The Proof’s In The Pudding – You Can’t Underspend, Under Target & Under Invest For ROI

Dan Machen (pictured below) is the head of strategy at Sydney agency Lionize. In this guest, he cites recent Nielsen data that shows marketers are often underspending on their media plans by as much as 50 per cent and, he says, they should probably be spending 50 per cent more…

“When it comes to advertising results, we must balance the ingredients to drive ROI –
in a first of its kind study by Nielsen, their 2022 ROI report finds that about half of marketers are under egging investment to drive ROI – but findings go beyond budgeting.” Nielsen study

I was once making a Sunday roast when an American friend asked, “You’re gonna try to make Yorkshire Pudding?!” I replied something to the effect that I’m from York, in Yorkshire, and this was far from my first rodeo. (Dear reader, thankfully this thing rose like a cathedral.)

Batter-based humble brags aside, the point is that with experience, the right balance of ingredients and a proven methodology we can, in fact, get some surety about results – based on evidence-based learnings our approach to marketing should be no different.

In its first ever ROI report, Nielsen have found what they have neatly dubbed the “50-50-50 gap”.

The report found that about half of media plans are under invested by a median of 50 per cent and that with the ideal budget ROI can actually be improved by a further 50 per cent.

In plain English, about half of marketers are not spending enough in a channel, leaving significant ROI on the table. The compounding effect of this could become a vicious circle as spend could be cut based on perceived poor performance.

Source: Nielsen ROI report 2022

Globally, the median most brand invests is 3.8 per cent of revenue back into media. To stay competitive, for many it should be more like five to six per cent of revenue and for aggressive growth, brands should push as far as nine per cent.

Naturally, investment levels will vary from different brands and advertisers based on their share of market and voice, their creative effectiveness, and media mix. That said, the report’s macro findings are a cautionary tale for agencies and marketers who are accepting a reduction investment without lowering expectations on ROI.

Nielsen’s findings go beyond just budgeting and speak to the impact of getting the channel investment right and making sure the media mix is optimised for reach. It found growing awareness and consideration by one per cent typically correlated with a one per cent rise in sales.

In this, Nielsen’s report builds on learnings from the Advertising Council Australia’s (ACA) 2021 white paper To ESOV and Beyond. The ACA also revealed first of their kind findings that advertising effectiveness was based on three vital ingredients to drive effective results. These included:

• A scientific setting of the right level of media investment
• Creative as a supercharger for effectiveness – but supported by the right share of voice and channel mix
• Media mix optimised to promote quality of attention

Nielsen’s findings support the ACA’s assertion that we must make a large enough media investment to cut through. The report also found that gaps in marketers’ budgets and channel and media strategies are compromising ROI of media plans. To this point, while it feels easy to say,”Budget is the answer, what’s the question?”, that’s also overly simplistic read on Nielsen’s findings.

The nuances in the findings are key areas as marketers and agencies should collectively take on board and embrace. The “no shit Sherlock” elements link to under investment, but beyond that, speak to the balance and weighting of top of funnel reach driving channels that build awareness where there is none.

Another key area to optimise ROI is near real time measurement of digital channels to ensure communications are as on target as possible in near real time. Here are three vital takeaways beyond budgeting:

• Only 36 per cent of channels deliver for both brand metrics and revenue. You need to measure both brand and sales impacts if you want to prove your investments are working. To grow ROI, brands should pursue a balanced strategy for both upper and lower funnel initiatives. Nielsen found that adding upper-funnel marketing to existing lower and mid-funnel marketing can grow overall ROI by as much as 70 per cent.
• Reach metrics are an early indicator of sales. Nielsen found that campaigns that optimised their reach consistently delivered a higher ROI and that growing awareness and consideration typically correlates with a rise in sales.
• Digital ads falter on targeting metrics, with a third of ads across desktop and mobile considered by Nielsen to be off target for age and gender in their US findings. This requires measurement solutions that enable the ability to optimise targeting mid-campaign to pave to way to higher ROI post campaign
  

At a time when we are facing macroeconomic challenges that place marketing budgets firmly in the cross hairs for reduction, it’s vital we embrace these findings on ROI and defend the investment we need to drive a return.

Beyond budgeting, we need to balance the ingredients – as per the learnings of Binet and Field and Ehrenberg Bass. Respectively, that’s about balancing upper funnel brand building and sales activation. It’s also about reach as the primary driver of growth, but with the data smarts around digital to optimise mid-campaign in near real time to be on target across the most receptive audience cohorts.

In the final analysis, if we get the ingredients right, then the proof will be in the pudding with marketing ROI you’re proud to bring to the boardroom table.