Sorry. But let me explain.
To better illustrate, let’s talk about the new luxury suit store you own (congrats, by the way.) Given that you want to grow sales, you decide to talk to people who know about selling suits.
First discussion: the floor salesperson
“I’ll tell you where you need to spend more money- more commissioned salespeople. Look at how many people we talk to that then go on to buy suits- it’s obvious! It doesn’t get much simpler than this: Add up all the sales that were helped by a floor salesman, divide it by our cost, and you have an awesome ROI.”
Second discussion: the window display guy
“Listen, we’re in the suit business- what could be more important than showing people how great our suits look? The minute we stop telling them about our designs, people won’t even come in the door. What’s the ROI on avoiding that?”
The problem, of course, is that neither is completely correct or completely incorrect. Certainly a great sales guy can sell anything, and a product on a fantastic window display will sell itself. The same conversation happens when you talk to the teams running online media and those running traditional media. The online teams or their agencies will simply look up the clickthrough rate on digital campaigns, compare it to the CPM and get a (uniformly high) ROI. This has some benefits for sure- it’s easy, it’s granular, and it feels very precise. It is also, in a word, wrong.
Why? It’s missing the upstream impacts driven by traditional offline advertising and marketing. Just because a customer’s last interaction was through search or banner doesn’t mean that caused the sale.
When engaged to measure marketing’s impacts, we find a strong correlation between offline media execution and search response (both natural and organic) and to a lesser degree, banner response. This means that for at least some customers, TV starts their demand, they go and do an online search, and then click through to a sale. So who gets credit for that customer- the offline media or the online?
Just this week I spoke to a digital team at a large advertiser that started the conversation with “your numbers are wrong” and ended with the understanding that the ROI his digital agency was reporting and the (properly measured) Marketing Mix ROI were capturing two different things. We determined the interaction in total and properly allocated some of the “last touch” ROI back to TV, giving a much more precise and fair measurement.
So what does this mean for an advertiser?
- Use the digital “ROI” from clickthrough rates and conversion to manage your digital spend and execution on a day to day basis, but…
- …when it comes time to consider how much to allocate across online and offline, use an advanced analytic approach like Marketing Mix to ensure each tactic gets a fair shake.