Judy Ma and Brian Du, both from California State University/East Bay, discussed this subject in a paper entitled, Digital Advertising and Company Value: Implications of Reallocating Advertising Expenditures.
And by assessing the “ratio of digital advertising to traditional advertising”, the academics discovered an “inverted U-shaped relationship with company value”.
More specifically, they found “a larger ratio of digital to traditional advertising expenditures – that is, a larger digital share – was associated positively with company value, after other known determinants were controlled for”.
Such an insight came with an important caveat, however: when “the proportion of digital advertising to traditional advertising is low, shifting advertising dollars to digital channels has the greatest benefit for company value.
“As the proportion of digital advertising increases, the marginal benefits of digital advertising are outweighed by the marginal opportunity cost of forgone synergy in the diversity of advertising spending.”
In further quantifying this claim, they were able to identify a clear threshold: “The beneficial impact of increasing digital share becomes detrimental when the current ratio of digital to traditional advertising exceeds 15:1.”
Prior to the 15:1 split, the strengths of digital ads (adaptability, better targeting, higher reach per dollar) more clearly outweighed the “opportunity cost” that comes from eschewing a more diverse media mix.
“In the context of the proposition, this is the point at which the benefits of digital advertising are offset by the cost of forgone synergy gains from advertising across diverse media outlets,” the scholars said.
“Understanding these trade-offs and quantifying the relative effectiveness of the digital-advertising channel is critical in guiding managers toward optimal marketing-resource allocation.”
The study incorporated data from Kantar Media Intelligence’s Ad$pender offering – through which the research firm tracks advertising expenditure for brands and services – covering the 2001 to 2012 period.
Determining the enterprises in this dataset, and their related industries, left a pool of 1,538 unique companies that were analysed for the research.
Sourced from Journal of Advertising Research; additional content by WARC staff