“Half the money I spend on advertising is wasted; the trouble is I don’t know which half.” If John Wanamaker, the originator of that quote, back in the late 1800s, were alive today, he wouldn’t be as perplexed about how to measure the return on investment (ROI) of his advertising dollars. That’s because we have significantly improved science and statistics in the proceeding century in ways that allow us to measure, with a high degree of accuracy, the returns on sales driven by media channels, placements, and creative executions. And as a result, we can now precisely attribute marketing investment across media channels—including digital, which is more fragmented than traditional channels like print and linear TV.
In addition to being able to analyze the performance of specific campaigns, data from aggregated marketing mix modeling (MMM) analyses can be used to understand overarching trends across the entire media landscape, which is a project we recently conducted across the Middle East and Africa by analyzing the results of more than 250 MMM studies.
What did we learn that can help your next marketing decision?
From what we’ve seen, base sales—that is, sales made without the benefit of any media or trade activity—contributed an average of 83% of total sales over the past three years. What’s important for us to know is: What do media and trade activities contribute over and above those base sales?
Trade spend represented just over a quarter of the total marketing budget, and trade spend increased over time. The increase reflected a spike in trade promotion offers throughout the region as brands sought to generate short-term sales boosts. While trade spend clearly drives short-term sales, they are also a major threat for the sustainability of brand value and brands’ ability to charge a price premium.
Media contributed 5% of total sales over the past three years, with trade contributing 12%. While the return from media spend has been fairly stable over the past three years, the contribution from trade has increased at the detriment of base contribution.
From this, it’s evident that trade investments absolutely drive higher sales in the short term, but at what cost? While it may be an effective short-term strategy, it poses a risk to brand equity, encourages forward buying and store switching. It can also erode price elasticity. Media has a much less direct impact on short-term sales, but it has long been proven that media builds brand equity and base sales in the long term, enabling opportunities to execute pricing strategies.
Delving into the impact of specific media channels, digital outpaces TV (at $1.80 return for every $1 spent vs. $0.90 for every $1 spent). That said, however, digital advertising is considerably cheaper to purchase, and saturation is considerably lesser than TV.
While digital offers the biggest ROI in this context, TV remains king in capturing the biggest part of total media spend. Our study revealed that TV accounted for 58% of total media spend in the Middle East and Africa (it was even higher in Saudi Arabia at 83%). Digital accounted for less than 7% of total media spend for the campaigns analyzed (and only 2% in Saudi Arabia). This is significantly lower than in many other markets, but will likely change significantly in the Africa and Middle East region as brands increase the amount of their budgets toward digital.
Does this mean that marketers should shift all of their TV investment to digital? Not necessarily. According to research by Nielsen Catalina Solutions, average reach of the TV portion of a typical cross media campaign is 58% of the target, versus 2% for the digital portion.
So, while digital offers a highly targeted audience, it does not currently offer the same scalability as TV for reaching large audiences. Advertising will reach saturation on digital more quickly than on TV, and when that saturation point hits, increases to an ad budget will have less of an impact. So it’s important to note that pouring all of an ad budget into digital will not deliver a sudden spike in ROI. The trick is to find the “investment sweet spot” for each marketing tactic—the optimal investment that makes marketers’ spend work the hardest for each campaign across the different media tactics. It’s about balancing art and science to get the most out of your marketing spend.
As far as ROI is concerned, it all boils down to execution. A poorly executed digital campaign in Africa and the Middle East will deliver similar ROI to one on TV. However, if well executed, the ROI for a digital campaign will outperform TV by up to 50%. This is no surprise, as research from Nielsen Catalina Solutions also revealed that creative is responsible for up to 47% of a campaign’s sales.
So, how do you get the right mix?
TV investment is still key for brands in Africa and the Middle East, and it drives the biggest sales volumes. So brands should protect their TV investment because it has the widest reach. This is critical, especially for mass market brands. Brands should allocate some budget to digital and other channels. Digital has become a must-have for any media mix, and the strong spend-to-ROI ratio will justify the increased digital spend for virtually all brands. While each category/country/industry is different, marketers should strive to achieve a healthy media mix by gradually increasing =their digital spend to 15%-20% of their total media investment. Getting the right media mix is a test-and-learn exercise.
While these learnings are a solid base to understanding how to work smarter with media channels to drive your investments and returns, it’s also important to keep in mind that one size doesn’t fit all. A customized, tailored approach for your own brands, tactics, and creatives to fully understand your marketing spends vs. ROI is a fundamental prerequisite.