This is an edited transcript of the conversation between Ann Marie Kerwin and Mike Menkes.
Ann Marie Kerwin: Welcome to the WARC Podcast. I'm Ann Marie Kerwin, America's Editor and this is the first in a series we are calling Marketing Truths. Here at WARC, we've been advocates for marketing effectiveness for more than three decades. And what we found, thanks to numerous research studies, is there is a set of principles of marketing effectiveness that have been proven again and again to work.
At the end of last year, a lively discussion popped up on marketing podcast “On Strategy” with Fergus O'Carroll as to whether US marketers understood marketing effectiveness. That was the challenge thrown out by his guest, marketing professor Mark Ritson, who said the US is behind the rest of the world in adopting marketing effectiveness principles.
But what we know about the US, as the world's largest market, is that it boasts plenty of examples of great marketing. But there is indeed a constant push to be better to improve to knock it out of the park. So we want to highlight the marketing work that demonstrates that understanding of what makes great effective marketing and the success that can be achieved when these principles are followed.
So over the next few podcasts in this monthly series, we'll be discussing how US marketers are demonstrating their understanding of marketing effectiveness, and explore how they are employing those techniques today.
Our first marketing truth is "Effectiveness is just as important as efficiency." And joining me today to help explain this truth is Mike Menkes, Senior VP of Analytic Partners, who is headquartered here in the US.
Analytic Partners is a recognized leader in marketing, measurement and optimization. Its commercial analytics solution is delivered through its GPS enterprise technology platform for deeper business understanding and right-time planning for marketing and beyond. Mike and his team have experience across industry verticals here in the US, as well as in over 50 countries across the globe. He's analyzed hundreds of millions of advertising spending. Analytic Partners is constantly recognized as marketing effectiveness experts and has won several industry awards, together with their clients such as Kroger, McDonald's, and Hilton. Welcome, Mike, thank you so much for joining me today.
Mike Menkes: Thanks for having me.
Ann Marie Kerwin: Let's start with defining what we mean by effectiveness. How do you explain marketing effectiveness to your clients? And how do you think that differs from efficiency?
Mike Menkes: The terms media effectiveness and media efficiency are often widely used and often inconsistently, and it can be misleading to think of them without understanding the context. Often when we're talking about effectiveness, we're talking about the incremental impact. Efficiency is essentially the same concept, but thinking about it more from a per-dollar spent basis. So what's the business impact that we've generated per dollar spent?
What we're talking about here today is a larger conversation around effectiveness and efficiency. How WARC has been thinking about effectiveness is whether our marketing impacts the business in the way that we want it to. Is it doing the job that we set out to do? From that realm, marketing effectiveness is about truly understanding when we spend on advertising and marketing, are we able to achieve business growth? Sometimes that’s sales, and sometimes it's new customer acquisition, sometimes that's online or offline sales, sometimes it's awareness. When we talk about effectiveness today, that's really what we're thinking about. Efficiency is really important. But we need to think about it from both the short-term and a long-term perspective. Often efficiency tends to be very focused on the here and now and there's nothing wrong with that. But as long as we're thinking about the short and the long term, that's important for us to balance being effective with our marketing, as well as generating those impacts efficiently.
Ann Marie Kerwin: Why do you think there has been a trend for clients to focus more on efficiency over effectiveness? And are there any dangers in doing that?
Mike Menkes: Efficiency is important, and we want to be thinking about that. But part of what's been happening in the industry is that there's a lot of data and metrics that have become available to business leaders, and a lot of that information is being utilized incorrectly. A lot of metrics have become available for every day of the week, every hour. But these metrics oftentimes aren't representative of reality. That's a big reason why WARC’s been pushing on this larger effort to understand effectiveness over efficiency because it is a bigger story. Are you achieving the goals that we have for the business?
Some of those efficiency metrics, like return on advertising spending (ROAS) for example, can be very misleading. They’ve gained a lot of popularity due to their speed and increasing accessibility, but they're derived from essentially siloed data. They aren’t necessarily measuring the incremental impact on the business. Efficiency is a fantastic goal for us to have, but we need to make sure that we're using the right information and the right efficiency metrics to make those decisions.
Ann Marie Kerwin: Talk to me about the difference between siloed metrics and a truly customer-centric framework. How does that keep the focus on effectiveness?
Mike Menkes: Siloed metrics, such as ROAS or other similar metrics tend to be misleading because they're only focusing on a portion of a customer's journey. And oftentimes, it's partial data. These types of metrics and analytics are using what's usually addressable media, that is linking an action that a consumer took to the media exposure that happened preceding that. And there's nothing wrong with that, except if we're only looking at the data that can be linked to an individual purchase, and we're concluding that that was the only thing that influenced that purchase. Then we're making bad decisions based on bad data.
