Channel Diversification: Which Marketing Channels Should You Explore Next?

Last month, Right Side Up founder Tyler Elliston gave a talk for our Summer Webinar Series on channel diversification to help you understand which marketing channels you should explore after Facebook and paid search. Our key takeaways are below.

We’ve spoken with thousands of companies about their growth strategies, and executed those growth strategies for hundreds. Please note that our conclusions are therefore based on a collection of experiences and anecdotes, and they’re somewhat subjective. While we share patterns and generalizations, exceptions abound, and an excellent marketing strategy is always tailored to your unique business.

Foundational Performance Marketing: Paid search and Facebook ads

When it comes to the status quo for performance marketing channels, the vast majority of high-growth tech companies try to make Google paid search or Facebook ads work first, and for good reason. They’re self-serve, conceptually simple, low cost to test, and can find the bottom of funnel prospects. Perhaps most importantly, they are the bellwethers of advertising performance; if a company can’t find success with paid search or Facebook ads, it’s unlikely they will find ROI positive results and scale in other channels.

• Search engine marketing (SEM) is a great channel specifically because of its superior explicit intent. You’re serving up your products or services to people who are searching for them. In addition, Google has best-in-class targeting, and it’s click-based and easy to track. When it comes to prospecting, it offers moderate scale for most companies. In terms of value, SEM is very competitive; even though you can drive scale and there is high intent, the companies we see performing best have some sort of systematic advantage over competitors on that same keyword—for example, they’re willing to pay more because their LTVs are higher, or they have a fundamentally better brand in an industry where brand matters.
• Facebook ads (including Instagram ads) offer excellent targeting and can often derive implicit intent algorithmically. It’s impressive how they’re able to fairly reliably predict who is going to buy a product or submit a lead by looking at contextual clues, the history of a user’s propensity to click on an ad and convert, and other signals. Furthermore, it offers great scale and superior tracking. It has become expensive in recent years, but is the cornerstone of growth for most companies we work with.

Once these channels reliably provide good returns, they’re typically scaled as much as possible. But inevitably, most companies reach a point where they want to diversify their paid acquisition efforts beyond these core channels.

Why Diversify My Marketing Channels? 

There are several reasons why it’s important to expand your marketing mix beyond Facebook and paid search, but you should also be aware of the challenges. Here's a look at the pros and cons.

Benefits of marketing channel diversification

• Scale. Your team can drive more overall conversions. Perhaps as importantly, it provides optionality for the day your CEO says, “increase conversions 50% next month.”
• Risk mitigation. Your conversions won’t tank as hard when Facebook CPMs spike, a privacy controversy takes away targeting, or your company wants to boycott a channel.
• New audience access. You can reach new audiences (e.g. satellite radio = more affluent, older audience, podcast = early adopters, Snapchat = 20-30-year-olds, etc.), which may be more profitable or aligned with strategic goals.
• Sophistication. Channel diversification forces you to learn more! Think moving beyond click-only attribution, looking at incrementality when you’re running five channels at once, buying and tracking offline media, etc.

Challenges of marketing channel diversification

• Lower ROAS. Test budgets drag down the overall return on ad spend (ROAS) of a marketing budget. You should plan on the initial spend being not very fruitful, at least relative to the CAC constraints of your core channels. Also, as you broadly scale, scale and ROAS are commonly inversely related; if you want to go from $200K/mo to $2M/mo or $20M/mo, CAC usually goes up because you’re moving further out from your core target of customers and up towards consideration and awareness, which carry higher CACs. Note that product gains and brand spend can shift this curve in your favor.
• Analytics. It becomes harder to understand what activities are driving results with view-through conversions, non-digital impressions, lack of a data source of truth, and more multi-touch conversions.
• Time and cost of management. Channels are highly specialized and often time-intensive to manage well. The cost to test some new channels is quite high (e.g. TV).

Prerequisites for Marketing Channel Diversification

There are several factors to consider when deciding whether or not your business is ready for channel diversification.

