify the channels that will offer the most cost-effective growth. An economical strategy will allow retailers to extract more value from their marketing investments.

For example, both online video and TV significantly stimulate e-commerce revenue, but the former proves to be the most efficient channel. Online video offers an 8% higher return on investment (ROI) than TV, and is 36% more efficient for online sales, with traditional marketing methods like out-of-home (OOH), print and radio falling behind even more.

Not only does digital marketing stimulate in-store and online revenue volume, but it also does so efficiently.

Establishing your retail marketing strategy

If retailers aim to capitalise on the prospective e-commerce growth, it's essential to embed digital marketing into their strategy. This 60/40 model should act as a starting point for further experimentation and optimisation. This presents a considerable opportunity for retailers to fine-tune their strategies to reach their maximum potential.