How do we judge marketing effectiveness?

A new report reveals that a huge proportion of marketers are not trained in marketing performance and ROI – so no wonder the average boardroom is ill-informed and financially illiterate regarding the value of advertising, writes David Brennan.

In my rare moments of reflection, I often think back to when I first started working in this wonderful industry and how little we knew then compared to now. I don’t think any of us could ever have predicted just how much data we would have to play with in the early days of the 21st century, nor how much knowledge we could squeeze out of it.

For example, the idea that we could have the wealth of knowledge we have gained into how advertising works and what drives its effectiveness in that prehistoric era – which coincided with the launch of IPA’s ‘Advertising Works’ initiative, which gave us the annual Advertising Effectiveness Awards as well as the 1,000+ database of the most effective campaigns of the last three decades – would have had us salivating.

Since then, the IPA has been joined by many other trade and media bodies, as well as esteemed authors, such as Tim Ambler and Paddy Barwise, in providing insight into what works, and why. The insights have been gleaned from thousands of effectiveness studies based on petabytes of data and the most advanced statistical modelling techniques. Our understanding of what drives brand and corporate performance has never been greater.

Or has it?

I was shocked out of my complacency by a report published by The Fournaise Marketing Group, based on interviews with 1,200 top marketers and decision-makers globally. That is a formidable sample for a C-level B2B survey, although I’d like to know more about the sampling framework.

The reason for my curiosity is that, if even only broadly representative of the marketing industry, the results are truly disturbing.

The headline finding is that two out of every three top marketers don’t even grasp the basic concept of ROI; that it requires a financial outcome. Many appear to be happy using intermediate metrics – sometimes very intermediate – to demonstrate the value they create.

This has a huge impact on the perceptions of the marketing function in the boardroom and my guess is that even the most enlightened senior marketing executives will suffer from the failings of so many of their peers.

It is no surprise that almost every one of those misguided marketers – 63% – claim to have no financial outcomes to report when they present their marketing results to top management. But, even if they did, few would have the knowledge to communicate their meaning; four out of every five could not understand the basics of balance sheet or P&L reporting.

So, what measures do they use instead?

The report states that the top marketing metric is good, old-fashioned awareness; claimed as the most important evaluation metric by 64% (unsurprisingly close to the percentage who claim not to report any financial outcomes).

Now, we all know that awareness is only loosely correlated with marketing performance, but it positively glows with significance compared with some of the other measures – more than half of the sample placed in their top five evaluation metrics, including Facebook ‘likes’, tweets, clicks or CTRs.

Indeed, almost a third of them claim that the size of the audience they reach across all of their marketing activities is the marketing ROI, rather than simply the means to an end.

No wonder that in boardrooms around the globe, marketing – especially advertising – is still seen as a cost rather than an investment and that procurement has reigned supreme, often with little account taken of the real value the marketing function is able to achieve.

And yet, despite the worst recession in living memory, marketing budgets have remained largely steady, advertising budgets have most definitely not encountered the predicted perfect storm of technological and economic disruption and many media are flourishing.

How can this be if the marketing presence in the average boardroom is so ill-informed and financially illiterate regarding the value it creates?

Part of the reason could be put down to the fact that this is a global survey and UK marketers are more advanced in their understanding and application of effectiveness data. However, this fails to account for the fact that these marketing trends are global and many marketing budgets are set internationally.

There is also evidence from previous recessions that a significant cut in marketing investment can have long-term and often fatal consequences for brands, which may have got through to top management even if their in-house marketing experts are unable to talk in these terms.

But, in my view, the main reason for the resilience of these budgets is that advertising continues to work and there are more headline examples of advertising effectiveness emerging each week; and that, among the big spenders at least, The Fournaise Marketing Group’s survey results do not reflect the reality in their boardrooms.

There are two excellent examples to prove this point, coming from opposite ends of the digital/analogue spectrum.

My first example is John Lewis, who we know has witnessed a stellar financial performance since the start of its long-running TV campaign. A great deal has already been written about how a creative, narrative-led and emotionally uplifting series of TV ads helped to revitalise one of Britain’s oldest brands, although what is less well known is the even greater levels of spend on other above-the-line media such as press (newsbrands are their biggest single investment) to continually support and reinforce the marketing effort.

The financial outcomes have been impressive, with several years of double digit growth in revenues and profits and an IPA effectiveness Grand Prix to boot. The effectiveness of the John Lewis campaign has been assiduously measured across the spectrum and has managed to continuously improve ROI from an increasingly high base.

My other example is Google. As we learned last week, Google has become one of the top UK advertisers with a 50% increase in spend in 2013 to £45 million, according to Nielsen’s Ad Dynamix.

In fact, Google – which probably knows more about how effective its marketing activity is than most other businesses – has increased its spend from less than £5 million just five years ago and, despite an avowed ‘digital first’ policy, it is interesting that the bulk of media investment was placed in offline media in 2012, a trend that continued in 2013.

Not only that, but when we look at online spend in more depth, we see that a relatively high proportion of it was placed with the online properties of legacy media channels; for example, spend in newsbrands’ online properties totalled almost £6 million alone – almost a third of their TV spend and more than twice what they spent on print.

What these two examples demonstrate is that the search for effectiveness has not left legacy media trailing in its wake; in the most successful and rigorous organisations it has, if anything, reinforced their faith in such media, albeit with a renewed sense of what each of these media channels can contribute to the effectiveness whole.

Those 67% of global marketers who place their faith in awareness, likes, tweets and clicks, please take note!

David Brennan is an insight consultant at Newsworks.