Memo to Digital Marketers: Be Strategic and Prove the ROI
How to support and defend your digital media spend in 2009 and beyond by showing demonstrable returns and business impact.
By Steve Tobias and Dan Eggleston
Around 2002, as the economy began recovering from the bursting of the tech bubble the year before and the resulting moderate recession, marketers discovered digital media in a big way. They spent millions and millions of dollars on online vehicles such as banner display ads, paid search, video and, more recently, social media.
According to trade publisher and digital media researcher eMarketer, overall U.S. digital ad spending hit US$23.6 billion in 2008, up 11.3 percent from $21.2 billion in 2007, including $10.7 billion for paid search, $4.6 billion for display and $587 million on video.
E-commerce companies were naturally ahead of the curve here, as their business models were built on the Web, and their ability to measure responses from these vehicles was more advanced.
However, a lot of this mega-investment in digital media was done without a whole lot of strategic thought involved, with marketers of all stripes going more on gut instinct than a solid grounding in business principles; think of shooting fish in a barrel. This strategy worked for many while the relative investment for online media was still dwarfed by traditional media spend. Thus, the relative ROI for online media substantially outperformed TV, radio and print, sometimes just based on lower saturation levels.
Given this scenario, companies continued to make significant bets online without real insight as to what strategies were most appropriate for their businesses. Questions such as, "Does banner display really increase brand equity?" or, "What is the value of my presence on social media sites?" or, "What is the relationship between online and offline media?" were never really understood.
While traditional marketing channels such as direct mail, television and print advertising were not abandoned in this pursuit, marketers managed them as a completely separate entity from digital, with different goals, different metrics and different management. Thus, they ran on parallel but separate tracks -- without strategic integration, and often without a great deal of accountability. This led to frustration on the part of CMOs who lacked common measures for comparing the effectiveness of the twin efforts on an apples-to-apples basis.
Market Slowdown Prompts Serious Reexamination of Digital Spend
When times were flush, the extent of the strategic question was, how much digital spending is enough? A marketer who didn't see visible signs of saturation, or marginal returns less than $1.00, would just keep increasing digital budgets and continue to hope for the best. However, when the macroeconomic picture began to darken in late 2007 and into 2008, management and finance began to seriously reexamine and question digital media spending habits.
This fact is clear from some recent downward revisions of forecasts for digital ad spending. First, eMarketer in November 2008 reduced its projection for growth in digital ad spending for 2009 from 14.5 percent to 8.9 percent -- that revision coming just three months after the more optimistic number. Then, in February 2009, research firm IDC dropped an even more cautious outlook, projecting a 5 percent drop in Q1 online ad spending, the first such decline since the tech bubble burst. Further, IDC analyst Karsten Weide hinted that he might have to reduce his 10 percent growth projection for the entire year.
Marketers in Survival Mode
In 2009, the operative word is "preservation." While brand-building cannot be totally abandoned, the cold reality is that there may be no brand to build in the future if folks aren't buying this year. Because digital media has proven to be more efficient than traditional elements in driving short-term results, it makes sense to explore ways to ensure the digital spend is optimized, delivering the greatest bang for the buck.
Now, e-commerce marketers are facing the prospect of a pullback in budgets, after years of free-spending habits amid the market love affair with all things digital. So, in this environment, how do you support and defend your digital marketing initiatives? How do you keep your digital budget from getting flattened or even cut? How do you demonstrate digital's ability to bring money in the door today so the doors will be open 12 months from now?
This article will explore five ways that e-commerce marketers can accomplish this, using case study examples.
- Develop common metrics that will make finance stand up and cheer.
For digital media, marketers need to move from standard digital success measures to more hard financial metrics. Five years ago, measuring the success of banner display based on click-through rates may have been an acceptable practice. Now that every digital dollar spent is receiving the same level of scrutiny as traditional media, finance needs to see more demonstrable, bottom-line results from their digital investment.
ROI is the common metric that aligns all constituencies (marketing, finance and sales) in regard to overall program performance. Historically, the measurement of digital performance has been narrowly defined as click-through rates, post-click behavior, and other nonfinancial measures. We believe assigning a financial value to each display impression, search click and email sent is essential to making intelligent marketing spend decisions. Without an understanding of the marginal opportunity related to increasing (or today, more likely decreasing) spend, then how can a marketer make the right allocation decisions? - Get everyone on the same page.
In order for marketers and CFOs to objectively assess both traditional and digital marketing performance, they need to take a more holistic approach to quantifying their effects. No longer can they run on parallel but separate tracks. The old paradigm of analyzing marketing performance using different processes and metrics -- which is often still in use -- has resulted in a chronic misattribution of marketing effects. Marketers from different groups within the same organization are taking credit for the same sales, yielding inflated views of overall marketing performance and making apples-to-apples comparisons impossible.
I n fact, when traditional and digital marketing programs are analyzed within the same analytical construct, it becomes apparent how much they interact with one another. Online behaviors such as search and display clicks are often initiated by an exposure to offline media. For one leading online travel agency, offline media drove 15 percent of all search clicks. After reattributing these indirect effects, online tactics remained strong performers while offline ROI improved by 35 percent.
