04 Dec 2014

Ripple Effects of a Brand’s “Marketing Budget”

Since the modern advertising industry has been around, there has been the conventional process of brands allocating a fixed marketing budget and then taking this pot-of-gold to an agency who assisted with creative development as well as guidance with media buying.

The brand’s job was to develop a quality product, not figuring out where and how to buy the media to promote it. As any smart accountant would do, they preferred to have marketing as a fixed expense rather than a variable one. Since this budget was fixed, whether for a quarter or for a year, the agency operated with this as a baseline. The general practice was that the agency was granted a certain fixed percentage of the total marketing budget, and was then responsible for generating successful creative as well as doing the work to set up and execute media buys.

This practice was fine while media was either print in newspapers/magazines/billboards, radio, or television. But now we have a whole new beast that is digital advertising. The key new feature of digital advertising that differs from the old methods of marketing is that RESULTS ARE MEASURABLE.

Being able to track cookies, user behaviour and even heat-mapping, we are able to very accurately measure the results of our digital marketing efforts with end metrics such as CPA (cost-per-action) and CPS (cost-per-sale). Thus, the marketing departments at brands must change the way they operate the execution of product promotion.

When media buyers are given a fixed percentage of dollars spent, they literally have no incentive to spend less or spend efficiently, aside from a moral incentive. Without an incentive, especially a financial one, to spend more efficiently or intelligently, these parties will never be forced to learn the intricacies of the new and ever-evolving tools in digital advertising.

Another issue is that even if goal metrics are achieved, the media buyers must spend the remainder of the budget to make their revenue. We can see the effects of this clearly in the digital media space. Anybody that pays attention to the marketplace and fluctuations of the going rates for various ad inventory, can tell you that the spending is very frugal in Q1 and is essentially frivolous in Q4. Many agencies may not be aware of the implications of this. After seeing this trend for many years, both networks and publishers have capitalized and taken advantage of this without knowing the root cause. Networks tell their publishers to expect higher CPM’s and CPC’s in Q3 and Q4, which leads publishers to raise their floors drastically for the second half of the year. This is not to ignore the fact that fall and winter holidays around the world, Diwali in India and Christmas in many parts of the world, lead to lots of shopping and thus lots of marketing. But the shopping season is not the only reason for the drastic increase in the latter half of the year. It has now just become a vicious cycle.

The only way this will normalize over time is if the change comes from the top, down. This inefficiency is not the fault of agencies or media buyers. It can best be described as a glitch in the evolution of advertising. Brand’s must change the way they market: Based on metrics, not on dollars. Give your media buying representatives a real incentive to spend less and show you how.

Although digital advertising is still a generally young frontier, it is foolish to have procedures written in stone since things are changing all the time. The biggest advantage of the digital space is that results are much more measurable than ever before. Brand marketing departments and CMO’s need to either hire internal marketing heads or consultants that can translate your sales goals and marketing budget into relevant metrics for agencies to follow.

Thanks for reading! Please feel free to comment or reach out directly with any questions, concerns, or suggestions.