The research gets at a tension in modern marketing: efficiency – typically measured using ROI – versus a longer term investment in brand growth. Ultimately, over-emphasising short term efficiency is eroding marketing’s ability generate profit, and what Binet refers to as a ‘death spiral’ of budgets, campaigns and profits all getting smaller and smaller.
As a result, it argues for a reset in the planning, budgeting, and measurement phases: elevating budget setting according to financial modelling, and rebalancing toward reach.
What’s going on
New analysis of the IPA Databank finds that budget is eight times more important than ROI when it comes to driving effectiveness.
Budget, scale, and reach matter more than efficiency when striving for net profit: When looking at how variations in profit were generated in IPA Effectiveness Award-winning case studies, ROI only accounts for 11% of the variations in payback observed, compared to 89% for budget.
But marketers are still aiming for ROI: However, new industry-wide external survey commissioned by Medialab, conducted among 500 senior marketing decision-makers, just 35% stated that budget was the most important contributor to effectiveness, compared to 65% for ROI.
Efficiency is on the rise, but effectiveness is down: The latest figures from the IPA Databank suggest that ROI has increased by 4% since the Covid pandemic, but net profit generated is down 11% in the same timeframe.
The Binet view
“Our industry is obsessed with efficiency, and rightly so. We’re spending other people’s money, and we need to spend it wisely. But efficiency isn’t everything – you also need scale,”
Les Binet explained in a statement ahead of his appearance alongside Davis at the IPA’s Effectiveness Conference happening today.
“Our research reveals a paradox: the more we focus on efficiency, the less money advertisers and agencies make. We believe that the only way out is to rediscover advertising’s super-power: to deliver creativity at scale. We need to Go Big or Go Home.”
Doing more with less
Tight budgets are forcing ever tighter targeting: Over half (56%) target sub-segments of customers with advertising, rather than all of their potential customers.
Older generations are particularly neglected, with 62% of marketers not targeting over 45s, despite that cohort accounting for 50% of consumer spending.
Media mix has also narrowed as a bias toward digital performance media aiming for near-term activation.
Fewer than half of CMOs seek to maximise reach but research shows that advertisers need to generate 30-60 million exposures to drive a statistically significant sales uplift. Broad reach and big media are essential for boosting effectiveness.
“This isn’t about digital versus offline or brand versus response. It’s about balance: doing all of these things well and at the right scale. Efficiency is vital, but the data shows it drives larger growth when combined with scale, creativity and the bravery to experiment. That balance is what unlocks transformative results”
says Will Davis, chief data officer, Medialab Group.
Sourced from The IPA, Les Binet, Medialab. Image source: Getty
Source: warc.com