How to Cut Media Spending Without Hurting Sales
MediaWorks Viewpoint: MPG Exec VP-Research Joseph Abruzzo
Knowing that revenues will be challenged, marketers are looking for ways to cut spending while minimizing the revenue and earnings declines. Rather than making across-the-board cuts, more sophisticated advertisers will be cutting strategically, focusing on the least productive uses of media.
Many obvious tactics can be employed to mitigate costs; for example, using cable in place of network or raising the proportion of 15-second spots.
But looking beyond cost mitigation, there are proven strategies to help to minimize the sales impact of media spending cuts. Of the five that follow, the first two are straightforward and easily implemented. The last three require a little more media math and advanced analytics, which have become increasingly common.
1. Target prospects who are most likely to give you their business
Plans that make use of demographically defined targets tend to deliver wide audiences including non-users of the advertised brand and individuals having limited or no involvement with the product category. The cost of converting these individuals to a higher category and bringing about greater brand involvement can far outstrip the resulting revenue.
More effective is behavioral targeting, which is based on purchase or usage behavior; for example, medium-to-heavy category users. The method would focus TV-program selection on shows with audiences having the highest composition of the behavioral target; in this case, the medium-to-heavy category users. In comparison to demographic targeting, this method can pinpoint opportunities for improving targeting efficiency by as much as 10%. And, of course, increases in targeting efficiency suggest ways to deliver the most important target prospects for less.
The same thinking can be applied to increasing consumption among current brand users. If Brand A accounts for about 3 out of 10 cups of yogurt consumed by the Brand A customer, then increasing Brand A's consumption by 1 cup, to 4 out of 10 cups, will produce a 33% increase in sales volume.
The improvement of "consumption-based" targeting over simple behavioral targeting is the focus on prospects representing the greatest opportunity for increase in sales volume.
2. Focus media delivery on geographical markets that matter most
Many marketers rely entirely on the "low cost" cost-per-thousand efficiencies of national media. In many cases, the CPM efficiencies are overstated.
When you take a closer look, "all-national" plans tend to under-deliver to high-priority markets -- regardless of your definition of "priority" -- and over-deliver to low-priority markets. (The media weight isn't where you want it, but you are getting a terrific deal!)
To rebalance media spending to benefit high-priority markets: First, take advantage of natural skews in national media delivery; identify national media vehicles that skew to desirable geographical areas. Second, fund increased delivery to high-priority markets through reductions in national media spending and, while doing so, examine ways to cut the overall budget. This is easier than it seems. Savings can range from 5% to as much as 15% depending on market-to-market skews in spending priority, local media costs and variation in national media delivery.
|ABOUT THE AUTHOR|
Joseph Abruzzo is exec VP-director of research at MPG North America. His experience spans work with acquisition-driven marketers like Paramount, Warner Bros., Esurance, Sears, Kmart, Pizza Hut, KFC and Ford Motor Co. Throughout his career, he has focused on the application of quantitative methods in the context of strategic marketing: research and analysis, response modeling, and marketing communication strategy development. In his position at MPG, Joe works with the teams to fully integrate media and marketing information to yield richer insights and smarter media plans for clients.
3. Avoid excessive exposure frequency
Maintaining weekly reach at minimum effective exposure frequency levels helps to avoid excessive frequency and over-spending in general.
The premise is simple and empirically supported. The return on your second exposure will provide a greater ROI than the third. The return on your third exposure will provide a greater ROI than the fourth. And so on.
Reach-based marketing mix models can provide reliable estimates of minimum effective frequency levels by medium. In the absence of a reach-based models, "effective reach" scorecards found in textbooks like "Advertising Communications and Promotion Management," by John R. Rossiter and Larry Percy, help to guide advertisers toward effective reach.
4. Spend when the return will be greatest
Despite learning of the benefits of "recency planning" in the late 1990s, many businesses continue to "flight" media schedules.
In the absence of seasonal variation in demand, with customers constantly moving in and out of markets, media math suggests that, for the majority of brands, continuity beats a flighted schedule.
A plan with two weeks of 50 gross ratings points per week can be expected to outperform one week at 100 GRPs by 5% or more. Knowing how to optimally schedule spending across time will suggest time periods for spending reductions.
5. Avoid over-spending in any one medium
There is no one optimal media mix. The optimal mix will vary by overall spending level. Identifying the best mix for a lower level of spend will provide the basis for minimizing the impact of spending cuts.
Take a "reverse" zero-based approach to cutting spending. Continuously evaluate the impact of the next reduction. Where will the impact of the next dollar reduction be minimized? Should the next cut come from TV or internet display ads or search?
This spending reduction strategy requires the availability of media mix models, simulation and optimization programs (which have become increasingly common across the majority of product categories).
These are five (slightly simplified) approaches to minimizing the effects of spending reductions. The saying that "media is a game of inches" applies to spending cuts. Cutting media spending "strategically" will suggest taking a few dollars from here, a few dollars from there. When considered across the complete range of spending cuts, the resulting sales impact will be small in comparison to the size of the spending reductions.