Marketing Truth #1: Effectiveness is as important as efficiency

Marketers can get caught in a trap of chasing efficiency at the expense of effectiveness. Effectiveness is producing a desired outcome, while efficiency is achieving the desired outcome with the least amount of effort or waste. Efficiency is one element of effectiveness and usually refers to cost-effectiveness. Marketing effectiveness is proof that a campaign met its upfront agreed-upon objectives, and delivered business value. Here, Mike Menkes, SVP, Analytic Partners, explains how organizations can measure and prove how and where their marketing works. 

Marketers are responsible for driving successful business outcomes with their budgets. But how do marketers – and their finance partners – quantify the impact of marketing investment on business success? With a swath of available effectiveness and efficiency metrics, it can be challenging to determine what data should be used to guide brand decisions.

Both effectiveness and efficiency are critical metrics and concepts to understand and enable superior decision-making. We often see that efficiency is leaned on due to the growing accessibility of efficiency metrics. In doing so, brands are missing the mark when using the wrong metrics.

What is the difference between effectiveness and efficiency?

Effectiveness is about achieving results, or in marketing’s case, being successful across marketing campaigns, driving sales, conversions or other KPIs. Part of understanding effectiveness is taking into account the full customer journey and the role each advertising touchpoint plays in driving a conversion. Effectiveness can be more than sales response per impression.

Effectiveness and efficiency go hand-in-hand as efficiency normalizes effectiveness by taking into account spending and investment levels. In other words, what is the business impact of advertising against its cost? For every dollar spent, how much or how little are we getting back?

As marketers, we must aim to maximize efficiency by maximizing effectiveness within a set budget, or ask how we can drive a similar or larger impact when budgets are impacted by operational and/or macroeconomic factors. And this is every finance leader’s dream: to understand the true impact of marketing in achieving business growth objectives.

Is there an overemphasis on efficiency metrics?

ROIs can and should be used as metrics for optimizing marketing executions, but identifying the right incremental ROI metric is crucial. Brands cannot simply optimize their way to long-term, sustainable growth in a world of increasing budget pressure and large investment reductions. A focus on marketing effectiveness, driven by healthy investment levels, creative strategy, and execution, in the context of all factors influencing your business, is necessary to achieve business goals and grow your brand. 

Where businesses tend to overemphasize efficiency is often in the context of performance, and short-term marketing optimization – and typically with misleading metrics that are from siloed systems that aren’t representative of reality. A focus on efficiency isn’t bad, but organizations are using misleading metrics and focusing on short-term decisions without accounting for a full commercial view. This leads to a lack of alignment on marketing’s value to the business, especially when today’s decisions impact long-term success.

Your ROI may be misleading

Performance marketing metrics (e.g. ROAS and Last Click) can be misleading as they focus on a portion of data in a particular moment on the customer’s journey, and are derived using flawed measurement methodologies. These metrics generally use addressable media data and attempt to link to an action, such as a sale while omitting big swaths of marketing and non-marketing data that are key factors in contributing to sales. Oftentimes, they center around a specific eCommerce retailer or direct-to-consumer online brand and are not representative of the overall business. They miss out on key dynamics of how marketing truly works: the lasting impact of a campaign (i.e. advertising today impacts purchases over the next several weeks and beyond), halo onto other products or services within the brand portfolio, and differences between the purpose of upper and lower funnel executions.

Despite their gaining popularity and accessibility, ROAS metrics are wrong and shouldn’t be used for budget decisions. Siloed metrics can serve some purposes like identifying directional creative performance within a given campaign and tactic/channel, or understanding which paid search campaigns deliver the optimal balance of conversions and cost-effectiveness. However, they can be misleading when attempting to understand the true business impact of a brand’s investment and for cross-channel optimization. In fact, in a published Analytic Partners ROI Genome report, we quantified that 35 cents of opportunity is lost for every $1 spent when prioritizing budget decisions from these siloed metrics and measurement approaches.

ROAS results can differ greatly from customer-centric incremental ROI, or ROI measurement that takes into account all factors influencing consumer decision-making beyond just those that are easily addressable to an individual. This can lead to the wrong decisions, as illustrated by a case study involving an apparel retailer.

How should marketers prioritize their metrics? 

Both effectiveness and efficiency are important in understanding marketing’s impact, but not all analyses and metrics are created equal. 

Here are three key concepts to consider when establishing metrics for tracking marketing’s contribution to your organization's goals: 

1. Incrementality: Measure the actual incremental effects, or the impact exceeding what would have otherwise occurred without the marketing execution. These effects should be measured rather than making assumptions on simple data connections, and should not solely rely on marketing perspectives. 
2. Omnichannel: The marketing landscape is complex – business impacts need to take into account online and offline efforts across channels and ecosystems, direct and indirect synergy type impacts, cross-portfolio halo impacts and new and existing customers. Your measurement strategy needs to adopt a full view of the business, not based on siloed channels, for budget decisions. 
3. Analytics aligned to the organization’s goals: Your measurement plan must be truly anchored to your business objectives – short-term and those that are important for mid and long-term success. We need to move away from historical performance ROI report cards and from thinking of marketing as a cost center, and into a world where we’re using marketing and media as a mechanism to help achieve our business goals. 

Taking a full commercial view with analytics

It’s time for marketers and their finance partners to move past a world where the debate centers around which half of the marketing budget works and which doesn’t work.

Marketers who are working with their finance partners to iterate and simulate how they can drive shareholder value are the ones who will be most successful. We can build responsible, financial decisions that accurately quantify the impact of marketing effectiveness, efficiency, and impact on the bottom line in the short and long term – and we can prove it by using the right metrics and solutions.