Download in brief - Sequent Partners

IN BRIEF
Advertising ROIs, as measured in marketing mix models, are
marginal on average. Anecdotal evidence suggests that this may
be getting worse. There is an opportunity to use emerging ROI
related analytics and metrics to guide better media/advertising
decisions, reversing this apparent decline. Such new capabilities
could enhance marketing in many ways, but a better “guidance
system” for programmatic buying is certainly one of them.
THE PROBLEM
Sequent Partners has done a lot of work with various methods of
measuring marketing ROI. Over the past few years we have done
a number of public and proprietary studies of the landscape that
have put us in close communication with all of the important
modeling companies. Both our direct experience with modeling
and the interviews we’ve conducted with every major modeler
confirm that advertising ROIs are marginal.
That’s not to say that there aren’t some great campaigns that do
well. Some industries fare better than others and some media
perform better than others. But it is a common situation that
advertising investments often need to be justified with a variety of
arguments. For example, one favorite is - “when you count the
long-term effect, the sales effectiveness of advertising is really
twice what was estimated by the model and the ROI twice as high,
as a result.”
Most recently, we have spoken with a number of experts from the
advertiser, agency and modeling worlds who suggest that this
situation may be getting worse. They often cite “the lack of
fundamentals” as a potential cause. Poor creative, creative poorly
paired with media environments, poor control over scheduling and
reach/frequency and unsure targeting based on look-a-like models
are all contributing factors to this ROI decline. We only take
these as hypotheses, but judgment suggests they may not be
wrong.
When you consider the rapid move toward programmatic and
other less comprehensive forms of automation, this issue earns an
exclamation point! While computerized buying and allocation is
unquestionably a necessity in today’s micro-fragmented media
world, the algorithms have to be smart enough and fueled by
metrics good enough to replace human judgment — or else the
result will be worse.
THE SOLUTION
Modeling has been used to measure marketing ROI for
decades. Most often it is used on an annual basis, its insights
used to shift money around inside the marketing budget. A
model may conclude that one medium wasn’t a good investment,
the brand should allocate those funds to a different medium next
year. Useful. But it reduces the role of the marketer to a fund
manager, buying and selling assets. It often results in overinvestment in one medium, driving it to the point of diminishing
returns. Marketing used to be a creative function! The real
opportunity should be in finding insights that enable the
marketing team to make each medium the best investment it can
be. (Especially when, from a strategic, or channel planning,
perspective they know that each medium plays a different role to
move the consumer through the purchase journey.)
We are at the beginning of a new generation of ROI
analytics. Single-source data, attribution modeling, big data, agent
based models and other tools deliver granular insights at the level
of households, and eventually consumers. Modeling insights at
the market or store level were great for marketing activities that
happen at those levels, like promotion. But advertising is about
consumers. These new solutions could guide: targeting, creative
strategy, media selection at the media vehicle level, and the
effective joining of brands with creative with media and life
context to deliver the right message to the right consumer in the
right moment.
So What?
It seems clear to us that moving from market or store level data;
from mix modeling to attribution modeling; integrating media and
the vehicle level and creative at the execution level, will enable
marketers to move from measuring ROI to managing ROI for
better business outcomes.
The most immediate frontier for this evolution is programmatic
buying. With the newest innovations in measurement and
analytics enlisted, programmatic can be expected to produce
better and better ROIs.
If not, a different three letter acronym will prevail – CPM — where
cheaper is better and quality goes unnoticed and
underutilized. That’s a race to cheap, low quality media that will
only deliver an acceptable ROI when it is cheap enough. Prices
will drop, budgets will be reallocated to more effective marketing
factors. A gruesome future for media and agencies and a huge
missed opportunity for advertisers.