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Death of the marketing budget

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Why you shouldn't battle for budget scraps

For the right advertisers, the internet offers numerous ways to create demonstrable and predictable ROI from one's marketing efforts. Thus, there is no longer the need for a budget that limits progressive marketers. When one sees positive ROI from a marketing campaign, the profit-maximizing thing to do is spend as much as you can. Unfortunately, this is a completely different mindset from the static, set-piece budget battles that marketers have fought with their corporate counterparts throughout the 20th century.

This might come as a newsflash to those CMOs on calendar-year planning cycles who just went through the budgetary buzzsaw with their CFOs in an effort to beg, borrow, and steal marketing dollars for 2010 -- but it is not a misprint or a delusion. In the past 15 years, the advertising game has been turned on its head by the rise of the internet and the emergence of performance marketing. According to Forrester Research, by 2014, interactive marketing will near $55 billion and represent 21 percent of all marketing spend. Those who understand and exploit the new marketing opportunities will be freed from the tyranny of a "percentage of sales" budget and be empowered to drive increased profits through performance marketing programs that deliver predictable and demonstrable returns on marketing investments.

If you're frustrated by the annual scramble for budget scraps, it's time to initiate a conversation within your company that moves your model beyond the antiquated set-in-stone marketing budget. Read on to gain a better understanding of the case to be made for performance marketing, whereby your success dictates greater marketing reinvestments.

 

Comments

Marjory Meechan
Marjory Meechan January 13, 2010 at 6:11 PM

I think MediaWhiz has the right idea in pursuing this line. it just makes sense. The only issue that I can see would be in the evaluation of performance - both for the advertiser and the marketing firm.

Peter Klein
Peter Klein January 4, 2010 at 1:06 PM

I completely agree with Jonathan. There is a reason that affiliate marketing is considered performance marketing – you pay ONLY for performance. Optimize the proper channels and there should never be a lead or budget restraint.

I like the analogy of buying $10 bills for $5. With Affiliate Summit West in Las Vegas coming up in 2 weeks, I'll take those odds of winning to the bank every time!

Scott Bauman
Scott Bauman December 17, 2009 at 3:31 PM

Nice piece Jonathan. Well argued and timely. I think the best days are ahead for analytic-driven performance marketing. Until now, most talk about analytics and measurement has been just talk. Many companies now have real religion thanks to the visibility online marketing affords. For others, your piece will be welcome prophecy.

Thanks.

Richard Roberts
Richard Roberts December 16, 2009 at 9:52 PM

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hometheater.org.uk and more. See details at www.hdhometheater.com bottom of page. Their are many ways for corporations to come together and share the cost. They just seem a little hesitant to take the lead. Did I mention the $3,000,000 commission

To the future of hd
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Mary Jefferson
Mary Jefferson December 16, 2009 at 10:59 AM

I mostly agree with you. Internet marketing has made our jobs easier in some ways and we can more accurately determine successful campaigns using various tracking mechanisms. There are, however, two factors that limit the ability to accurately determine the ROI for a company. One of those factors is the projected length of time between when a person researches the product or service he/she is interested in and the day he/she agrees to acquire the service. In some industries, that can be months. Quite often, in fact, the research is done on an anonymous basis. The browser doesn't want to fill out any form or request any information until later. And later, might be months later and it might be by phone. Most companies don't have the capability to track a browser who came to the site 3 months ago and know that it is the same person who made the phone call today, asking for more information.

Secondly - many companies sell products through a third party. Take insurance for example. The insurance company may promote a product through their website, but the business customer is purchasing the product through his/her broker. If that's the case, the browser might send the information to his/her broker. If the broker has a relationship with the insurance company already, chances are the inquiry is made through a phone call.

In both cases above, click throughs are recorded but there is very little chance that the resulting sale is credited to the internet advertising campaign.

masn masn
masn masn December 16, 2009 at 10:40 AM

Glad you're shining a light on this topic. In my experience, especially with the financial implosions this year, performance is gaining ground.

Agencies can play a role in driving this more highly evolved business model by moving to more performance-based engagements as well.

As you rightly point out, "While these principles, are simple, execution is hard because online programs have many key success factors." The complexity increases considerably when you fold agency compensation into the mix. It requires a level of collaboration and transparency (between agencies & clients as well as amongst various agencies serving the same clients) that's not the norm.

However, finding the win/win is a laudable pursuit. For more on this, see:

Advertising Agency Compensation - Exploring Alternatives
http://pm2pm.blogspot.com/2009/01/advertising-agency-compensation.html

Fred Buhr
Fred Buhr December 16, 2009 at 9:34 AM

marketing budget is dead, long live cost of sales!

Mark Patron
Mark Patron December 16, 2009 at 8:19 AM

Hi Jonathan,

Great article. It is extraordinary that while the internet is so measurable and accountable it has taken this long for a wholesome ROI approach. There has been too much build it and they will come, and if we get our brand out in front of enough eyeballs we will be OK. There is no doubt performance marketing programs that provide increasing and demonstrable profits will replace set budgets going forward.

All the best

Mark