Paradox of choice

If you’ve bought a ticket from an airline website, a concert ticket from Ticketmaster or food from Uber then you’ve probably been nudged to an adjacent purchase in the final stages of your online transaction from Rokt, an idea hatched when Bruce Buchanan was Group CEO of Jetstar.

As Buchanan, older sibling to GroupM ANZ CEO Aimee Buchanan, was trying to figure how to make the tough economics of a low cost airline work across Asia, he landed on the need for technology to solve the paradox of choice – related add-ons to a core flight purchase could be the difference between profitability and viability for Jetstar, but too many options and it paralyses a customer.

Although Rokt is now in 10 different industry verticals globally beyond travel with its ecom-martech platform – think entertainment, streaming services, food delivery and financial services – Bruce Buchanan says there are two constants: almost every sector can double their ecommerce profitability and for those companies buying space to pitch their products and services as an additional purchase on another’s ecommerce site, strong brands dramatically improve purchase propensity.            

“We have this vision that we can double the economics,” he told Mi3. “If you make $2 a transaction in profit we want to get you to $4 because that transforms … you can change the economic platform of the business, you can change the industry structure. Most of the clients we work with, the most deployed clients, we're getting about a 20-25 per cent lift in the economics of those businesses," said Buchanan.

“Rokt was built to solve the Jetstar problem. The economics of airlines suck and you couldn't do much on the cost side so I was trying to sell 50 products to customers. Most people hate getting 50 products. What we worked out is if you get the right three products in front of each customer, you can double the economics of the airline.”

Conventional economic theory says more is better, but per Buchanan is a firm believer that the choice paradox means more ultimately backfires. “Actually, when you look at the way consumers behave, they want highly curated content. Otherwise they just switch off. They don't engage. And when they don't engage when they're buying something, that's a bad outcome. For ecommerce retailers, it means the transaction either doesn't happen or the economics of the transaction in terms of the other products and services that they buy is much less.”

Ecom piggybacks

In travel, for instance, a flight to Hawaii might have a long list of adjacent purchase possibilities – hotels, airport parking, dolphin tours, car hire, entertainment and additional inflight options. 

“What airlines have typically done – if you've ever purchased on RyanAir – you have this ever expanding list of things and what ends up happening is consumers just want to get to the end as quickly as possible, because it's painful,” said Buchanan.

“But if I know what you're doing, you’re booking your family and therefore I know what the three relevant things are as I saw last time you drove to the airport therefore you want parking, you're traveling with your kids therefore you want food and entertainment … If you can work those things out, you can actually transform the economics of these businesses [because] 65 per cent of most businesses are what I call commoditised," said Buchanan. "In other words, they're competing at the margin and therefore every one of these extra dollars they get in these add on products is so important. It's like the old saying, you don't make any money at the movie cinema selling the movie tickets, it’s the popcorn stands.”

All of these smarts, however, require clever tech and Buchanan says it’s all about first party data – one tech layer inside Rokt serves as a privacy-compliant gateway to bring customer datasets together from host ecom sites and those of the advertisers trying to piggyback the primary transaction. “We work in the back half of those ecommerce transactions – the review page, payment page and confirmation pages are really what we focus on and we focus on the consumer optimisation of those three pages,” he said.

Brand lowers performance costs

Which gets us to the heart of much industry debate and the challenge facing his sister Aimee Buchanan at GroupM, heading into economic headwinds. Does brand investment hold to ensure future consideration when a person is in market to buy or do companies just plough bigger marketing budgets into driving transactional activity for those in-market now? In industry parlance, it’s called lower funnel or performance marketing.

“What tends to happen is if you trust a business then the likelihood of you engaging with that business goes up exponentially,” said Bruce Buchanan, who sees constant evidence from his lower funnel business on the benefits of upper funnel brand investment.

“It means the cost of actually acquiring the customer drops dramatically and therefore you wind up with these stable structures where you have two or three dominant players because they've got the brand that actually is trusted by consumers in that sector. Their cost of acquisition from customers is so much less because their brand is so dominant and the acquisition doesn't have to work as hard. So the challenge is for someone coming in and attacking a sector is they've got to have such a radically different consumer proposition because they've got to overcome that disadvantage. We see that in every sector. We're seeing innovation get more extreme, which does break down some of those barriers, but we're seeing the power brands be ever stronger.”

Cue GroupM's Aimee Buchanan and the tension she sees inside her blue chip client portfolio wrestling with a pullback on brand investment as finance looks for cost-out programs or pushes harder for short-term revenue plays. 

“The complexity comes down to what you're measuring in the window you're measuring it, the short-term metrics and the potential for marketing to be justifying the budgets to the finance department,” said Buchanan.

“Where that gets complicated is that the brand metrics are often lagging performance metrics. If you're measuring performance on a weekly, monthly, quarterly cycle, you often don't see that upturn in brand that quickly. It's the whole philosophy of the short and long – it requires a client to have a long-term goal and vision for where the brand's going, but a short-term view on the metrics in terms of performance. Getting that balance right becomes incredibly challenging in an economic downturn.”

Cutback conundrum

Still, the GroupM Buchanan is not yet seeing widespread cuts to marketing and media budgets. “No, there’s no massive signals on that. Global businesses are definitely watching Australia very carefully and they almost can't believe that we're still seeing returns, the market is still competitive, but not a massive cut in ad spend.”

Beyond the current economic conditions, Buchanan says parts of her brother’s roaring young-ish business is pointing the way for how her much older company needs to reinvent and bend to more automation and tech. Although the brother-sister combo trade barbs in jest on their respective staff numbers – GroupM has around 1,000, Rokt about 500 – GroupM ultimately need more tech and less humans. 

“You've got almost as many people as me, I think,” quipped the GroupM boss to the Rokt CEO. 

Less agency humans, more machines 

“Yeah, we've got 500 people,” he said. “I've got a thousand,” she said, continuing: “But if you have to think about where media agencies are going it has to be with more automation. It has to be because the fragmentation of the landscape is almost impossible for humans to keep up with.

"If you go back to when I started, you booked eight spots on TV a week. We now book thousands of spots. It’s not humanly possible to do that and the economies of scale haven't changed – clients are still paying by and large similar in proportions. So you have to look at automation, you have to look at software to take over that. If we think about that, there's way more to come. I don't think we've even seen the start of that yet," per GroupM's Buchanan. "If you think about all of the fragmentation that’s yet to happen, there'll be evolution of technology to help us manage that fragmentation. There has to be. We've seen that over time. If you look back to the start of search, the start of programmatic, as we get deeper into ecom, as we see all of the traditional channels go into digital – technology will play a role in helping us curate and manage that.

“Humans aren't going to be as good at it. It won't mean that humans don't play a role. But I think the role that humans will play is in understanding the audience strategy and understanding the more strategic platform to bounce that off. Rather than at the moment, [where] we've got a lot of people plugging away. So I think there's actually a lot of similarities between Bruce’s business and mine. We're just coming at it from a different place.”