• Readiness to spend money to learn. I would recommend setting aside 10-30% of your marketing budget for channel exploration. Where you are in that range depends on how aggressively your company wants to grow, how much cross-functional buy-in there is to performance marketing, and also the stage of the company. Each new channel has a cost of entry, and you’ll need cross-functional alignment and a separate budget to make it happen.
• View-through conversions. If you start testing new channels without having cross-functional buy-in on an attribution methodology, you’re setting yourself up for frustration, and maybe failure. You must lay the groundwork for a unified organizational attribution point of view in advance so that no one is concerned that the testing process is being manipulated for the desired outcome.
• Attribution methodology for offline. If you’re testing into offline channels, make sure you’re ready to run “how did you hear about us” (HDYHAU) surveys with baseline data in order to measure success.
• Access to channel experts. Avoid the temptation to have a generalist test new channels. That’s not to say that a generalist shouldn’t be the one pulling the levers, but it takes a long time to acquire the deep knowledge and skills required to succeed in new channels. You're more likely to find success and avoid false negatives when using external channel experts who are familiar with a channel’s nuance.
• Creative capabilities. This is an area many companies often underestimate. Depending on the channel(s) you’re considering, make sure you have the design and/or production resources you need to succeed.

How to Prioritize Which Marketing Channels to Test into Next

In order to decide which marketing channels are right for your business, you should develop a firm understanding of these five key principles:

• Intent: Can be isolated and represents most of the audience
• Targeting: Ease of targeting ads based on demographics and/or behavior
• Trackability: The results can be measured effectively and easily
• Scale: Success in the channel is meaningful to the business
• Value: The channel is good value for what you get in return

What Marketing Channels Should I Explore After Facebook Ads and Paid Search?

Now that we’ve discussed the status quo for performance marketing channels, examined the pros and cons and reviewed the prerequisites of channel diversification, and outlined the criteria for evaluating new marketing channels, it’s time to take a look at the channels themselves.

Snapchat: Snapchat is one of a few channels we’ve seen emerge over the past 18 months as a direct response channel—especially for CPG brands that appeal to under-30-year-olds. It delivers good ROAS with meaningful, moderate scale (meaning $500K/mo) for a startup. Like Facebook, the platform is good at finding intent algorithmically and the trackability is great. It’s also affordable, as you would expect from an emerging channel. 

Twitter: Despite reasonable targeting and trackability, Twitter does not convert well for most companies in most industries, and when it does, it doesn’t scale well. It’s worth testing if there’s robust discussion in your industry (e.g. financial services, politics, etc.).

Pinterest: Pinterest has been an emerging channel for a long time, offering improvements in both targeting and intent. It offers moderate scale potential, for a moderate cost. In practice, like Twitter, when it works, it rarely works at scale—even for companies targeting 25-45-year-old women. This channel is often best treated as an organic social channel versus a scalable social channel. 

Native Content: Native content channels like Taboola offer notable scale, little intent, and improving targeting. The cost is typically low, but the value depends on the conversion rate. It can show positive ROAS for consumer companies with broad appeal, particularly those willing to use clickbait headlines. 

Google Ads: AdWords offers a suite of placement opportunities (e.g. YouTube, GDN, Gmail sponsored promotions), with excellent targeting and scale. However, there’s little explicit intent outside of search, and unlike Facebook, Google is not good at deriving intent algorithmically. The cost, while often reasonable on a CPM basis, is rarely low enough. YouTube is the frontrunner of non-SEM. Historically, it was great for retargeting, but not prospecting; over the past 18 months, we’ve seen more and more companies succeed at prospecting. 

Programmatic Display: Programmatic display is typically low intent and rarely converts well for early-stage ventures’ prospecting. Targeting can be good and it offers maximum scale. However, trackability is a liability due to the prevalence of view-through conversions and fraud, meaning you have to be really careful with attribution. There are a lot of programmatic publishers and networks that will show you great performance using their pixel, and yet somehow, when you run your own incrementality tests, you’ll find it’s not incremental at all. From an analytics standpoint, programmatic display requires a level sophistication that few early-stage companies have. That said, this would make for a great 5th or 6th channel to explore as part of a mature performance marketing organization.

Podcast Advertising: Podcast is great for targeting early adopters—especially in the D2C CPG space—and creating a moderate level of intent through strong host endorsements. The endorsement is the magic of this channel. Targeting is weak and it requires a sophisticated tracking approach. However, conversion rate tends to be high. The biggest advertisers in the space are generally shy of $2M/mo, but most businesses can launch a program and spend $200-600K, and the value is typically good since it’s still a nascent channel.

