Marketers Are Getting Worse at Directing Their Budgets Wisely
When Rex Briggs compiled studies from dozens of brands for the 2006 book "What Sticks," he found that the old saw about half of budgets being wasted was wrong. It really was only 37%.
Six years later, amid an industrywide obsession with procurement, measurement and return on investment, he's come back with another, more sophisticated analysis of hundreds of campaigns representing billions of dollars. The finding this time: 40% of the budgets are being wasted.
One surprising factor in the three-point drop in efficiency? Marketers aren't spending enough on social media, he said. However, that doesn't necessarily mean marketers will dramatically increase spending on social-media advertising. And the worse news for digital display advertising, based on his research, is that its ROI is flat to declining.
That's a gross simplification from a complex book, "SIRFs-Up -- Catching the Next Wave in Marketing," to be released May 29 by Mr. Briggs, CEO of research and analytics firm Marketing Evolution. (SIRF stands for Spend-to-Impact Response Functions.) A key takeaway, however, is that despite six years of obsessive investment in big data, marketing-mix models and other analytic tools, marketers are getting worse, not better, at directing their dollars.
"One big reason is that advertisers haven't changed from their advertising-centric model yet, even though they've had a decade to prepare," Mr. Briggs said.
Marketers still focus on driving awareness first and advocacy second, when they should do it the other way around, he said. Advocacy has always been important, Mr. Briggs said, with a nod to Al Reis' decade-old theory that brands are built on PR first, advertising second. But social media has only made prioritizing advocacy that much more important, Mr. Briggs said.
Another reason for declining ad effectiveness may be the analytical tools and processes themselves, according to Mr. Briggs. He believes marketers have been misapplying marketing-mix models, often further entrenching their longstanding reliance on TV and price promotion. They or their agencies have clung to reach-and-frequency media-planning models far too simplistic for a complex marketing world, he said.
But perhaps the biggest revelation is that , despite all the hype and rhetorical embrace from marketers about social media and branded content, they're still significantly underinvesting in both, according to Mr. Briggs.
He was himself a skeptic about the ROI of social media a year ago when he launched his new analytical tool, TMR, for Telmar Media Return on Investment. But after a year of number-crunching later, he finds social media and the branded content it carries generally produce strong returns.
That doesn't necessarily mean a big influx of ad dollars is coming to Facebook or other social media. Big brands are likely to max out their investment in advocacy via relatively low-cost social media quickly and still have plenty left over to buy awareness using other media, Mr. Briggs said. And when they do invest, they often get the strategy wrong, using social media as an adjunct to an awareness campaign rather than using social ads to amplify advocacy, he said. For good examples, he points to tech brands that use their Facebook ads to amplify favorable blog posts from others.
The underinvestment he finds in social media doesn't broadly extend to digital. Since 2006, return on investment from branded-content efforts has skyrocketed, even as ROI from digital advertising has been flat to slightly down, despite a steady drop in digital ad prices. A big reason for the latter two trends has been publishers placing more ads and clutter on web pages, which he said has increased revenue per page but eroded impact and CPMs.
The rapid rise of ROI for branded content has come from the rise of social media as a largely free distribution channel for it.
The basis of Mr. Briggs' new book is the previously mentioned spend-to-impact response function. It's an algorithm that mines and analyzes data from past campaigns to develop curves that plot the impact, e.g. sales lift, for various levels of spending on each part of the marketing mix. Ideally, a brand spends on each medium and the media plan as a whole right up to the point that incremental returns no longer justify an additional dollar of investment.
Marketers and agencies have long known, at least intuitively, these curves exist. But up to now, few have scientifically plotted them in detail. Mr. Briggs is trying to do that , and believes such analysis should become the basis for marketing and media plans in the future.