Commentary
ROI-Driven Advertising: Catching the Economic Recovery Wave
- by Jay Langan , February 25, 2011
"This is not the time to cut advertising. It is well documented that brands that increase advertising during a recession, when competitors are cutting back, can improve market share and return on investment at lower cost than during good economic times."
These professorial words of advice, from a Harvard Business School Working Knowledge article in 2008, rang true at the start of the economy's difficulties -- and they ring even truer today, when hints of a real recovery are growing stronger day by day. A year-end member survey by the American Association of Advertising Agencies reported 64% look for "slow, steady growth" in ad spending during 2011. How can brands be sure to catch the wave of an economic recovery while keeping a firm toehold on their ad dollars?
The phrase to focus on is this: return on investment at lower cost. Advertising is no longer a black hole of spending that may deliver results, or maybe not. ROI-driven advertising is a standard that should apply to virtually any brand, and the key is analytics. With tools in place to monitor and measure performance, ad campaigns -- particularly TV, which might appear financially daunting to potential advertisers but is a powerful tool for building brands -- can be managed to deliver actionable results and brought to scale only when, and if, proven successful.
Learn how:
- ROI-driven advertising has helped smaller to mid-size companies, including start-ups, grow into household names
- Starting with ROI and analytics leads to network attribution -- identifying what performs best
- Setting a target acquisition number and beginning with 4-8 week tests can be measured and brought to scale
Recessionary times validated the need for an ROI approach to advertising, big time: "Show me my marketing works or I won't spend the money." As more marketing dollars re-enter the marketplace, the calls for proof are more important than ever -- and the proof is more deliverable.
An ROI-driven strategy is important not only for TV and radio advertising, but for other types of marketing, as well. We start with ROI and analytics when planning events, promotions, experiential/interactive marketing, and integrated campaigns that combine multiple tactics. Using ROI as the benchmark assures that both costs and benefits are considered - it answers the question "How can we get the most bang for our marketing buck?" And isn't that what we're all looking for?
I agree with Jay and Traci but there should also be one other very important consideration: cash flow. Some organizations are cash-strapped from the down economy. At what point do they borrow to cover their ad budget? In some cases borrowing for ads can make sense given low interest rates but the amount to spend can be a very difficult determination to make.
Isn't it amazing how ROI which for so long was never considered by marketing professionals is sudddenly in fashion even if I personally prefer the ROMI usage.
Your comment: "ROI-driven advertising is a standard that should apply to virtually any brand, and the key is analytics" says it all.
When I wrote Accountable Marketing, The Economics of Data-Driven marketing (www.accountablemarketing.info) only directly measurable activities were evaluated on a metrics basis. That this is now changing dramatically is a giant step forward for the industry and not incidentally the shareholders of companies who spend millions promoting products and services.
One further comment to Traci and Will:
Every product or service has what we call an ACPO - Allowable Cost Per Order (or lead or click, etc.) That can be easily calculated and should drive the decisions on marketing spend. If we know how much we can afford to make a sale, etc. and our tests and experience have proven that we can 'buy' orders at less than the allowable and the ROMI calculation is sufficiently positive, then I'd go along with Will to the bank and borrow on this basis.
Incidentally, anyone wishing to have an excel template for calculating the ROMI can e-mail me rosenwal@uol.com.br, say ROMI Template Please and I'll see you get a copy.
This is new, nu?