What Every CEO Must Know: Optimizing the National/Local Mix - Bill Harvey

In the early days of television, local TV adspend was about half of the total. Today it is about 20%. Has the needle swung too far in the direction of network? Could more spot in the mix increase ROI?

“Hyperlocal” is a new word that originated in 1991 in reference to local TV news content. The word itself connotes that extreme customization of ad and other content to the tastes of a particular local culture is a good thing, likely to pay off in increased attention, interest, action, bonding. By our collective actions in allocating 80% of television ad dollars to national spending, we seem to be saying that in our gut we do not really believe much in this idea of the value of hyperlocalization.

Marion Harper, the fellow who invented the idea of agency holding companies so that under common ownership one could serve competing clients, also invented a unit called the Applied Science Division in the 60s, where I was manager. We had operations researchers collaborating with media researchers, doing optimization and media mix modeling very early in the game. (Marplan, another Interpublic division under Herb Krugman, was actually the expert in MMM, then called “grand scale analysis”.)

Bob Coen headed the Applied Science unit, ably backed up by Helen Johnston-trained David Silverstone. (Helen trained so many of us. I recently proposed to Gayle Fuguitt, CEO of ARF, that there be a Helen Johnston Mentoring Award.) Bob had created a system called TVCRI — Television County Rating Indicators — which used coverage surveys to model book-to-book ratings down to the county level. This was the main source of my idea to create Arbitron’s Area of Dominant Influence (ADI), which the FCC institutionalized in its rulings and Nielsen imitated as the DMA (Designated Market Area).

We used Bob’s TVCRI system to show how a brand’s actual network schedule laid down a pattern of GRPs by market that was not in line with a brand’s actual sales opportunities, as measured by Category Development Index (CDI) and Brand Development Index (BDI). For many of the largest clients of all the IPG agencies, we caused a shift from typically 20% spot allocation to typically 40%. Based on the sparse data available at the time and client feedback, this appeared to be closer to optimal for ROI.

Years later, finally equipped with client sales data and working with Arch Knowlton and the ANA, we did analyses showing that the ideal way to allocate spot dollars is based on neither CDI nor BDI alone. The fastgrowth markets where a brand is growing turn out to be the markets where each incremental spot dollar pays back the most. This came to be known as “ momentum marketing” and the growth of a brand was shown to follow an S-curve . Spot was best allocated to the markets at the most inclined part of the “S”. Some ad lore such as this appears to have been forgotten in the sands of time. We Mad Men did know some things besides martini consumption.

The main driver to the current 80% network mix seems to have been the oversold idea of procurement within major corporations. This mentality from the supply side when applied too incautiously on the demand side has in some cases perhaps done more harm than good. Procurement people who became experts in media, such as Bob Dees, were the superb exceptions to the rule. In too many cases the downward pressure on agency compensation, without adequate ROI-based performance incentives, forced agencies to lean toward the more profitable to buy network media as compared to the more work-intensive spot media.

Marketing Mix Modeling, by ignoring available creative metrics, in most cases made it seem as if GRPs were all the same. So the lowest price-per-rating-point, which network normally offers over spot, further accelerated the mix toward its present network dominant balance. And broadcast spot continues to trend down in the latest readings, more than all other media types except print. Print has a systemic reason — the cost of printing things — whereas broadcast spot is inherently as electronically scalable as any other electronic medium.

At a recent industry breakfast, a nine-figure TV advertiser who prefers not to be named revealed that he has been buying spot at lower CPMs than network. This truly surprised me and many others in the room. When I asked if I could quote him, he said he did not want the secret to get out. This is like not telling people about great tourist destinations one has discovered. One does not want to ruin a great thing one has unearthed. It actually should not have surprised me that spot deals must be available nowadays that are truly excellent values, given how that market has been declining.

But even leaving aside the raw CPM comparisons, the supervening metric is eCPM — the CPM against the ROI Driving Target. If one can find markets where the brand’s ROI has been going up, the ROI Driving Targets must be concentrated there — even paying a premium CPM against total homes/persons or the sex/age surrogate, which could still mean one is buying at a lower eCPM to reach the folks that really count to drive up the ROI. Fastgrowth, CDI and BDI should all be used in making these decisions.

There are yet other reasons to think more about local:

1. Social media are becoming more and more important, and where there is potential to meet people in person the power of social media can be further electrified. Brands can be leveraging hyperlocal strategies, event marketing and other experiential approaches more, to the extent that there is enough local in the mix.
2. Addressable commercials are now available through Comcast and Time Warner courtesy of Black Arrow, and these are in local free VOD sold by those MSOs. Addressable commercials are the king of eCPM. Available locally not nationally (although the footprint is getting close to nationwide).
3. Charter is making available the data-driven TV/digital buy where the advertiser can match his/her own household level customer/prospect data to the Charter homes, and then optimize TV buys by cable zone and program (digital fully addressable to individual browsers of course), and read the sales effect through the brand’s own household level data tied to set-top box data.

Every brand will have a different optimal mix of national and local. Looking at and testing the situation is indicated to make sure each of your brands is close to the optimal national/local mix to exploit all of the opportunities in all media arsenals. A/B testing as always is the definitive way to know for sure which tactic maximizes ROI.

Bill Harvey is a well-known media researcher and inventor who co-founded TRA, Inc. and is its Strategic Advisor. His nonprofit Human Effectiveness Institute runs his weekly blog onconsciousness optimization. Bill can be contacted at bill@billharveyconsulting.com

Read all Bill’s MediaBizBloggers commentaries at In Terms of ROI.

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