We like to look at customer-centric type analytics, which is thinking about the full business view, and all of the different types of impacts that might potentially influence an individual to make a decision or a purchase. We're talking about all the different types of marketing touchpoints, those that are addressable, and those that are not. Most of the advertising dollars that are spent in the industry are not attached to addressable data, and cannot be synced to an individual because of privacy regulations and the way that it works across many environments. And so brands need to understand and use the right metrics. Siloed data is misleading. Just to put it in perspective, many of the metrics can be overstating the role of some activities by up to 10 times or more. … Siloed analytics often look at a conversion or a purchase or sale and those things that preceded it, and that might be in an environment such as Google, Meta, Amazon, or your own DTC business. But oftentimes, that only captures what can be synced to an individual activity. There are a lot of things that influence, for example, search. And we need to make sure we're taking into account those dynamics that precede the actual online journey.
Ann Marie Kerwin: So it'll appear as if that last touch is what's driving the business when that's just the final action you could capture in the metrics.
Mike Menkes: Exactly. For example, lower funnel marketing activities often have very strong ROAS numbers which means that there was a conversion, and there is not a lot to explain why there was a conversion. Some of those activities, such as search, can be linked to the conversion. But we have to think about what drove somebody to search for the product and make sure that we're providing proper credit to the right channels. We know that some of the lower funnel marketing activities like search are effective and efficient. It's really important. It's an important part of any marketing plan. But ROAS figures when we're looking at search, oftentimes, they're inflated by two to 10 times. And so we need to make sure that we're not using those metrics to decide how much money to spend on search versus video searches versus audio versus display versus social. We need to make sure we're using the right metrics, which are really about understanding the incremental impacts for those activities that are addressable and can be synced with an individual conversion and those that cannot.
Ann Marie Kerwin: What are the most common mistakes you see that a marketer might make when they're planning for effectiveness?
Mike Menkes: There's a few “watch outs,” but one of them is looking at those siloed analytics, those siloed metrics, and making budget decisions based upon that. For example, we've recently published a report that quantified the risk of using that information. For every dollar spent, we actually lose 35 cents of opportunity by allocating our budgets based on siloed analytics versus a more comprehensive view of understanding what drives the business.
Some of those misconceptions, for example, are that lower funnel performance marketing outperforms brand marketing. We see that brand marketing outperforms performance marketing about 80% of the time. Of course, there are exceptions. And there are reasons that they work together. It's not one or the other. But because those performance metrics are very readily available and they're not as readily available for brand marketing, there's this misconception in the industry that it works better. Sometimes it does, and it varies from business to business. But we need to have that holistic understanding of what's driving the business.
Ann Marie Kerwin: You’ve found that brands that invest in equity campaigns have higher ROI overall, isn’t that right?
Mike Menkes: Brand and performance are both important, but the brands that are most successful with their marketing and their media are spending at least 30% of their budget on brand and equity messaging efforts. And that's driving things like awareness and consideration, and then allowing the performance marketing to work that much better. If you think about it intuitively, people are more likely to convert with a performance message if it's something that they've seen and been exposed to previously in different environments. There's a lot of research, and any of the walled gardens will have the data that validates it, that performance marketing works better when there is a video ad that was seen before the performance advertising. Often data is not available to connect the dots, but it is something that we do see consistently. So we typically recommend that brands don't spend more than 50% of their budgets on performance.
Again, I want to caveat that with a whole lot of ‘it depends.’ I hate to generalize learnings but the bigger picture here is that it's a combination of brand and performance, not one or the other.
Ann Marie Kerwin: Another aspect of that that you do at Analytic Partners is understanding how long it takes for marketing to have an impact. What's the timeline that you use to evaluate whether marketing has delivered on its objectives? And how long does it take to see that halo effect?
Mike Menkes: That’s another reason why those siloed metrics that you can check every day, and see what happened today, what happened yesterday, what happened this week, why those metrics can be misleading.
Every business is different, we don't actually make any assumptions about when marketing impacts the business. When we're actually measuring different types of businesses, we're testing for different lag effects. But very, very consistently, we see that about up to two-thirds of the impact of advertising happens after the week that the ad was delivered, or after when the consumers were exposed to the ad, which is a huge number. Now, that doesn't mean that we're talking about months down the road. We're talking about advertising this week that affects sales this week in the KPIs. It's not just about sales, but advertising this week affects our business this week. Which advertising affects our business next week, and the week after that? It declines over time, and most of the impact is within a few weeks. I don't want to make it sound like many months down the road, we're going to have an impact. It is pretty immediate, but it's not this week. And so when we're looking at lift metrics around what happened this week, it’s wrong to say our advertising this week isn't working. We haven't really allowed it to work yet. We need to make sure that it has the time to do its job.
