Many companies continue to flood the digital media space with dollars, thinking they've found marketing nirvana. The numbers, however, often tell a different story. When companies take a closer look at their digital investment as a subset of their overall marketing budget, rather than as a separate, siloed area, they may be surprised at the actual ROI if they do the hard math.
The fact is that companies often don't see the forest for the trees when it comes to digital, since they typically analyze digital in isolation from other tactics. As a result, it's easy to overlook external factors that may be contributing to digital media performance by ignoring the impact of variables like traditional advertising, economic conditions, and social media. Because of digital's low price point, it's a quick assumption to conclude that digital is an efficient sales driver, when actually a company may be getting far greater reach and effectiveness with TV -- and often a higher return on investment.
To put this into perspective, consider the story of a major consumer financial services company that over the years has sped up and down the digital investment roller coaster. The company had some initial metrics suggesting relatively strong performance. It used that as justification to over-invest in digital; in the process, it abandoned common marketing sense and ended up with a much lower ROI. Once the smoke cleared, however, the company saw the wisdom of a digital allocation pullback and transitioned to a more balanced, integrated, and holistic mix approach. Here is its story:
Feeling euphoric and throwing caution to the wind
Let's go back in time for a minute, to 2001. The financial company that year began running banner ads on a gradual basis, testing as it went and increasing the investment as the returns justified over the next four years. From the start, its marketers' approach and methodologies were fairly unsophisticated. For instance, its digital ROI analysis didn't account for the impact of external factors such as TV, radio and print ads, out-of-home, economic conditions, or seasonality.
Now fast forward to 2005. Four years into its digital media journey, the company began introducing digital media execution into its existing marketing mix analyses, intending to recommend ways to improve overall marketing performance. This took place when digital spending reached $20 million, or about 8 percent of the overall marketing budget.
The execution of digital media worked, as it was highly focused on driving transactions from ecommerce sites. Digital executions were located as close to point-of-sale as possible in order to maximize the likelihood of consumers using this company's financial products.
The company's marketing mix analyses suggested digital ROI was just above $1 -- stronger than what it was getting from TV and other traditional media vehicles. The firm's own internal analysis, however, suggested it was getting a digital ROI of $2. The discrepancy was caused by the financial company's use of a siloed analytical approach that did not consider the impact of traditional media to drive display clicks and online performance. And, once again, marketers did not control for macroeconomic factors and seasonality.
Even though digital was just slightly outperforming traditional media, based on the internal analysis, the company took the two results in combination, and used this as its rationale for ratcheting up digital spending to extraordinary levels. This reached its apex in 2009, when digital spending reached $43 million -- up 35 percent from $32 million in 2008 and an incredible 95 percent from 2006 levels. Digital now represented almost a quarter of the entire media budget, up from 8 percent in 2005.
At the same time that the company was spending more online, it changed how it advertised. No longer were its ads close to the point-of-purpose. Instead, it bought more expensive placements and shifted from display ads to richer media like video and pre-roll (i.e., expensive animated pop-ups). The bottom line: Marketing was spending a lot more on digital for the same number of impressions, and spending on websites that were less likely to drive sales.
Marketing had taken a tactic with relative efficiencies and turned it into a low ROI vehicle, underperforming relative to TV advertising and other core vehicles. By early 2009, the digital ROI had fallen from $1.40 to 80 cents, while its traditional media ROI was around $1.
Back to the future
Its lesson learned, the financial services company has returned to lower digital spending levels and lower cost per impression over the past six months, and has become more focused on driving transactions at point-of-sale. Since the pullback, digital ROI has risen to about $1, due to more realistic spending and leveraging offline channels as online drivers. Digital media has been "right-sized" as a core component of the overall marketing mix, and the company has been able to drive efficiencies equivalent to the other media elements.
Some lessons learned along the way:
- Don't rely too heavily on unsophisticated techniques like attribution models that tie sales directly to digital tactics, rather than also factoring in the value of a TV ad that drove someone to click on a banner ad or paid search term.
- Watch the relative saturation levels of offline and online media. Offline media has a much greater inventory of consumer touchpoints; there are hundreds or even thousands of ways to reach consumers offline without hitting saturation. That is not necessarily the case with online. For example, there may be a limited inventory of relevant search terms for your business, and you hit saturation more quickly than with offline media. This is especially true when marketing niche products or targeting specific audiences.
- Take a sophisticated approach to marketing analytics. Find common denominator metrics in order to be able to compare digital and offline efforts on an apples-to-apples basis. This will lead to better results, greater efficiencies, and more intelligent budget allocations.
- Don't overspend on rich media and video if it's not going to get you a return. If you have a fairly simple message to convey, do you really need to spend twice as much to have a fancy rollover banner and mouse pop-ups with animation? Rich media in and of themselves don't drive enough transactions to justify their higher costs unless the messages you are conveying require the additional engagement to be effective.
Dan Eggleston is a senior director of client service and analytics at Marketing Management Analytics.
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