Here’s a true story that happened to someone I know.
Ruth gets a windfall
Meet Ruth — we’ll call her that. Ruth is a widow with a daughter and a new grandson. She works a full-time job on a fixed salary. She recently inherited a nice lump sum — say $100,000 — and wants to invest it well. To go towards, retirement, but also with the occasional splurge.
Of course, Ruth goes to a bank.
Ruth asks for the highest interest investment at the highest risk level that she qualifies for. She puts her money down in a tax-free investment vehicle and off she goes. Happy that she has the extra support and can rest a little easier. Looking forward to the 12% returns.
Time passes. Ruth goes to work on weekdays and visits her grandson and daughter on weekends. She sleeps just a little better every night. Her morning coffee tastes just slightly better every day. She worries just a little less.
6 months later, Ruth plans a getaway
Six months later, Ruth decides to plan a little getaway. She wants to treat her daughter and her husband and baby grandson to a family vacation. Something simple, not too far away.
She does the math and goes to the bank with a big smile on her face. $100,000 at 12% annually after 6 months — that’s a healthy $6,000. She won’t even need all of her earnings, she thinks.
Here is where it all turns. Of course, that’s not how investment works. To her dismay the banker explains to her that her portfolio has historically returned 12% over the years, but the return has never been guaranteed. In fact, in the past 6 months she’s lost money.
Whether the bank’s explanation was adequate or Ruth read her contracts appropriately are all issues for another day. What I’d like to do is make a greater point about investments, mindsets, and how all this relates to advertising.
So how does this relate to advertising?
If Ruth’s line of thinking sounds ridiculous to you, consider this. How many times have you been in a boardroom or reporting to your boss 3, 6 or 12 months after they signed off on a campaign budget being faced with the question: “I thought you said we would see a sales lift of X% by now. What happened?”
You could say that advertising does not always have a linear effect on the bottom line.
You could say that advertising’s effect is compounded over the years, as is your brand’s.
You could say that advertising is but one small piece of what makes a good marketing mix; product, people, places, and so much more play an integral role in ROI calculations.
The crux of the issue here is: we too often predict advertising performance based on historical data.
In the investment community, investors are mandated to explain that past performance is no guarantee of future results to clients — but even still, that communication fell apart with Ruth. And in our industry, it’s not even mandated.
Worse yet, we tend to think of advertising as a spend, which leads us to make bad decisions. We think in “campaigns” — spend on advertising for 2 months, then stop for 5, then on again for another 3. Imagine if you invested like this?
So I ask, if advertising is an investment into a business — I think we can agree that it is or at least ought to be — why not treat it as such?
As a thought experiment … how about managing media budgets like investment portfolios? Choosing high, medium, and low risk “assets” — read media channels — based on factors like our company’s risk appetite, media savvy, buyer journey, and product complexity. Because just like the stock market, the media landscape is in constant flux. New platforms emerge and fall. Consumers are diverted by new tech, new content and new toys. Publishers pivot business models constantly.
Isn’t it time to stop pretending that we know the future? And infuse our advertising choices with intelligent risk assessment? We marketers need to take the lead to educate our colleagues about what data we have, what it means, and how it can be used to project — not predict or foresee — potential revenues.
Can we do it? What do you think?