The most important thing is for folks to do their best to avoid interpreting this week in terms of what just happened. If we spend on marketing this week, we shouldn't be looking at just the performance of our businesses this week because it's going to be misleading. To double down on this and connect with a prior point, we actually see that lower funnel marketing like clickable type metrics such as search display, tend to have more of an immediate effect, than upper funnel marketing. Video and audio and other brand equity-type activities exacerbate the challenge because we need to make sure that we are looking at the right lens to understand whether or not the marketing is working well. Video has twice the lasting effect of non-video advertising. If we're looking at an execution that happened this week, and we're looking at the business impact this week, we're just always going to minimize the value of advertising like video, which is crucial for many brands to be successful.
Ann Marie Kerwin: Given the sheer number of campaigns that you have evaluated, what would you say are the major drivers of effectiveness?
Mike Menkes: This is one of the ROI Genome learnings that we have. ROI Genome is our collective intelligence of the work that we do across our customer base across the globe. These learnings and principles are true across the globe, but especially true in the US. The number one driver of advertising impact is how much we're investing. It's very difficult for us to be able to cut budgets by 20%, 30%, 50%, and expect to be as effective with what we're doing. It just doesn't work. That's really important to understand. Now, there are reasons to execute budget cuts, there are reasons for us to scale back. But we need to make sure that that's synched up with what our business goals are. The other key driver of marketing effectiveness is creative quality. That doesn't mean that we should be so concerned about creativity that we're afraid to err, which I think is one of the other “watch outs” that we've seen. But creative is number two on the list in terms of advertising effectiveness. Good creative is worth our energy, to do the research in order to get the creative that we expect to work well.
It's also important for us to be thinking about the halo effect, and that's another “watch out” with siloed analytics. When we advertise Product A within our portfolio, we may have other portions of the business that are affected. It might be that we're advertising or promoting or supporting a new product launch. Many people don't pay attention to advertising to the extent that many marketers think. So if we're advertising product A, people might go to the store or go online and end up buying products B or C, which are also underneath the same brand name. Understanding the impact of that halo effect is important. That's another key element for us to make sure we're thinking about both in terms of advertising effectiveness, and not leaning too heavily on the performance metrics.
There’s lots of complexity here. But how much we spend is important. The quality of the creative is important. The understanding of the halo impacts across products within our portfolio, as well as the impacts across retail sales channels, is important. If we advertise on Amazon, for example, we're going to see sales impacts on Amazon, but we’ll also see sales impacts off Amazon in other retail environments, and vice versa. Those kinds of cross-channel impacts, those retail sales channel impacts, are crucial to understand as well.
Ann Marie Kerwin: Earlier you said that each business has its unique aspects to it that need to be taken into account, such as the business goals, etc.. But are there tactics or strategies that marketers should prioritize in their efforts, and which aspects of this hold true across the board?
Mike Menkes: Certainly every business is unique, but a lot of the marketing truths that I've been talking about in terms of the pitfalls of siloed metrics, the importance of creative and halo, the timing of when advertising impacts business performance, these are all generally true across industries. The degree to which they're true varies. The lasting effect can be a few weeks instead of a few days, or in some cases it can even be longer than that. But the concepts are consistently true across industries and consistently true across countries. You started with a bit of the commentary around marketing expertise within the US and outside of the US, but a lot of these marketing truths are consistent across different types of industries and across the globe. There are certain dynamics that are different. Even within the same industry in the same category, you can have two competitors and the impact of their marketing can vary considerably based upon the size of the business, how premium they are relative to the competition, or if it is a discretionary product or a necessity. All of these things influence the effectiveness of marketing. But the principles tend to be generally true.
There are some differences across industries. Search, which is very unique and different from traditional media and even digital, tends to perform differently across businesses. Businesses that tend to be more online with higher price points or higher consideration tend to benefit more from search than those that are not like that. But that happens even within categories. It's important to highlight that a lot of these truths are relevant for any business.
Ann Marie Kerwin: At WARC, we've been talking a lot about how CMOS can position marketing to the C suite to justify investment. And an important aspect of that is demonstrating marketing's true contribution to the organization's goals. So how should marketers organize their metrics to ensure that they're tracking for impact and demonstrating that contribution when they go into the C suite?
Mike Menkes: It's crucial for marketers to build relationships with their finance counterparts. I can't stress this enough. We work with a number of Fortune 100 and Fortune 500 companies across the globe. And this is one of the areas that distinguishes successful organizations and those that are not. The ones that can build a strong partnership with finance and have a common language and common understanding of what's going to drive the business and have that confidence and trust. That's a big part of being successful with marketing, being successful with marketing measurement, and helping make decisions that are going to be best for the business. Building that partnership is crucial. There are a couple of key areas to bring to your finance partners.
