Advertising R-O-I: There is No Holy Grail, So Stop Looking For it

By The Myers Report Archives
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PART 7: Major Trends Impacting Media, Agencies and Marketers 2010-2012

Marketers' investments in trade promotion/slotting allowances are projected to increase from $152.8 billion in 2007 to $194.5 billion in 2012. Consumer sales promotion, such as coupons and consumer incentives, is projected to increase during this five-year span from $136.2 billion to $151.9 billion. During this same 2007-2012 period, marketers' total advertising costs are declining from $226.2 billion to a projected $190.8 billion. Trade promotion is considered an investment by most marketers, with directly measureable correlation between the dollars invested and the distribution of goods and services into their distribution chain. Sales promotion investments can typically be tracked back to actual consumer sell-through. Advertising costs, however, can rarely be directly traced on a micro or macro-performance basis to distribution increases or direct consumer sell-through. While many in the industry may argue this point, the fact remains that trade and consumer promotion investments continue to grow while advertising spending has declined precipitously since 2007. Additionally, promotional investments are often under the management of corporate sales organizations and a priority for brand management teams, while advertising is an independent marketing expense that is increasingly subjected to procurement oversight.

For decades, advertisers, agencies and media sellers have played Monty Python in search of the "holy grail" of standardized advertising return-on-investment metrics. Even with hundreds of millions of dollars invested in effectiveness, engagement and emotional connections™ research studies, advertising remains a cost center. The goal of transitioning media spending from a cost center to an investment with standardized measureable R-O-I is as distant today as it was several decades ago. The key word in the above statement is "standardized." Research companies that invest significant dollars on building syndicated research hope to convert it into media buying and selling currency with the potential to generate demonstrable and sustained revenues for its users. The millions of dollars spent on engagement and effectiveness research has not been wasted, but it should be recognized for what it is: spending to demonstrate competitive superiority within the spectrum of media options. It is a tool to help in the media sales process and is designed to provide direction for marketers' ad spending – not their marketing "investments." Media return-on-investment is typically measured by an increase in impressions delivered. Effective reach, which has become popular, is typically defined by measures of media performance, not by marketers' accepted measures of sales performance.

Marketers' R-O-I requires highly customized measures, with every company having multiple and different influences on which they evaluate performance. Their goals and objective change regularly as they shift distribution partners, retail shelf space allocations, affiliates, regional priorities, brand focus, consumer targets, etc. The holy grail of R-O-I as a measure of marketers' sales performance cannot be standardized, nor should it be. Every company, division within companies, and individual brands within divisions must evaluate R-O-I based on their own unique marketing and sales dynamics.

Converting media buys from cost centers into investments requires that marketers:

· acquire customized multi-layered analytic capabilities;

· aggregate information on all the contributors to distribution and sales results;

· process that information into relevant conclusions that support decision-making;

· define clear and consistent metrics that correlate their decisions with distribution and sales financial information.

Marketing mix analytics companies and "marketing dashboard" service providers such as Marketshare Partners are enabling media companies to evaluate their performance against the customized priorities of their advertisers. TRA, which integrates TV set-top box viewing data with retail loyalty card consumption information, provides comparative insights on the sales impact of TV exposure on a network-by-network and program-by-program basis.*

The value of these companies' services, and those of similar marketing mix analytics providers, extends only to their ability to generate customized insights and data. This data has value when it enables the measurement of specific media programs and campaigns in delivering improved distribution results and increased consumer sales, as well as other goals set by marketers on a brand-by-brand basis.

R-O-I continues to be relevant and critically important to the long-term vitality of the media industry. But standardized research measures that define comparative R-O-I for multiple media across multiple clients is a lost cause.

As I commented in Part 2 of this Trends Report, "over the next decade, two trends that will have increasing relevance to media companies and marketers are:

  • Enhanced research, software systems and navigational dashboards that better identify -- as well as predict and guide -- the media consumption patterns of scalable groups of people will become important currency.
  • Activation tools will organize audiences based more on the widely-held perceptions, likes and dislikes of large crowds than on the narrowly targeted nuances of their purchasing interests.

It's not the consumers who are king, it's the data about them. Data is relevant only to the extent that it defines measureable, sustainable and scalable crowds that are relevant to specific marketers."

Again, the key is "specific marketers." Data will gain in importance, and data that identifies crowd purchase behavior and identifies the most productive media partners for marketers will grow in value. Ironically, efforts to standardize and organize data into syndicated reports tend to move the industry further and further away from meaningful R-O-I insights. Research must be responsive to the independent and differentiated needs, interests and success metrics of individual brands.

Source of advertising and promotion spending/investment data: Jack Myers Media Business Report Economic Forecasts.

*Media Advisory Group, publisher of Jack Myers Media Business Report, provides advisory services to multiple companies, some of which may be mentioned in the Jack Myers Media Business Report. For a full list of Portfolio Companies and subscribers, visit www.jackmyers.com.

Emotional Connectionsis a registered trademark of Jack Myers for research

studies on media value and effectiveness. Jack Myers invested more than $1.5 million in Emotional Connections research between 1998 and 2006, underwritten by more than 20 media companies.

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