Friday, August 6, 2010

IAB Study Discusses Optimal Marketing Channel Allocation

Gone are the days of the Mad Men, when the marketing channels were limited and mass media was king. Today, there are more marketing channel options available and the attention of the consumer is more difficult than ever to capture.

As a result of this fragmented marketing mix, measuring the effectiveness of media spend and optimizing this spend is more complicated than ever. In fact, with the interactive channels (including social media) playing a vastly increasing role in establishing brand and product presence, and with tools like the DVR giving the consumer more control over their consumption patterns, the need to understand how to allocate budgets across marketing vehicles has never been more important.

Last week, the Interactive Advertising Bureau (IAB) released an excellent new study entitled, Interactive Advertising and the Optimal Marketing Mix where research by MarketShare Partners was presented that discusses opportunities for optimizing marketing spend in three different industry verticals - consumer packaged goods, financial services and automotive. In the study, there was a strong case made for a much better measurement of the impact of all marketing investments, both offline and online, as well as the use of incentives as part of the marketing mix. While the study makes a case that traditional advertising has somewhat diminishing returns, too much money spent on any channel was found to be suboptimal.

In addition, it was found that because of the reach and power of interactive advertising as well as the synergies with offline media, the optimal allocation of interactive media spend should be between 1.6x and 2.2x the percentage of the budget normally allocated to interactive. This increase in allocation made all channels more effective in the case studies presented. It was also found that there was a benefit to matching the media with their relative strengths - mass broadcast for brand building, print for information, radio for call to action, online for information, etc.

For the financial services case study, it was believed that the media mix selected needs to support the building of trust in the brand and that it was important that the consumer have some level of emotional connection with the specific brand they choose for certain products. Using the proprietary tool Compass from MarketShare Partners, it was found that the case study institution spent too much on mass media (TV and print) and not enough on online paid search and display. Interestingly, the statistical models employed recommended an increase in out of home marketing (billboards, bus stop ads, etc.) that support the local location. While in this case, the models indicated a need to slightly increase marketing spend for an increased marketing ROI, some of the cases presented actually recommended a decrease in spend for better results.

In most cases, the work of MarketShare Partners supports the importance of mass media to the marketing mix. Despite the growth of the internet and social media, TV is still effective. It is just that this investment in most cases is too high. It was also found that a relatively small reallocation of media spend can have a significant impact on marketers’ revenue. For example, one media optimization scenario examined in this study demonstrated a 6% increase in revenue - even after a 13% decrease in total marketing spend - when dollars were shifted to interactive.

The key takeaway from the research paper from the IAB and MarketShare Partners is that it is more important than ever to employ some type of science to your art of marketing to determine the optimal marketing medium mix. And while some generalities can be 'taken to the bank', the effective allocation of investment will vary from industry to industry, company to company and even program to program based on the objectives of your marketing plan. But with budgets limited, it is imperative that we begin to look at balancing resources to maximize the impact on revenue and profit.

Is your bank measuring the impact of different channels on your program's success? Are you confident in the measurements made around the impact of alternative media? How about the measurements around the impact of mass media? I would love to hear how your bank is allocating your marketing budget.

A special note: More than 15 years ago, I was teamed up with Wes Nichols when we both worked for Response Marketing Group out of Richmond, VA. that eventually was acquired by Brann Worldwide (now part of Euro RSCG). When we worked together, it was clear Wes was a visionary who wanted to test the limits of direct and interactive marketing that was then in its infancy. Through the years, he has led several different marketing organizations, moving more and more from the art of direct marketing to the science of media mix allocation and optimization. Currently, he is the co-founder and CEO of MarketShare Partners out of Los Angeles, a firm that leverages data and analytics to help Fortune 500 firms determine optimal channel spend as opposed to traditional survey based solutions.

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