A wealth of effectiveness data has drilled the benefits of brand investment into the minds of most marketers, but many argue that those long-term investments are only feasible for large brands with deep pockets. However, a new IPA report from marketing effectiveness expert Les Binet, and Will Davis, Chief Data Officer and Co-Owner of Medialab, argues that brands of all size “need to go big or go home” when it comes to marketing; that the main driver of effectiveness is not the absolute size of budget, but the size of the budget relative to the brand.
Binet and Davis asked 500 senior marketers about the factors they believe drive effectiveness, and the responses suggested an even split between budget (35 percent), media plan (30 percent) and creative (35 percent). But by comparing campaign results from the IPA Databank, the experts found that ROI accounts for 11 percent of variations in profit, with the other 89 percent down to budget.
“When it comes to effectiveness, marketers’ intuitions are wrong,” according to the report. “They think that the key to making more money is to improve ROI efficiency. But what the data shows is that the single most important factor determining success is how much you spend. This is not what the marketing industry wants to believe. For decades, we’ve been told that it’s more important to have a great campaign than a big budget. Awards schemes and measurement systems reward clever media thinking, great creative work and high ROI. Big budgets are almost seen as ‘cheating’. But those of us who have spent decades measuring marketing effectiveness know that, when it comes to making money, scale matters more than anything else. Yes, efficiency is important. Yes, you need great creative work and clever media thinking. But if you don’t put enough money behind it, and keep spending, you will eventually fail.”
It’s all relative
While this might seem more viable for the world’s biggest advertisers, the researchers maintain that all brands can keep their ad spend high as a proportion of their budget, and to keep increasing that spend as they grow.
“Big brands need huge budgets just to maintain their dominance,” says the report. “Small brands can steal market share with more modest budgets. The trick is to punch above your weight. Set your Advertising to Sales (A/S) ratio above the category average. Set your Share of Voice (SOV) above your market share. If you do that, you’ll look bigger than you are.”
But the report’s authors argue that ongoing pushes for efficiency have reduced marketing effectiveness over time, and that short-termism is “killing our industry.” According to IPA Databank figures, ROI has risen by 4 percent since Covid, but incremental profit generated (which the report deems the best measure of effectiveness) has fallen by 11 percent in real terms.
And the report suggests that underinvestment in advertising is often driven by crude budget setting. The survey found that 28 percent of firms fail to have any joint discussion with CFOs when they set the marketing budget, and 76 percent of firms do no financial modelling in the process. Meanwhile ROI is the single most popular metric for budget setting (52 percent of firms), which the report calls “a recipe for underinvestment.”
“Tight budgets and an obsession with efficiency means marketers are always trying to ‘do more with less’,” says the report. “But this quest for efficiency reduces effectiveness and destroys profits. Start with targeting. We’ve known for decades that successful firms reach out to all category buyers. But our survey shows that 56 percent of firms target a smaller part of the market. Broad reach campaigns are increasingly seen as ‘wasteful’. Tight targeting is the order of the day. For instance, most firms neglect older people, despite their economic importance. UK data shows that over-45s account for more than half of all consumer spending, yet 62 percent of our CMOs say they do not bother to talk to them.”
The media remix
With narrow targeting comes a narrow range of media used in campaigns, according to the research. The survey revealed that 53 percent of CMOs use a narrow media mix, with a bias towards digital performance channels, which leads to them “doing less with less.” The analysis suggests that the more media used, the more effective a campaign tends to be, and that “really effective campaigns use a wide range of channels to reach all corners of the market.”
Citing evidence from Thinkbox’s ‘Profit Ability 2’ study, Davis notes that while digital channels drive short-term profit, large-scale channels such as TV deliver more sustained growth over a two-year period. And with YouTube taking an increasing share of TV viewing among the under-45 demographic, planning for reach is no longer a binary choice between ‘traditional’ and ‘digital’ channels.
“It must be a sophisticated mix,” writes Davis. “We need to combine the mass reach of linear with the targeted scale of online video to maximize your footprint across the entire category.”
Alongside the growth of YouTube, the rise of social media influencers is also transforming the modern media mix. And while the low production costs of influencer marketing provides “an excellent entry channel for small brands,” analysis of sales effect suggests that linear TV is about six times more effective than influencers.
“Creators’ audiences are usually small by marketing standards – an order of magnitude smaller than TV,” according to the report. “The world’s biggest influencer is Cristiano Ronaldo, with over 600 million followers worldwide. That sounds like a huge number, but his reach in the UK is probably less than ITV3. So advertisers looking to make big savings by switching to influencer marketing are likely to be disappointed. Influencer marketing cannot replace paid media advertising, especially for brands that need to reach older, less engaged audiences, as most mass-market products do. Indeed, one might argue that influencer marketing is not as new as it seems, filling spaces in the marketing plan that were once occupied by specialist publications at one end of the spectrum and celebrity endorsements and sponsorship at the other.”
Follow VideoWeek on LinkedIn.
