Bringing traditionally outsourced marketing capabilities in-house is phenomenally difficult to do well – the leaders in this space will often have an advantage of expertise. One of the greatest risks is long term ROI erosion. Here, Carat's Fabrice Otaño looks at the pitfalls that can lead there, and the steps to mitigate that risk.
In-housing has recently become the industry’s hot topic and is currently sitting right at the top of many under-pressure ROI-stretched clients’ to-do lists. And why not? It’s certainly tempting. On the surface, it can seem like an easy way of driving down costs. And in the short -term substantial cost savings can be achieved. However, in most cases this short-term gain leads to long term ROI erosion.
From a white paper based on research carried out by Dentsu Aegis Network of more than 1,000 marketers, we found that there were a number of common drivers of undertaking in-housing:
- Data ownership: A commercial need to exert greater control over the collection, management and usage of data.
- Cost reduction and transparency: It can seem like the cheapest and easiest option.
- Operational efficiency and control: Since its creation, the mar-tech industry has expanded to include an estimated 5,000+ providers while the breadth and frequency of campaigns has also grown. Add to this the pressure clients are under to break down internal silos and align operational processes. The case for consolidation and more integration becomes almost inevitable.
- Bringing accountability home: Marketers have a lot of expectations of the improvements that in-housing can bring, whether these be operational, revenue deliverable; improvements in viewability, brand safety or ad fraud.
However, what many clients miss while attempting to deliver all of the above is that In-house operations can become sub-optimal over time, driven by pressures on resources, lack of innovation and an inability to maintain best practice.
The path to ROI erosion
In the first year, the learning curve of in-sourcing is not obvious and what many fail to prepare for is the huge investment needed in tech - most companies simply don’t have the correct tools or people to handle the influx of data. All this data has to go somewhere, and new technology is not easy to integrate.
In most cases, this data is not centralised - meaning different departments are dealing with data driven marketing, often across different brands, and different countries. There is also no way of knowing the maturity of this data, so that needs to be assessed as well.
The next stage is to discover and develop the use cases. Without them it is impossible to produce the additional revenue.
But data is only the tip of the iceberg. The whole company needs to be organised differently to make sure that all the work that was previously handled by the agency can be transferred effectively. Also remembering that most companies don’t have people dealing with data-driven marketing such as programmatic and social, and if they do, they work in different departments.
This also means it is vital to have a CMO with the right vision and authority to make these organisational changes and a CIO who has knowledge of running a data-driven marketing technical ecosystem.
To effectively achieve this, best practice says it should take at least a year. In actual fact, it generally takes more but for the purposes of this piece, let’s assume best practice has been hit.
This is when a business will begin to see the payback. Everything will be sitting neatly within the business, there is no outlay on the agency, there are less intermediaries and, with the right use cases, the decision-making process can be successfully accelerated, decreasing costs and increasing revenue. In fact, we estimate an improved ROI of 12 to 14 per cent in the full speed year.
But, as with riding any wave of success, there is the threat of a dangerous riptide coming right behind it, making those ROI numbers sink like a stone.
Firstly, it will become impossible to leverage any more savings on the technical costs.
Secondly, without an agency pushing the creative agenda, there will be an inevitable lack of innovation with media partners and publishers – vital to staying ahead of the ROI curve.
Agencies are always trying to find the best solution – even the best people in a client’s company are too far removed from this sort of business. Without increasing investment in innovation, it is inevitable that momentum will be lost and there will be decreased profitability.
Finally, there will be a talent retention issue. In the hectic first year it is imperative to hire a host of new talent to deliver the project. However, because it is a project, after two years there is no career development. Your people will be looking to advance their careers while taking on multiple experiences - not working on the same campaigns with the same tools.
Align data and in-sourcing strategies
As we know, a unified data strategy across business divisions, marketing functions and external partners is an absolute must when trying to understand customers and meeting their needs. And so, being able to align these resources is vital in extending ROI in the long-term when in-sourcing.
To do this effectively there needs to be an honest assessment of how mature an organisation’s approach is to data and intelligence.
Clarify the target model
When making this decision, technology choices are important, but it is generally the complexity and sheer scale of the project that will be the biggest barrier to ROI growth. When looking at successful in-sourcing case studies it becomes very clear, very quickly that it is the companies that already work in data and tech who get it right most often.
A simple Target Model Map can help clarify the right model in terms of hiring, developing or borrowing capabilities - and for technology - outsourcing, contracting directly or building a fully-owned ad-tech stack.
Success is also dependent on closing the gap between IT stakeholders and marketers, who must consider how that technology is optimised and supports business strategy.
Plan ahead to maintain ROI over time
To mitigate the risk that marketing ROI will erode over time, clients must ask themselves three questions:
- Is it really cheaper?
- Can you access the right talent?
- Will it actually be worth severing your agency ties.
In the end, it is actually effectiveness, not efficiency that drives long-term improvements in ROI. In fact, getting in-housing wrong actually leads to ROI erosion. While removing the agency layer can simplify some processes and save time, the agency is often best-placed to orchestrate this broader “go to market” process. All of this may explain a number of reports of brands returning work to agencies in recent months after failing to get their insourcing right and suffering ROI erosion.