CFOs and other decision-makers need greater visibility into these interactions in order to understand the true effects of marketing, consequently making them better equipped for allocation decisions. Only through simultaneous measurement will marketers be able to quantify and account for these interactions, ultimately avoid misattribution, or worse -- double-counting of marketing effects. - Find and exploit online-offline media synergies.
Marketers need to take advantage of the potentially synergistic relationship between offline and online media. In our experience with e-commerce companies, we've found there is an often ignored yet vital benefit that can be realized by leveraging offline media to build awareness and drive online sales.
A lack of understanding in this area can result in inferior returns on digital investment and possibly a misallocation of spend across the marketing mix. In particular, we've discovered that the coordinated execution of paid search and TV - - with TV acting as the original awareness builder -- significantly increases campaign effectiveness. Think of it as the classic 1+1=3 synergy. For instance, when a TV flighting schedule, i.e., the pattern in which advertisements run, is timed in such a way as to drive online paid search, the TV ads are responsible for driving as much as 40 percent of the paid search impressions created through brand awareness. Even if the TV flighting schedule is not timed precisely in concert with paid search, it can still be responsible for 10 percent of the search impressions. This dynamic is most effective when done in support of high-consideration purchases like a home theater system or an automobile, because consumers generally aren't conducting online research for everyday purchases such as batteries or aspirin.
As a marketer, another phenomenon to reconsider is the reordering of the traditional consumer purchase funnel. The textbook funnel, which starts with awareness building and assumes a reasonable trickle-down effect, is no longer valid in many categories. Entry and exit points in this funnel have been re-defined by changes in consumer engagement activities (e.g., reviews, discussion boards, blogs, etc.) and consumer-generated content. Any and all of these activities could disrupt this cycle -- once a much more reliable process -- at any point. Consumers are being influenced by a number of simultaneous touch points that must be considered when measuring marketing performance. - Properly account for what is beyond your control. Marketers need to understand the impact of macro and external factors, and how marketing performs in different, uncontrollable conditions. Don't assume you're going to get the same results and response rates in all different market circumstances. How does your traditional marketing or your digital marketing respond under different macroeconomic or uncontrollable conditions?
Recent analysis of a cosmetics seller with an online presence revealed highly variable responses to macroeconomic conditions across different product categories. Lower-priced staple products were fairly resilient in the face of difficult conditions, yielding modestly lower performance, while higher-priced discretionary products were severely affected by external conditions.
Try as you might, you can't influence consumer confidence or seasonality trends, but you can influence your message to management. You need to be able to prove the impact of factors you can't control. An e-commerce digital marketer may have a $10 million budget and tell his CFO he will drive a certain amount of sales with those dollars. However, at the end of the year, the economy tanks, and the senior leader says, "Your marketing plan didn't work; sales are down." If you have the right information at hand, you can say with confidence, "The marketing actually did work. If we didn't spend that $10 million, we'd be down even more." If you can isolate and separate the impact on the business of factors you can control versus those you can't, you'll gain credibility and budget championship. - Don't leave innovation out of the equation. Innovation is critical to differentiate you from the pack. Now more than ever, ecommerce marketers must innovate in the messaging as well as in the offering in order to establish a competitive advantage over the masses, including low-cost options such as private label brands.
Continuously testing innovative ways to connect with your targeted consumer is important. Preliminary insights have shown that new marketing channels such as social media (Facebook, Twitter, LinkedIn) and new technologies (digital video) have been successful for some marketers.
Allocate a portion of the marketing budget to test out innovation. Test regularly and have access to reliable data so you can determine the impact these new programs are having on your overall mix. Understanding both the average ROI and the marginal opportunity (e.g., saturation level) are key to understanding both the success of the program and the opportunity for incremental investment.
The second piece is new product innovation. Nothing establishes a competitive advantage better then a differentiated offering. Given the rough economic times, consumers are more likely to scrutinize the real difference between branded offerings and lower-priced offerings (e.g., store brands/private label) if they can't really distinguish the value, real or perceived. One financial services firm, for example, was struggling to attract new accounts into the retail banking portfolio (checking, savings, investment). It established a new online savings product that set higher interest rates but with less access to physical customer service.
The program was wildly successful at bringing in a younger demographic that didn't ask for or need physical contact. Now, the bank has access to an entirely new customer segment -- one that is upwardly mobile and more likely to be upsold to higher-priced offerings such as insurance and investment products.
Conclusion: An Integrated, Synergistic Approach Yields Real Results
Instead of reflexively slashing both digital and offline marketing when times are tough, forward-looking e-commerce companies would do well to implement an innovative, holistic approach that, in the end, achieves a greater sales impact than two discrete functions. Instead of having digital and traditional media initiatives employing different languages and working at cross purposes, this approach leverages the best performance characteristics of each, opening up new market opportunities and driving tangible, measurable returns based on common metrics.
Steve Tobias is senior vice president and client officer of Marketing Management Analytics, a Synovate company. He can be reached at steve.tobias@synovate.com.steve.tobias@synovate.com.
Dan Eggleston is a senior director of client service analytics at MMA. He can be reached at dan.eggleston@synovate.com.
MMA's analytics, technologies and consulting help companies address marketing mix, pricing, and sales force effectiveness issues.