“Data-Driven Thinking” is written by members of the media community and contains fresh ideas on the digital revolution in media.
Today’s column is written by Jonathan Opdyke, CEO and co-founder at HookLogic.
The budgeting approach to advertising is broken. Today’s budgeting structures were created back in an era when consumers touched one medium at a time. Direct measurement was assumed to be impossible and coverage across various media was a hedge on ensuring reach in a less connected world of TV, radio and print.
Today’s consumers are ubiquitously connected to measurable technologies, moving seamlessly between devices, media, applications and purposes in both the physical and digital worlds. Within moments, a consumer may use a search engine on their smartphone, visit a content site to learn about a product they just saw, jump to a retailer to compare products, post to Facebook and watch a video shared by a friend – all during a commercial break while watching TV.
One consumer, multiple interrelated media opportunities for brands to make a connection. Yet, all of these connections were likely drawn from multiple budgets, with different goals and perhaps even executed by different ad agencies and technology platforms. Search, display, shopper marketing, social, video, television impressions – gone in 60 seconds.
As we know, all advertising has one purpose: to sell something, be it a product, service or belief. A key distinction is time – whether to sell something now or influence perception to sell something in the future. All advertising can be boiled down to goals of performance and branding, with different respective metrics to validate and optimize a marketer’s ultimate end goal. Advertising campaigns may aim to achieve one, the other or both. Most media can be applied for one, the other or both.
Goal-driven marketers should not care if Facebook, Google, Pinterest, Walmart, The New York Times or YouTube advertising sold their product or added to brand perception. The New York Times is not just a branding medium, just as search engines are not just performance mediums. When a target consumer can be reached and their actions can be measured, the barriers come down.
When Performance Marketing Goals Dictate Budgets
Performance marketing starts with setting a sales goal and an acceptable cost of sale to reach that goal. A marketer should understand what sales would likely happen in the absence of a performance marketing strategy, then combine efforts of earned media and paid media to reach that sales goal at an acceptable cost of sale. Performance marketers typically test and learn quickly across media channels to see what works. Budgets are ideally designed to be elastic, allowing for additional investment beyond the initial budget, as long as incremental sales continue to achieve a positive ROI.
For example, a watch maker may determine that, for a $100 watch, any sales achieved with a marketing cost of less than $15 per unit would yield acceptable profits. Allocating an initial $1,000 daily budget to various media, such as search, retargeting and Facebook, the marketer achieves a $10 cost per sale on the first day, well within target. The following day, the advertiser increases the budget to $1,500, using data to allocate more to the best performing media and achieving an average cost per sale of $12, meaning budgets can be increased profitably until the $15-per-unit threshold is reached.
When Brand Marketing Guides Budgetmaking
Brand marketing starts with setting measurable goals around brand equity health and reach among desired audiences, with budget determined by allocating a portion of projected sales to branding. After understanding baseline metrics, the marketer determines what strategies for earned and paid media are best suited to achieve the desired changes to those metrics. Unlike performance budgets, branding budgets are typically static in the near term, with potential increases over time, if future sales rise above projections.
As an example, a face cream maker may want to grow brand awareness of an existing product in its portfolio. The company has projected sales of $10 million, of which 3%, or $300,000, can be used for branding. Its goal may involve increasing brand recognition among millennial women to 20%. A branding campaign would aim to communicate the desired message to a specified volume of millennial women as determined by a trusted data source, with budget allocated across various media channels. Audience data provides a common thread across media, while consumer engagement on each media channel is measured and funds are reallocated to the most effective channels. A second survey would then measure if brand recognition increased by the desired amount.
Without a doubt, the increasing proliferation of media formats and platforms creates complexity for media buyers. There is certainly a case for subject matter expertise on the best ways to use a media format or platform, as well as for experimentation with new platforms. But that doesn’t justify allocating separate fixed budgets. Rather, budgets should remain constantly fluid to maximize KPI achievement. The proliferation of vertical tools to manage different media types also contributes to the orientation to split budgets – yet letting tools drive goals can be counterproductive. Advertisers and agencies should demand integrated tool sets that enable goal-driven marketing all in one place.
The consumer already lives in an integrated and interconnected world. It’s time for the advertising industry to join it by shifting marketing budgets to focus on goals instead of media types. This is the better approach and future of ad budgeting.