15 July 2010

How to know "which half of my advertising budget is wasted"


The biggest change in the advertising business today isn’t digital, social media or even the tectonic plate shifts of retail. It’s the measurement and accountability of marketing programs.

Measurement and accountability have been an issue for at least a century, as evidenced by the John Wanamaker quote, “I know half my advertising budget is wasted; I just don’t know which half.

We’ve written about this here, here and here, and made it a central theme in The History of Advertising, which is posted here on SlideShare. Today’s post won’t be the last one on this subject.

How do you know which half of the budget is wasted?

The simple – but not easy – answer: “do your homework”. Just by slogging through data and analyzing it you will learn a lot. So far there is no magical data processing program that can calculate the ROI of everything together.

You can still learn, however, by sitting down and concentrating on Nielsen data, costs-per-lead, et cetera, and figuring out what’s really going on. There is no shortage of data, just time to sort through it all.

Lesson from the world of Economics

Recently two economists published a book about financial bubbles throughout history titled “This Time is Different”. Their thesis is that every time an economic bubble grows, the market’s participants believe “this time is different” – and it never is. We’re always surprised when the bubble bursts.

What’s amazing about their work, though, is how comprehensively they collected and analyzed data. They reviewed economic records across five continents, sixty-six countries – and over a time period of 800 years. 800 years.

You’re a lot less likely to doubt their findings when they’ve put that kind of work into their analysis. (If you’re interested in what they did, you can buy the book here and read more about it here and here.)

Lesson for the world of Advertising

Surprisingly, economists seem to have the same aversion to data as many in our industry. In an interview about “This Time is Different”, the co-authors both observe that modern economic thinking emphasizes theories over actual analysis. Their 800 years of homework is apparently not the norm for economists.

This was reflected in one of Ronald Reagan’s better lines: “An economist is someone who sees something that works in practice and wonders if it would work in theory.”

We run a similar risk, relying only on theories and never sitting down with the data to understand what actually happens. Doing your homework will help prove your worth, and perhaps which parts of the budget are being wasted.

3 comments:

  1. Steve - great post...

    Reminds me of a quote (supposedly froM Churchill but I haven't been able to pin down specifics) I heard rrecently... Something Ike "even in the face of brilliant strategy, it's sometimes useful to look at the results."

    In part, I blame advertising training. The people hiring into agencies are fundamentally unprepared for the analysis you suggest - and likely even intimidated by the mere idea of running numbers. Always makes me appreciate my own odd path into advertising - with a masters in applied math.

    Cheers..

    Doug Garnett

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  2. Hello
    As I commented on a PR Warrior's post where you reacted :

    As a professional in purchasing cost reduction, we have implemented a fairly simple solution to this : do NOT spend money on advertising without knowing it will be effective ! Or put differently : choose advertising/media which allow to track the result on sales or shop visits. this leads to prefer direct marketing actions and to add customer interaction to 'classical' media. This helped many customers reduce the 'non valuable half' of their advertising costs, and to use their budgets on the most result-proven ones !

    Adding to this Ad Majorem post, this is a fairly simple way to CREATE the relevant data, avoiding to pile up 800 years of research so that MArketing Directors 'do their homework ;-)

    Olaf de Hemmer
    odehemmergudme@lowendalmasai.com

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  3. Thanks, Olaf. You raise two fundamental points: the ability to create our own data by tracking results over time, and the fact that many don't do their homework. Both of these are true.

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