Ebiquity has today released a piece of research showing that better allocation of marketing spend could result in approximately $45bn more profit globally for brands each year.
The research compares spending against allocation data to reveal insights into how marketers could be distributing their advertising budgets more optimally to generate growth in bottom-line profitability. This identifies a clear opportunity for advertisers everywhere to increase their marketing performance and improve return on investment.
The study analysed roughly 2,500 campaigns over three years, and was regionally weighted in order to build a global number. The focus was on channels where we could study the profit impact at different spend levels, with total media investment analysed representing $375bn in global ad spend, or roughly 76% of the total global advertising market. Had that same spend been optimised based on the ROI contributions of each channel, it would have generated an extra $45bn in global profits for brands.
The study shows a breakdown of current media allocation in the market against potential patterns of distribution to show the possible improvement of their advertising reach. This research builds on the recent Radiocentre and Thinkbox report findings into the allocation of budget spend against media channels, but this is the first time that a single global figure has been calculated. The analysis focuses on channel mix as opposed to other factors that are causing loss to advertisers, such as ad fraud, viewability, bot traffic, and other non-working media costs.
The analysis focused on channels within our database where we both have enough data, and where we can robustly arrive at a model of optimal spend levels across each channel studied. The dynamics of some channels mean we are not able to calculate these relationships (e.g. Search), and as a result, this study focuses on TV, Radio, Press, Out of Home (OOH), Digital Display, and Digital Video (including broadcaster Video on Demand and other internet Video on Demand, such as YouTube).
Ebiquity has shown that advertisers who gain a deeper understanding of their marketing budget allocation will harness the potential to improve their marketing performance and ROI.
Mike Campbell, Head of International Effectiveness at Ebiquity, whose team conducted the research in-house, said: “This research shows that brands could be delivering much more from their advertising investments. We’re highlighting that with proper measurement and analytics, marketers can reevaluate their spend allocation to dramatically improve results.”
Michael Karg, Chief Executive Officer at Ebiquity, said: “As media, content, and customer experience options proliferate, brands fundamentally need to know what works well for them and what doesn’t. This study is an important reminder that marketing spend still has a positive bottom-line impact and should be treated as an investment, not as a cost.”
SUMMARY OF ANALYSIS
Ebiquity’s Advanced Analytics practice area delivers marketing effectiveness solutions to clients. We determine how marketing activities drive business performance to identify the commercial return of these investments using econometric analysis. Econometrics was employed for this study, which examines the trading history of a brand and aligns the changes in ‘stimuli pressure’ (e.g. media) to movements in a business KPI (e.g. sales). This allows us to establish how key levers are influencing consumer demand and within this, and to understand the role of media, by channel, message, and campaign.
We centralise our marketing effectiveness work into a single database which collates key input data (e.g. spends, ratings, message type) along with the key output data (e.g. ROIs, uplifts, halo rates). We used this database for this study, which includes ~2,500 campaigns covering a three year period, in order to establish how media is operating by sector, by channel and by region. The database is comprised predominantly of Western European advertisers and then extrapolated to a global level using Statista data, while adjusting for spend distribution differences across geographies. Worldwide spend on eligible channels for this study totals $375.3bn, or covering roughly 76% of the total global advertising market. Results are designed to represent a global approximation only and vary by geography, sector, and individual firm, where market and firm-specific dynamics are likely to lead to different optimisation opportunities. For example, where some channels have lower ROI in certain markets, they may have higher ROI in others.
Eligible media channels are TV, Radio, Print, OOH, Digital Display, Digital Video, which includes broadcaster Video on Demand (VOD) and internet VOD (e.g. YouTube). Analysis excludes search, social, in-app display, and direct mail channels usually due to channel dynamics, notably that for some channels the relationships between spend and profits – known as “response curves” – cannot be calculated, or due to insufficient data from low client spend. Profitability figures should be seen as approximation, as accounting standards and methods vary from firm to firm (e.g. costs are not always consistently allocated and definitions of profitability vary).
Crucially, we have been able to calculate the value of sales at different levels of marketing investment, by channel and industry sector, for an average client. This data shows the relationship between spend and profit return and consequently, we calculate the ROI at each spend level along with marginal ROI of spending more or spending less. Using this data, we can calculate the optimal level of spend that maximises profit return. We can then compare current distribution versus optimised and calculate the efficiency and profit gain, in other words, how much more return on spend can be achieved by reshaping the media channel mix.