Updated: Feb 24
In a time of unprecedented change, innovation, and upheaval, are your seeing the rights results from your media plan?
The famous quote from John Wanamaker “half the money I spend on advertising is wasted; the trouble is I don’t know which half” was answered a long time ago with the introduction of econometric modelling. Brands have been able to know, for some time, what works and what doesn’t within their media mix.
Econometrics is a laser-guided smart weapon in the armoury of a marketing team and their agencies but it brings with it new challenges for marketers.
Measuring the right inputs
Return on Investment (ROI) or Return on Marketing Investment (ROMI) are both calculated in the same way.
The former takes on a tighter view that only campaign costs directly attributable to the campaign (media costs, production costs, etc) should be used in the comparison. The latter takes a wider view that all marketing costs should be included.
One of the common misconceptions of ROI/ROMI measured through econometrics is that it looks at business returns (sales) versus media cost and is an assessment of media performance. It isn’t.
It is an assessment of the combined performance of media, creative, brand, and product as measured against each media channel. ROI/ROMI is a gauge of the combined impact of all these factors, yet many planners fall in to the trap of believing it is a measure of media performance only.
In this context the widest possible measure of costs should be included for accurate assessment and evaluation.
Timing is everything
ROI/ROMI calculated through econometric modelling looks to identify the incremental sales generated by the advertising campaign. With the incremental sales measured against the cost of each media channel. That produces a ratio, sales:cost.
For the purposes of collecting accurate data it is normally assumed all sales will be achieved within eight weeks of the campaign ending. It takes a further eight weeks for the analysts to do the modelling.
For an average length campaign (six to eight weeks), it will be months before initial results are known. Build that into a media planning cycle, and allow for media booking deadlines, and the insights gained from econometrics will not be put into action until almost a year from the original campaign start date.
Timing isn’t an issue with the analysis (or analysts) there are very few shortcuts that can be made. The issue is that by the point at which the econometrics results are available, and in lieu of better evidence, campaign performance will have been decided - either anecdotally, or using less robust measurement methods.
This causes serious issues.
The detrimental impact this has on the media plan is significant. It can mean short and medium term campaigns (those planned in the period before econometrics results are available) are being planned and bought on incomplete data. But it can also mean, there is never a fully understood record of campaign performance.
Measuring the right outcomes
ROI/ROMI benchmarks the incremental sales generated by the advertising campaign.
Unfortunately sales isn’t the right measure.
For example: Let’s say, you are the CFO for a major UK company, at your last Board meeting the CMO presented their advertising strategy for the year ahead. The plan was well thought-out, well researched, well argued, and beautifully presented. It was in line with your corporate goals and objectives - the Board approved it with ease.
After the Board meeting the CMO approached you and said they needed £10m to put the media plan in to action.
As a business you have substantially more than £10m sitting in account, accessing the money is no issue. As a marketing literate CFO you are aware of the various independent studies that demonstrate the ROMI you are likely to get, a mid-range 1:3.
You do some basic sums: £10m at 3 pays back £30m. You then consider the cost of those sales; your gross margin is in line with your sector and you typically achieve a 30% gross margin. A 30% margin provides a profit on those sales of £9.4m.
That’s £600k less than you would have if it just left the initial £10m in the bank.
Advertising works, but not at a level that a responsible CFO or company can sign-off on.
Check out our easy calculator help you find out whether you’re getting the returns you want.
What this means
These three challenges are not insurmountable.
Econometrics remains the most accurate and reliable way to measure results, but it is reliant on quality data and clarity of purpose.
The key for a marketer or planner is to understand where those results fit in to your planning cycle, what impact they have, and how to manage stakeholder expectations before results have fully matured.
Above all, the key challenge is to measure the right metrics, in the right way. Do that and you will have a clear (rear) view of results, and a start line to improve future performance.