One is the concept of incrementality. Coming back to what we were talking about earlier, with siloed analytics, those are often not capturing incremental impacts. We need to make sure that when we're talking about marketing impacts, we're talking about the incremental impacts. When I say incremental, I mean the impact from $1 spent on an advertising effort that we would lose in the absence of that advertising effort. So incrementality is crucial. And it's not about exposure and conversions, it's about being able to understand confidently that this caused somebody to do something.
The second point, which is related, but different, is omnichannel. We need to recognize that the world is complicated, and that measurement needs to align with this. A full business view is crucial. If we're just looking at data that's online only, or it's just our data because it's what we can access and it's harder to get the other stuff, we're missing out on a lot of what's happening. And so we must have a full business view, not partial views, and it needs to be fully representative of reality. That is true not only for sales channels, meaning online versus offline, but also new versus existing customers. Many first-party datasets are based on our current customers, but if we're not recognizing that our marketing may not be efficient in terms of our existing customers, but it's bringing in new customers who convert in the long term, that's a huge miss.
And the third, and probably most important one, is that we want to make sure that our decisions are anchored to our business objectives. We need to move away from report cards, and ask if my marketing works or not.
Marketing works. We should be well past this point in today's world. We need to move away from thinking of marketing as a cost, and to a world where we're using marketing and media as a mechanism to achieve our business goals. Maximizing ROI is not a goal. Achieving a sales or financial objective is, and that's where finance cares. So we can highlight that. Understanding that for us to achieve a certain financial sales goal, we need to do these things and spend this much and allocate this much and showcase that. Yes, we are optimizing, we are looking to invest in the right places. We have a very accurate and comprehensive understanding of what's driving the business. That's what's going to get finance excited about partnering. Because then we're working towards the same goals, which is to drive growth for the business.
Ann Marie Kerwin: What is it that organizations do that lead to success? And is there any difference between US and global clients?
Mike Menkes: Certainly I think that marketing and finance partnership is important. So that comes back to ensuring that there's confidence in our investments. We need to move past the idea that marketing is a cost and into the framing that marketing is a business driver. And we need to demonstrate that through robust, accurate, comprehensive analytics, and commercial analytics. We track the business impact of the work that we do with our customers. At Analytic Partners, we identified $8 billion – actually, I think it’s closer to $9 billion – in sales growth opportunities last year. And so we've looked at the performance of brands that have implemented this type of work in commercial analytics versus those that are not adopting and using this information. We've been able to quantify that companies that adopt data-driven decision-making achieve five times the growth versus those that don't. There's significant value and quantified value in being able to confidently understand the role that marketing plays in business performance and making good decisions based on that information.
Ann Marie Kerwin: This has been so helpful, understanding how you work with clients and what value you bring. But also I love that you are so sure that marketing works. That is a fabulous message. So to sum up, what would be the one truth that you'd like marketers listening to this to remember?
Mike Menkes: It comes down to truly understanding the role that marketing plays in driving business performance. And I'm talking about incremental impacts, omnichannel, cross-product and cross-retail sales channel impacts. Understanding the role that marketing plays and how that ties to the bottom line. It's really about business goals. It's not about marketing goals. We have to have that comprehensive commercial analytics program in place that measures the whole business, not just marketing. A lot of what drives our business successes is outside of the realm of marketing. We need to make sure we're measuring those marketing factors right and recognizing those and considering those, especially when we're talking to finance. … We can optimize for driving the most sales this month. And that's perfectly fine. If our primary goal is to make sure we're hitting certain sales goals this month, there are ways to optimize that way. But if our goal is to drive long-term sustainable growth, sometimes that would lead to different decisions in the short term.
Marketers who ask and work with finance partners to iterate and simulate what and how they can achieve their sales and brand goals, are the ones that are going to be most successful. We need marketers and their finance partners to move past this world where we're debating about which marketing is working. It's all working. It's to what degree is it working. It doesn't mean that all of our marketing dollars are positive. There are times when it's not working as well. But we need to learn from that and build muscle to be able to make the right decisions. We have the capability to build responsible financial decisions that accurately quantify the impact of marketing effectiveness, marketing efficiency, and the impact of the bottom line in both the short and the long term. And we can prove it by using the right metrics and the right solutions that validate over time.
Ann Marie Kerwin: Thank you, Mike.
Join us at the end of February for the next episode when we'll be discussing our second marketing truth, which is that strong brands have an effectiveness advantage. And for those listening, if you have examples of US companies that are doing great effective marketing and want to highlight that, or if you have an opinion on what works or doesn't work, we at WARC are eager to hear from you. Thanks for listening.