Radio: Radio is similar to podcast, with greater scale but less intent due to weaker endorsements, less audience focus, and a broader audience profile. It has also been proven for D2C CPG. We typically recommend starting with podcast advertising, and then expanding into radio and/or TV.

TV: TV offers massive scale, but with very little intent or targeting. It requires a sophisticated approach to tracking, has a high cost of entry, and requires competing against big brand budgets. It can still perform well and the value can be good, especially for CPG and SaaS brands, but it’s considered very risky for startups.

Direct Mail: Direct mail works well only when you can derive intent from targeting (e.g. just moved, need cable) or the appeal is very broad. In those situations, it offers good scale at a reasonable cost.

Influencer: Similar to podcast hosts, influencers on YouTube, Instagram, TikTok, and elsewhere can create intent through endorsement. The challenge is that influencer quality varies widely—some are great at driving volume and CAC, while others are very ineffective. Plus, it’s not great as an evergreen channel, since influencers can only promote your product or service to their audience so many times. Tracking is difficult, especially outside of click traffic; multipliers are needed. For most businesses, the incremental scale is moderate. A few possible exceptions: native TikTok influencers, celebrities, and unsaturated “non-influencers.” This is also a great channel for acquiring marketing assets.

Amazon: Amazon offers best-in-class intent (63% of product searches start on Amazon) and significant scale at a reasonable cost. Targeting is moderate and improving. Trackability is moderate, but unlikely to become excellent because of Amazon’s desire to maintain its own strategic advantage, which is the biggest negative of the channel. 

Affiliate: When we say affiliate, we’re defining it as performance-based partnerships. Use affiliate to fill gaps—in other words, areas you won’t or can’t cover internally. There are affiliates that do search, influencer, display, and content. It’s not really a channel as much as it’s an approach. The value can be really high because you can pay only on the outcome, for example by telling affiliates you’ll pay them if the CAC is X. For that reason, a lot of times affiliate will drive some of the best CACs in a marketing mix. Typically, in a mature setting, it’ll comprise about 8-10% of revenue—so, moderate scale, but it’s not a channel that will change the enterprise value of your company. Trackability is straightforward since it’s a digital tactic, but targeting nuance is generally a challenge.

LinkedIn: Like Twitter, if your target audience happens to be people spending a lot of time on LinkedIn—for example, recruiters and salespeople—then it can be a really powerful channel. We’ve found success running Newsfeed ads for these industries, as well as InMail, although the cost per lead for InMail is often too high to justify continued spend. If your target audience isn’t within one of these two industries, even if you find success, it’s really hard to find scale, and it’s very expensive given the high quality targeting LinkedIn offers.

Testing Methodology

When exploring new channels, here’s the typical testing methodology we’d advise:

• MVPs. As in, minimum viable product—no need to be best-in-class yet. Start small and move quickly with tests. Use minimum budgets to get a read, optimize, and retest. Minimize creative complexity with “best practices.” If you keep doing this, as the economics get better, you’ll start to see signs that indicate whether or not you should continue to test and expand into the channel.
• Beware of false negatives. The most common mistake we see is testing just a few hypotheses, often suboptimally, with too small of a budget, and then concluding a channel won’t work because the CAC is double what they want it to be.
• Note: Striking a balance between starting small/moving quickly and being mindful of false negatives can be challenging. To make it easier, we recommend developing a good understanding of the benchmarks for different stages of testing, knowing the most important levers you can adjust for each channel, and allowing time for enough conversions to happen so that the channel’s algorithm can learn.
• Expectations. Testing will almost certainly have a negative ROI to start. Carve out a separate budget for testing that’s judged by learning and data gathering vs. ROI.
• Expertise. Make sure to work with a channel expert when testing for the first time. All these channels are now highly nuanced and can be very successful or fail miserably.
• Incrementality. Before you spend more than $100K/mo in a channel, architect a test that can validate your CAC as incremental, especially with view-through conversions.

Marketing channel diversification is an important stage in every company’s growth. We hope this guide serves as a helpful starting point, but as we mentioned at the outset, an excellent marketing strategy is always tailored to your unique business.

If you'd like to check out our upcoming webinars, we've recently announced our Fall Webinar Series.

Interested in exploring new marketing channels beyond Facebook and paid search? We’d love to discuss your growth strategy and help you determine which channels you should be considering next. Send a note to hello@rightsideup.co and we’ll be in touch!