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Marketing ROI: Is There Such a Thing as Too Much Optimization?
The digital age has generally been kind to marketing and advertising. There’s next to no denying that our toolkit, newly bolstered by online channels and data analytics capabilities, has shifted Marketing closer to the forefront of the organization. But despite those successes, we’re under more pressure than ever to show our value.
Maybe that pressure is why we seem to have misinterpreted the ROI formula for marketing. And maybe that, in turn, is why all too many of the new marketing capabilities at our disposal are obsessed with short-term results and precious few are concerned with managing resources to reach as many people as possible.
And maybe that’s why non-working spend takes up more of our advertising budgets than anyone thought.
Percolate surveyed over 300 enterprise U.S. CMOs, VPs, and Marketing Directors about production costs to produce our new research report, The Hidden Cost of Marketing: The 2016 Non-Working Spend Report.
Non-working media expenses are dollars spent producing creative, as opposed to dollars spent putting it in front of an audience; it’s everything that isn’t distribution.
To be sure, “non-working” is a bit of an unfair pejorative. Production costs are of course always necessary, and every cent you spend should, in some sense, be working or contributing toward your goals.
But high non-working levels signal a lost opportunity. For any single piece of marketing content, if we could have shifted some of the dollars spent on production to distribution, we would. Instead, we’re investing in our ability to optimize conversion rates and have forgotten to invest in our resource management capabilities. This has led to an increase in non-working spend in the past year, with higher production costs to come.
Too Much Optimization?
The basic ROI improvement formula is “better results, fewer resources.” In the scramble to make the most of our newfound customer analytics tools and prove results to senior leaders, many of us have come to interpret that formula as a mandate to optimize the conversion rate of each ad or marketing initiative and show immediate, if short-term, results (a phenomenon that Weiden + Kennedy’s Martin Weigel not-so-charitably has called Marketing’s crack addiction).
So we pour more money not into media placement, but media production and preparation—into systems designed to tightly target our ideal customers and determine just the right, optimized piece of content that would nudge them down the customer journey. Infrastructure marketing technology platforms—like data management platforms that generate insights about customers—have seen some of the most rapid VC funding in the past two years, past Percolate research has found.
But the focus on conversion rates can leave actual conversion numbers on the periphery. A paid social post with an 80% click-through rate sounds great, unless only 20 people see it. On the other hand, when you advertise to a more mass audience, you get worse rates.
You should be absolutely fine with that. Sales numbers, not conversion rates, is what grows brand.
Not Enough Resource Management
If we’ve misinterpreted the numerator of our ROI equation—which depends less on optimization and more on mass awareness—we’ve largely ignored the denominator.
While marketing optimization tools have grabbed our attention, another subcategory seems to have been left behind: marketing resource management software. These tools were built to facilitate channel planning, coordination with agencies, and budgeting—but poor user design, a failure to integrate with third-party systems, and next to no focus on customer service and success has held the field back.
This is highlighted by Teradata’s recent announcement to divest its MRM business, even though it was a leader in the space.
The company is walking away at a time when workflow and budget issues are pushing non-working spend levels higher and higher. Nearly two-thirds of marketers told us that non-working spend increased or increased significantly in the last year, and the majority (51%) expect it to increase in the next year.
Driving that spend? Largely, the planning, process, and budgeting issues that MRMs should be solving.
So what’s the pressured, ROI-driven marketer to do?
First, it’s worth reiterating that there’s such a thing as too much optimization. Tight-targeting limits you to who you think is your target audience. In fact, most of a brand’s purchases will likely come from light buyers, according to research from marketing scientist Byron Sharp. While you should invest somewhat in optimized direct advertising strategies to activate sales, sustained brand growth comes from mass awareness.
Second, control the costs associated with producing your marketing content. The good news is that data points to a couple of areas to invest in that seem fruitful. When we looked at the marketers who:
- are confident in their ability to control non-working spend levels
- haven’t reported an increase in non-working spend in the past year, and
- don’t think non-working spend is a problem
they gravitated to three different tactics for controlling those costs compared to the general survey respondent.
One is creating better internal creative processes. Agencies get a lot of flack for driving up production costs, but opportunities for redesigning a brand’s own workflows.
Another is providing team training. Naturally, the more capable your employees are, the more they can produce on their own. Again, agencies are valuable and they aren’t going anywhere, but the truth is not every routine piece of marketing content should go through their review.
And third is leveraging technology or systems. While MRM has so far fallen short of delivering on this promise, marketers still need one central operating system for the department.
So as it turns out, processes, people, and technology are the solution to this problem—as with all business problems. But truly improving marketing ROI means asking “Are we doing the right things?” before asking “Are we doing things the right way?”
If we stay fixated on optimization, we pigeonhole ourselves. But when we concentrate on efficient, effective mass awareness in a complex media landscape, we grow brand while paying for exactly what we need. Once the field has caught onto that truth, marketing leaders will finally be able to use technology in a way that moves the brand, their career, and their people forward.
To learn more about the growth of production costs in marketing, download The Hidden Cost of Marketing today.