The Case for Channel Diversification During COVID-19

COVID-19 has shifted many goalposts: KPIs, northstar metrics, staffing, and budgets, to name just a few. But as a marketer, how should COVID-19 impact the strategy of channel diversification? 

The vast majority of high-growth tech companies anchor performance marketing on paid search and Facebook advertising. Once they reliably provide good returns, they are scaled as much as possible within that “good return” constraint. Inevitably, companies reach a point where they want to diversify their paid acquisition efforts beyond these core channels. Often it’s because they are seeing deteriorating return at scale, but it’s also commonly rooted in a fear of being overly dependent on any one or two sources of customers. 

We believe that if your company has product/market fit, was thriving prior to quarantine, and is currently thriving during (or unaffected by) COVID-19, you should stay the course and in some cases even double down on channel diversification efforts despite these historic circumstances. If your customers aren’t buying right now or you don’t have product/market fit, channel diversification is not going to be a winning strategy; you should instead focus on surviving and cutting all expenses possible.

Let’s revisit the most common pre-COVID-19 use cases for channel diversification to determine which next step would be most beneficial for your business.

Scenario #1: Core channels are crushing it.

When performance is amazing in core channels, it’s hard not to wonder, “will every channel work?” It is true that if SEM and/or Facebook are performing really well for you with at least moderate scale, it’s highly likely there are other profitable channels to explore.

Great ROAS usually requires expert marketing, but it is still rooted in an excellent product that meets a real and pressing need in a way that produces strong enough economics to both fund customer acquisition out of the margin and outbid other companies going after the same target audience. Channels simply shine a spotlight—some more effectively than others—on a great product. So if your core channels are signaling that you have an excellent product, then adding new ways to reach customers is a sound strategy.

Companies that were already in this bucket pre-COVID-19, and are currently thriving or unaffected, should generally either stand pat or double down on channel exploration. Companies should also double down on channel exploration if profitable or focused on a time horizon beyond short-term fundraising uncertainty. CPMs are down across many channels and if you are thriving, increased conversion rates will likely give you a double tailwind. Lower CPMs and increased conversion rates mean amazing CACs you may never see again. This is a land grab period. 

If you aren’t profitable or need to raise money in the near to mid-term, a land grab strategy may be too risky, despite the great opportunity. If you can’t change that constraint (by raising money or becoming profitable), try to avoid reverting to core channels or arbitrarily limiting budget. Times like these test organizations’ commitment to ROAS-based budgeting. Marketing leaders, in our view, should be defending it. 

It’s easy to think, “we were pushing ROAS limits before and now we need to be more conservative, so let’s cut budget.” But that is wrong, as it doesn’t account for key ROAS inputs, most notably CPMs and conversion rates. Instead, shorten your payback period or increase ROAS requirements and continue with channel expansion. Doing so will help you reach a broader audience, prepare for the long-term, and be quick to respond when funding or profitability constraints are lifted. 

Scenario #2: Core channels aren’t scaling anymore.

Sometimes it feels like the depths have been plumbed and there are simply no other levers to pull to scale well-performing channels. This can lead to the question, “are there other wells we can tap?” 

The first answer should nearly always be to go back to the product and see if there are ways to increase either the conversion rate of leads or the LTV, either of which will lift the caps on all channels’ scale potential. Also, driving growth through the core product interactions is generally the best (i.e. lowest cost and most scalable) way to acquire customers. But if the product itself has been fully tapped with respect to growth drivers, conversion rate, and LTV, channel diversification is a great next step. 

Companies that were already in this bucket pre-COVID-19 (and are currently thriving or unaffected) should generally continue with channel expansion, but for a different reason than those in scenario #1. These companies started channel diversification because their core channels weren’t scaling, but the channels are now more scalable due to decreasing CPMs and increasing conversion rates. Many of these companies are now in the “core channels are crushing it” camp. They used to spend $xxx,xxx/mo at a given acceptable ROAS, but now can’t spend enough to approach such a ROAS. 

We suspect, and are starting to observe, that CPMs will recover to previous levels faster than they got there the first time around. If a company de-prioritizes channel expansion because of this temporary shift, they will find themselves back in the same boat in 3-12 months, maxing out their core channels and thinking they should diversify. Instead, make whatever adjustments are needed to ROAS requirements and keep exploring new channels. This will help you grab as much market share as your constraints allow in the short-term, and will protect you from a long-term setback. 

Scenario #3: I’m too dependent on Facebook.

Regardless of whether a channel scales or not, it’s scary to be overly dependent on any one source for customers. It’s not uncommon for early-stage companies to get 50% of all their customers from one or two channels. It’s a fast way to scale, but a strategic minefield, as decisions are made based on the assumption that the scale will always be there. It’s a shaky foundation on which to build a house, compared to using better raw materials like organic traffic or referrals.

Companies looking for a more balanced marketing mix (and who are thriving or unaffected in this environment) should generally double down on channel expansion right now, in both organic and paid channels. A common mistake is cutting budget for paid media while organic grows due to a COVID-19 tailwind, leading to paid becoming a smaller percentage of the total mix. Companies that do this are leaving massive opportunity on the table. Tighten payback windows if necessary to get comfortable, but try to scale core channels as much as possible right now. If they were working for you before COVID-19 and you are thriving, they should definitely be working for you now. With CPMs dramatically down, it is not the time to reject profitable growth for the sake of diversification. 

Now is the perfect time to test new channels. Many platforms have lower CPMs than before, and your increased conversion rate will make new channel tests much more likely to succeed than pre-COVID-19. Normally we worry about sparking false negatives—killing a new channel prematurely because initial results weren’t promising enough. In this environment, we worry more about the risk of false positives—finding initial success and thinking it will last or scale, when in fact it’s a unique window of opportunity that will expire. But at least with the false positives, your testing provides a much greater ROAS and there’s the possibility that it actually will persist as a credible source of diversification.

Which Channels Should I Expand into Next?

When it comes to channel diversification, it’s important to consider both paid and organic expansion. 

Paid channels are uniquely capable with respect to scale, effort required, repeatability, and trackability, which is why diversification outside of Facebook and Google is so important. Snapchat, YouTube, and Amazon are common expansion channels in B2C, while LinkedIn is the most common for B2B. Many companies also find good direct-response diversification through audio advertising—podcasts, for example—and television advertising. There are many others, but these are the most common channels we see success with.

As for where to diversify outside of paid, the answer is heavily dependent on the category. Most common tactics include referrals, content/SEO, partnerships, and/or events. Affiliate and influencer marketing on a pay-for-performance basis is also common, as a hybrid between partnerships and paid.

In summary, companies that were already interested in channel diversification and are unaffected or thriving due to COVID-19, should continue the effort or double down in some cases. This can require significant intestinal fortitude in the face of intense pressure to cut non-essential costs and to cut budgets arbitrarily instead of based on ROAS. Hopefully this article will embolden you to advocate for the best course of action.

If you’d like to discuss channel diversification with a growth marketing expert from Right Side Up, you can reach us at hello@rightsideup.co. We’d love to learn more about your current marketing efforts and challenges, no strings attached.