Retail POS Analytics

Advertising budget: How should you invest yours?

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With many ways to get your brand’s message to consumers, a common question for businesses these days is how to invest your advertising budget. Of course, you aren’t alone in facing this challenge. Every marketer wants to know which media channels – digital and/or non-digital – they should invest in. One way in which many determine this is by looking at the overall return on investment (ROI) of their media activities. This might tell you, for example, that a digital campaign carries sales. But does this then mean that you should shift more of your budget to digital?

Looking at overall ROI, which is calculated by dividing total revenue by your total media spend, provides insight into the success of combined activities or entire campaigns. What it doesn’t tell you is which media channels you should spend more on to generate incremental sales. This makes optimizing your media spend based on this intelligence alone tricky at best.

There is an answer, though. Using point of sales data and marketing mix modeling (MMM), the marginal ROI of individual components of your campaign can be calculated. Marginal ROI only considers the growth in sales that are predicted to result from any increase in your spend. Consequently, it enables you to see which media channels will deliver more of a return the more you invest in them.

To invest, or not to invest, more in the media you know to deliver great ROI?

Perhaps counter-intuitively, just because a particular media channel delivers a great overall ROI doesn’t mean you should allocate more of your budget to it. There is a point, namely the saturation point, at which investing more money in a channel won’t help to deliver more sales.

The MMM studies we are carrying out across various countries and categories show that the majority of campaigns using traditional media display signs of saturation, as do those that use video and social. On the other hand, both display and search campaigns offer room for further investment.

For 70% of traditional campaigns, saturation point has been overtaken vs. 39% of digital campaigns

For 70% of traditional campaigns, saturation point has been overtaken vs. 39% of digital campaigns

Our case studies also highlight that traditional media such as radio are at times overlooked as ROI drivers. In contrast, while digital media channels drive sales, they can quickly reach saturation point, resulting in lower marginal ROI.

In order to determine which media channel will deliver an increased ROI and incremental sales, what you need to know is where each of those you are investing in is positioned on the saturation curve.

Response curves help explain how much more can be invested by media

Response curves help explain how much more can be invested by media

In this example, our client devised an ad specifically for an e-commerce platform to appeal to influential consumers. However, the ROI of using this platform wasn’t as high as that achieved by using either online video or print channels. By identifying where these media channels sat on the saturation curve, we found that the e-commerce platform was the only one which had not yet reached saturation point. With its marginal ROI being higher than its average ROI, it would deliver better for each dollar of investment than any of the other channels (online video, print or TV). Consequently, our client could continue to invest in this channel, safe in the knowledge that their money was being wisely spent.

ROI of different media channels

ROI of different media channels

Simulating your media budget allocation to optimize your investment

Using MMM and sales data, we can also simulate the outcomes of a redistribution of media spend. In this way, you can see how to optimize your media campaigns and planning. You can determine where to invest more of your media budget to achieve a higher positive return. However, perhaps even more critically, you can establish whether it’s possible to achieve the same increment in sales for less investment, or more, with the same budget.

Conclusion

Knowing where to spend your media or ad budget isn’t straightforward. In fact, it’s one of the biggest challenges for all our clients. What you need to know is where non-digital and digital media ad value, and how they work together. You also need to know which media channels deliver the greatest return and whether they’ll deliver more sales in line with any investment increase. The good news is that looking at both your overall ROI and using the more advanced metric of marginal ROI, you can discover the optimum way to spend your advertising budget.

Are you interested in more information?

Take your media planning to a whole new level. Download your copy of our white paper: Maximize your media effectiveness and drive sales with our five-step program.

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