Yes, your ad return could be bigger

New research titled The Growth Gap shows that brands could double their current media investment and still generate a profitable return. On average, brands are leaving behind 11 per cent of growth on the table, which equates to £32bn in missed potential profit. The problem isn’t that brands aren’t spending enough. It’s that many may not know where their profitable ceiling really is.

The following imagined conversation outlines the key takeaways. Bold is voice of someone in the real world, non-marketing or a client. Regular is the agency voice.

Regular voice: £32bn?

Agency Voice: Yes. Quite a lot of money.

Did someone lose it?

Sort of. UK businesses could be ignoring £32bn of potential profit by not listening to the evidence.

Sorry, the ad industry doesn’t listen to evidence?

You appear surprised.

Who did the research?

WPP Media, commissioned by Thinkbox.

The people who champion TV advertising?

Yes.

And WPP Media, the people who help companies spend money on advertising?

Also, yes.

I think I can guess where this is going.

You might want to hear the evidence first.

Fine. Impress me.

The study analysed 624 brands and more than 7,400 campaign scenarios to work out how much brands could spend on advertising before each additional pound stopped generating at least a pound back in return.

And?

The average brand currently spends about £15m a year on media. The research suggests the point where additional investment stops being profitable is closer to £30m.

So, you're telling me brands could double their advertising budgets?

On average, yes.

That sounds like the sort of sentence that gets a marketing director escorted from the CFO's office.

Possibly. But it is backed by Marketing Mix Modelling a statistical analysis using data science techniques like multi-linear regression to examine the relationship between dependent variables, such as engagements and conversions, and independent variables like ad spend across channels…

Boring, Let’s move on. Why aren't companies taking the money?

Fear, mostly.

Of advertising?

Of spending money without being able to immediately prove that it performed.

Ah. Performance marketing.

Exactly.

I like performance marketing. It has “performance” in the name.

Which is reassuring.

Unlike brand marketing.

Which doesn’t have performance in the name.

So, what's wrong with performance marketing?

Nothing. Performance channels, such as search and social, are often very effective with more than half of their total return arriving in the first week. This makes them wonderfully measurable, wonderfully reassuring and wonderfully easy to put on a dashboard.

I love dashboards.

We know.

Lots of green arrows.

Quite.

So, what's the problem?

The research suggests advertisers have confused what can be more easily be measured with what can drive more profit.

Ouch.

It gets worse.

Go on.

When the researchers optimised the average media plan for maximum returns in the first year, paid social fell from 13 per cent of total spend to only 4 per cent.

That's quite a haircut.

Generic paid search more than halved from 19 per cent to 8 per cent.

Some media owners won't like this article.

No comment.

And where does all that money go?

TV rises from 44 per cent to 65 per cent.

Ah. There it is.

Yes, TV in all its guises is being under-invested in.

Extraordinary.

But that's not actually the most interesting finding.

Which is?

The research really challenges what we mean by performance in the first place.

You've lost me.

Imagine two investments. One gives you £1.20 back almost immediately, another gives you £2 back but over the next month or so.

In this economic climate, I'll take the £2, thank you very much.

Marketing departments increasingly take the £1.20.

Why?

Because they can show someone the £1.20 on Tuesday.

And presumably put it on a dashboard.

With green arrows. Naturally.

What does it mean?

Brand building media generate short-term returns. The trick is choosing the right channels, spending enough and getting the timing right. They'll also drive sustained growth as a Brucey Bonus.

The CFO is going to love this.

You would think so.

Does every business need to double its advertising budget?

Definitely not. That’s the average, and the opportunity varies enormously by category: from a 69 per cent increase in the auto category to 275 per cent in travel.

So, I shouldn't walk into work tomorrow and demand twice the media budget?

Probably best to work out your own profitable ceiling rather than assuming the current budget is somehow the correct one.

Because?

Marketing budgets are usually set by things like last year's budget, this year's trading conditions, negotiations with finance and someone saying, “can you find another 10 per cent?”

Rather than how much profitable growth their advertising could actually generate?

Bingo.

The question to ask: “What's our profitable headroom?”

The question not to ask: “Can we just match last year’s plan?”

Media Chat is written by James Parnum, EVP strategy and planning, WPP Media