The key truths listed below come from Marketing Multiplied, authored by economists Chris Johns and Jim Power and Alan Cox, CEO of Core Media. The report is the first ever large scale study which reviews the impact of marketing communications from both a macro-economic and micro-economic basis and demonstrates the significant contribution that marketing makes to national economies and individual businesses.
Marketing generates substantial growth for national economies and businesses
Advertising is extremely important for economic activity; it provides jobs, promotes competition, helps innovation, leads to lower prices and boosts growth in an unambiguously positive way. It is a matter of empirical fact that advertising and national economies are positively correlated to a large degree.
McKinsey found that advertising fuelled about 15% of growth for the major G20 economies between 2001 and 2010. Analysis conducted by Core Media in Ireland, found that €1 invested in advertising typically delivers a revenue return of €8.26 and a net return on investment of €5.44 for brands.
Creativity has a profound and quantiﬁable inﬂuence on marketing effectiveness
The value of creativity is proven and quantiﬁable. Of all the factors that are within the marketer’s sphere of inﬂuence, this is the most important by far. The choices made in relation to investment in creativity have a massive impact on the growth in proﬁtability of brands.
Creatively-awarded campaigns are six times more efﬁcient than non-awarded campaigns in growing market share. A multiple of six is impressive, but it has declined from a staggering 12.4 in the decade leading up to the ﬁnancial crisis that gripped the world in 2008. During the recession years that followed, there has been a signiﬁcant move towards short-termism in marketing, coupled with a decline in marketing communications investment levels. These factors have been directly responsible for halving the effectiveness of creativity in advertising.
Penetration is more effective than brand loyalty in building growth and proﬁtability
Recruiting new customers is more proﬁtable than trying to increase frequency of purchase. Compelling evidence supports the contention that loyalty programmes have little effect and when they work, they do so by mainly recruiting new customers, not by reducing churn or by extracting more value from existing ones.
Marketers should advertise to everyone in the market for their product, rather than focusing on a small segmented audience. Potential gains from customer acquisition dwarf the potential gains from retention. Loyalty strategies can produce cost-effective short-term activation effects, but the true cost of this is long-term ineffectiveness.
Brand size has a signiﬁcant inﬂuence on marketing effectiveness
The size of a brand has a major impact on the efﬁciency and effectiveness of marketing communications. Large brands have inherent advantages over smaller brands; they have higher penetration, better distribution, stronger range and pricing strategies that help to maintain and increase share.
Brands with market shares of over 10% achieve circa two and a half times the level of share growth, for each point of extra share of voice (ESOV), as compared with brands that have market shares of under 10%.Therefore, smaller brands need to over invest, relative to their market share, to compete effectively. They must also devise campaigns with above average effectiveness (from a creative standpoint) to drive growth.
Short-term marketing initiatives are less effective than long-term campaigns in building growth and proﬁtability
Short-term marketing is on the rise and it is damaging the proﬁtability of marketing. This shift has been caused by recession-driven urgency, in businesses, to build immediate sales and a belief among senior management that this will be achieved through short-term tactics (rather than long-term brand-building strategies). However, long-term campaigns (those that are evaluated over periods of longer than six months) are around three times more efﬁcient than short-term campaigns. Short-term initiatives are, in fact, more effective at driving transient sales effects, but they deliver weak long-term growth. Businesses need to employ both techniques, but in the correct proportion.
Emotional campaigns produce considerably more powerful longterm business effects than rational campaigns
Emotionally-based campaigns outperform rationally-based campaigns on every business measure; they are signiﬁcantly more proﬁtable, they are better at generating awareness, they are stronger at creating differentiation and they form more durable memories of brands in consumers’ minds.212
Rational campaigns do enjoy an advantage in relation to short-term direct effects, but this advantage is temporary. Marketers should adopt a carefully balanced approach that drives both long-term brand preference (through emotion) and short-term sales (through rational messaging).
Marketers need to strike the optimum balance between brand building and activation spends
Emotional techniques tend to be employed in long-term brand marketing programmes and rational techniques are prevalent in short-term sales activation campaigns. They both have their place, but over/underinvesting in one or the other will damage the growth of a brand. On average, marketers should spend 60% of their budget on brand-building activity (long-term, broad reach, emotional) and 40% on sales activation (short-term, tightly targeted and information rich), to achieve maximum efﬁciency and maximum effectiveness.
Successful owned and earned media strategies are dependent on paid media
Brands using paid media typically grow three times faster than those that just rely on owned and earned media. However, paid media will only be at their most effective when combined with strong earned and owned strands. Owned media typically increase the effectiveness of a paid campaign by 13%, while adding earned media causes an increase of 26%. However, very few campaigns generate strong effects without having paid media in place.
To understand how much to invest, scientiﬁc budget-setting techniques must be used
Many methods are used to set budgets for marketing communications, but very few are scientiﬁc. In addition, they are usually not geared to identify the optimum level of investment for the speciﬁc business challenge being faced.
Econometrics is the gold standard in most cases, because it is bespoke to the brand in question and it uses systematic modelling to understand how all key variables impact sales. It generates response curves, which enable practitioners to forecast revenue and proﬁt for different levels of investment in marketing communications. This, in turn, drives an optimisation tool, which calculates the impact of different budget levels and media combinations to arrive at the ideal level of investment for the campaign in question.
A commitment to marketing analytics signiﬁcantly improves return on investment
Marketing analytics is the measurement and optimisation of marketing activities. It is important to continually analyse all marketing activity in order to grow the effectiveness of campaigns on a compound basis. Marketers must create a measurement culture within their organisations and every brand should budget for it. Investment in marketing analytics gives practitioners on-going evidence-based guidance on how to ‘course correct’ their plans to build market share growth. Failing to invest in scientiﬁc analysis and modelling reduces brand proﬁtability. The beneﬁts can be enormous; an integrated analytics approach can free up between 15% and 20% of marketing spending.
At the launch of Marketing Multiplied, as well as presentations from co-authors Jim Power, Alan Cox and marketing effectiveness expert Peter Field, a number of the above issues were discussed with a panel, which included economist and co-author Chris Johns, Professor Mary Lambkin from University College Dublin, Catherine Bent from CB Consultancy and the AAI, Chairman of Core Media, Patrick Coveney.
You can listen to the Panel Discussion here.
Copies of ‘Marketing Multiplied’ are available for download from the Core Media website www.coremedia.ie
ABOUT THE AUTHORS
Core Media is Ireland’s largest marketing communications group. The business consists of nine individual agencies – Mediavest, Mediaworks, Starcom, ZenithOptimedia, Core Knowledge, Engage Communications, Livewire, Ignite and Radical.
Core Media has been voted Agency Network of the Year for the last four years at the Media Awards and the company was also voted one of the top three workplaces in Ireland by the Great Place to Work Institute for the last four years.
The Association of Advertisers in Ireland (AAI) is the voice of Irish advertisers. It is the only association focused single-mindedly on the interests of Irish advertisers and promotes the reasonable freedom to advertise.
The organisation provides advice, assistance and support services to members in respect of advertising trends and issues and liaises with a variety of stakeholders – Government, business, media and consumer groups - to highlight the role, benefits and importance of commercial communications in modern societies.
For further information, please contact:
Breda Brown / Catherine Quinn
Tel: (00 353 1) 522 5200 or 087 2487120 (BB)