When developing the right media mix for an ad campaign, marketers must take into account the basic principles that connect spending and sales increases. However, an optimal media mix also depends on market conditions and the industry in which a business operates. A recently published study released by the Interactive Advertising Bureau (IAB) finds that the proper balance of online and offline media in an ad campaign can spur sales but rates of return may vary across industries.
Joe Laszlo, Research Director, IAB, says “[o]ptimizing marketing and media budget allocation is an increasingly difficult challenge for marketers as the media landscape evolves and the consumption of interactive media continues to grow.” IAB researchers indicate that the connection between marketing expenditures and sales increases can be linked to 3 principles:
- Diminishing economic returns – At a certain point, spending on marketing has less impact on sales
- Interactions and synergy – Marketing resources work together to increase sales
- Sales components – Revenue is comprised of base demand from consumers and additional demand generated by marketing impact
Marketers consider these principles as they develop media mix strategies but they must also acknowledge that consumers are spending more time online. As a result, online media should be adjusted — up. Using a proprietary software system called Compass, analysts explored the media mix used in 3 industries – CPG, financial services and automotive. In all cases, analysts found that businesses were under-allocating resources to online media. Analysts demonstrated that by increasing the allocation to online media by between 1.6X and 2.2X, marketers in some industries could achieve as much as a 6% increase in sales. Sales increases were recorded even when the total marketing budget was cut.
In every case, the mix was adjusted by reducing TV and increasing online methods such as display and search. Recommended percentages of online display spending ranged from 9% to 14% of the total budget. And recommended levels of paid search ranged from 4% to 6% of the budget. The higher budget allocation to online media makes sense as consumers are spending more time on the Internet researching their options before they purchase an item or a service. Analysts also noted that successful marketers will review and reallocate the media mix before each campaign and make adjustments as necessary.[Source: Interactive Advertising and the Optimal Marketing Mix. MarketShare Partners. IAB.net. 2 Aug. 2010. Web. 18 Aug. 2010]