"They're doing everything possible to avoid real value measurement of what they do. They don't want it," said Gabe Leydon, CEO of Machine Zone, in reference to publishers in an interview at Recode. And advertisers and media agencies haven’t always been able to push change in the realm of quantifying their marketing investments. Leydon described a fundamental cause that has been systemic in the advertising ecosystem for years: marketers want to maximize the return on advertising spend but don’t always choose the right KPIs, while the agency -- in Leydon's words -- is simply "incentivized to spend the most money possible." The frustration isn't uncommon. We expect that agencies that leverage better measurement and hold themselves accountable to the marketer's goals will be the long-term industry leaders.
Starting in 2015, there has been an unprecedented volume of agency reviews. Just in the United States, E*Trade and Delta put a combined $130 million up on the block, and that is small potatoes compared to Volkswagen at $600 million in media spend. Estimates vary but the Wall Street Journal clocked the 2015 total in at $20 to $30 billion in media billings. Just like any major storm, the onslaught of agency reviews deserves a name, and the industry took quickly to "Mediapalooza."
What's the cause?
In some cases, agency reviews are part of a regular cycle where the brand tests the waters to make sure the partner they chose previously is still the right one moving forward. Unilever, for example, conducts an agency review every three years -- the most recent of which concluded in late 2015. Cycles like this don't explain the recent surge. We believe the root cause is agencies not providing a clear understanding of the value they've driven with the brand's advertising dollars.
In a McKinsey survey, roughly three out of four CEOs felt that "marketers are always asking for money, but can rarely explain how much incremental business this money will generate." In fact, only a minority of U.S. marketers report that they are able to prove ROI from their digital marketing efforts. In many cases, they and their agencies are still leveraging metrics with seemingly no tie to a brand's strategic goals. About four out of 10 marketers and agencies are reliant on clicks as a measure of success for digital display. Unsurprisingly, this isn't the most compelling metric when a marketer goes to their leadership trying to retain or justify additional marketing budget.
Other arguments have been made to explain the cause of the agency review surge; however, even these can be linked to accountability in marketing performance. For example, some have suggested that advertisers are simply taking advantage of the recent pressure on agencies to negotiate lower fees. This may be a partial motivator; however, if agencies were able to prove growth generated by marketing support, the advertiser's focus would be on those metrics instead of simply looking to cut agency-related costs. Said another way, an advertiser would be willing to pay a premium agency fee if it's directly tied to driving superior brand growth.
What's the solve?
If the cause is lack of understanding of advertising effectiveness, the solution appears simple. The push towards better metrics isn't a phenomenon unique to advertising. Outside of media buying, marketers have seen metrics evolve over time in how they evaluate products and creative copy prior to putting them in-market. When industries start measuring something new, they can fall back on metrics that are accessed easily, and for digital advertising, this was clicks. As technology and understanding improves in an industry, measurement then shifts to metrics that link closer to real goals. We are now at the last point of evolution where we will move towards metrics that tie unwaveringly to business outcomes.
In digital advertising, this final stage is measuring growth caused by a campaign in near real-time, which requires us to look beyond the metrics commonly reported today. Even in cases where a digital campaign reports ROAS, it most likely isn't the true ROAS. This is because common mechanisms for assigning revenue credit to a digital campaign aren't able to differentiate between "incremental" and "intercepted" ROAS. The latter is consumer action that is misattributed to the campaign and would have occurred even if the campaign did not. To get a real understanding of growth caused by an advertising campaign, isolating to only incremental performance is a must. (Read this post for a complete overview.)
Until relatively recently, incrementality measurement was difficult and prone to false reads. But, technology has evolved, and methodologies now exist that are scalable, accurate, and low-cost. Discussions about incrementality have become common. More and more, brands want to measure real outcomes instead of false indicators, and agencies that lead the charge in this direction will grow their relevance.
We started with a quote from War Zone's Leydon, and we might as well end with one: "Buyers are going to become more sophisticated -- whether everybody likes it or not." Many advertisers are already working with their technology partners to measure incrementality on an ongoing basis. Agencies that quickly evolve to meet brand needs and measure real outcomes -- namely, incremental or true ROAS -- will be our long-term winners of Mediapalooza. Beyond the obvious, the benefit of getting to better metrics is that conversations between brand, agency, and technology provider can be elevated.