Synergy and connectivity are the gravity and magnetism buzzwords of the advertising world and while they appear to keep everything together the truth is similar to physics… there always seems to be a linking particle missing. While a growing emphasis on analytics has brought advertisers closer to identifying optimal ROI, perfect always feels out of reach. While advertising isn’t rocket science the rules driving performance trends are surprisingly similar. Newton may not have envisioned his work being applicable to advertising but his 3 laws of motion translate well to a few basic rules about performance momentum that can help identify and reach optimal performance levels.
Rule 1: Whether in motion or at rest momentum remains the same barring an external force.
- Advertising Impact: If sales are slipping year over year the expectation should be, barring any change, they’ll continue to decline.
- Where Advertisers Fall Short: Natural (seasons) and artificial (offers/competition) consumer touch points drive efficient media planning but without taking into account the impact of offer, format and method along with the target consumer this achieves only part of the goal. A richer offer may provide incremental lift in light seasons while during key seasons it provides no benefit to ROI. Depending on the consumer this strategy may pull forward activity where incremental gains off-season erode peak-season performance.
- Advertising Solution: Changes aren’t permanent but change is. Continually measure performance and evolve products, formats, and methods for reaching multiple consumer segments. The solution occurs when the right product with right message reaches the right consumer at the right time in their buying cycle. If results have degraded and no action is taken an unlikely amount of consumer evolution is required to return to historical levels.
Rule 2: Advertising momentum is constant but inconsistent necessitating best practice implementation of performance data.
- Advertising Impact: More is more. Simply applying more horsepower to a car without any change to weight/balance/etc. will result in a faster car. Understanding the momentum shift by applying more investment and its impact on performance is key to optimizing advertising programs.
- Where Advertisers Fall Short: In an ideal world where all outside impacts remain equal doubling spend doubles the amount of profit generated. So $1000 spend yields $250 in profit and $2000 spend would yields $500. Advertising has never been that easy and the pace of consumer evolution with media and brands continues to accelerate. Understanding momentum of current and potential incremental investment allows optimization efforts for future investment. Testing used without conjunction with overall results leads to false paths forward.
- Advertising Solution: While testing yields specific data points that feed future optimization measurement needs to yield insight throughout every campaign. Media outside of testing is not inert and understanding existing momentum and causes gives direction with regards to future planning. Competition, calendar, format, test results, and baseline performance should all be part of the consideration set to develop best practices for investment opportunities.
Rule 3: An accurate assessment of advertising momentum yields equal actions and reactions
- Advertising Impact: When an advertiser spends $1000 on an ad campaign $1000 of activity occurs, no more or less. Measuring momentum shifts due to spend shifts often fails to take into account the full action exerted on a campaign and the full reaction to that investment
- Where Advertisers Fall Short: By failing to measure the true cost of a program the true benefit also becomes difficult to determine. Without taking into account overhead, profit, and cost of product advertising campaigns have a false benefit. Likewise when direct marketing provides an indirect benefit campaigns show a false drag. Consider the scenarios below:
Scenerio 1: Overstate Advertising Impact Scenario 2: Understate Advertising Impact Scenario 3: Accurate Advertising Impact Costs Benefits Costs Benefits Costs Benefits Campaign Spend $1,000 Direct Revenue $1,250 Campaign Spend $1,000 Direct Revenue $1,250 Campaign Spend $1,000 Direct Revenue $1,250 Product Cost $500 Product Cost $500 Indirect Revenue $500 Overhead Cost $500 Overhead Cost $500 Upsell/ Resell Revenue $450 Profit: $250/ROI: 25% Profit: $750/ROI: 37.5% Profit: $200/ROI: 10% Conclusion: Incomplete assessment of costs inflates ROI Conclusion: Incomplete assessment of benefits eliminates ROI Conclusion: Capturing all costs and benefits leads to more accurate ROI
In each scenario costs = benefits + profit but the same campaign’s ROI can be calculated in a number of different ways. A Swiss cheese approach will inevitably create holes that GAAP and SOX account for but on the back-end will lose their optimal impact on future planning.
- Advertising Solution: Consider the true costs associated with a campaign, including overhead while also giving a true assessment of the benefits delivered. The upsell/resell benefits from establishing an initial consumer touch point are as important to measure as the cost of developing creative.
As a baseline these rules of momentum introduce opportunity for future optimization. To some degree they reinforce the existing knowledge base while introducing momentum based KPIs to future planning. Implementing momentum based best practices in conjunction with existing practices makes advertisers better able to forecast and adapt quickly in a rapidly evolving landscape.