The Money Lies in ROI
Why Advertising Agencies are Forced to Buy Crappy Ads
Have you ever thought to yourself, oh man, I really love seeing this banner ad? Or perhaps, whoa, I was really hoping to see this video ad for Febreze before this 30 second YouTube clip?
As much as we lament these ads, they will continue to be around for the foreseeable future. Heck, you will even click on 1 in every 1,000 that you see. While these ads will be around for a while, the tides are nearing a point of shifting.
What are the main reasons that media agencies buy these types of commoditized ads? They do it because these types of ads are:
- readily available to purchase (and increasingly less expensive & more targeted with programmatic buying)
- consistent to measure across all campaigns
- proven to “work” within the confines of the traditional ad model
Having been around for nearly two decades, there is also a series of tried and true methods for banners that have proven to lift the “core ROI metrics,” such as placing your ads in front of people more to get them to remember your campaign.
Not exactly the things David Ogilvy’s dreams were made of, but they are accountable. The behind-the-scenes work that happens when you’re exposed to these ads is that there is a small subset of people (~100-200) who answer survey questions pointed toward how likely they are to purchase your product, or even remember you in the first place.
The ads you see interrupting your Internet experience get bought because the money behind it can be tracked with the metrics that advertising has been measured against since the 1930s.
“Advertising is the greatest art form of the 20th century.” — Marshall McLuhan
It’s hard to argue that the Mad Men era wasn’t the pinnacle of the advertising industry. The concept of a lifestyle brand was born. We got the Marlboro Man, Tony the Tiger and the Jolly Green Giant.
What made this art effective was that for each of the new campaigns that were run across print, radio and TV, a set of surveys was sent to consumers of this media, asking questions around how well the consumer was able to remember the brand(s) to who they were exposed and how likely they were to purchase that brand’s product.
This was how Madison Avenue was able to convince the brands of the world that their new brand affinity approach was worth the investment.
They took their crazy idea, mapped it to surveys of a small subset of consumers, and were able to prove that in the course of a few weeks after exposure those consumers were able to remember the ads.
This “brand lift” was how ROI was measured:
$X invested
Y consumers reached
Z% lift vs control
$A value of each consumer “lifted”
Leading to the ultimate ROI calculation:
ROI = [(Y * Z% * $A) / $X] — 1
This calculation has not changed too drastically with the digital age. The biggest revolution that we have had in the online space with banner ads and pre-roll ads has been that we can now measure brand lift in a matter of days, rather than weeks.
“Many a small thing has been made large by the right kind of advertising.” — Mark Twain
The Mad Men era forced us to rely on simple brand lift metrics as a proxy for the key winner: a lift in sales. Over the course of the 2 years after the Marlboro Man was introduced, sales increased 4x.
While the product he was selling was reprehensible, the impact of effective advertising is unquestionable. The challenge remained that it was not entirely clear which of the media placements drove the highest amount of impact. This challenge has been what has kept online advertising stuck in the world of crappy ads.
Enter: the logged in era.
What do Facebook, Twitter, Pandora, Instagram, and Snapchat have that Aol, CNN, Forbes, and (mostly) Google/YouTube do not have? A logged in user.
The rise of Facebook advertising is just the beginning of a new wave of accountability in advertising. What Facebook has begun to unlock is the power of the login.
Advertising has always been forced to infer your consumption based on general patterns (based on surveys) of who also consumes the content in question. Being logged into a service prevents the need for inference: you’ve got the grail.
We are beginning to see the tides shift in the game of ROI. When you have a logged in user, you can start to use companies like Datalogix to unlock direct correlation between ad exposure and sale.
The ROI equation is changing. It’s evolving to understand new, concrete variables:
$X invested
Y consumers reached
Z consumers purchased
$A total revenue from exposed consumers purchasing
These variables can lead to a simple $A / $X calculation to determine ROI. While this is purely correlation (not causation), it is the first step toward making our advertising, specifically exact ad units, more accountable.
The logged in era is setting the stage for proving which ads yield the most impactful exposure. These results drive us toward understanding exactly which ad placements lead to increased sales.
Being an advertising agency buyer has never been more exciting. New waves of entrants into the space can evolve the conversation away from catering to their customers’ Chief Marketing Officer into catering toward the Chief Financial Officer.
The direct lines into the investment in advertising are changing the way we buy media. As more and more garbage is thrown at the online advertising arena, we have the ability to understand which ads drive meaningful results… and hopefully have the ability to finally prove whether or not we are correct that “annoying” ads are not effective at driving meaningful bottom line impact.
Notes: The focus of this ROI is in the realm of “upper funnel” advertising budgets. Direct response advertising has been massively uprooted by the digital era of Google.
