Building Better Budgets
If election season has taught us one thing, it's that designing a political campaign budget is easy. All you need to do, it seems, is allocate a few hundred million dollars for ads alleging that "Candidate A once punched a kitten, right in its adorable little face," or "So-and-so hates freedom so much, he voted 'YES' to tear down the Statue of Liberty," and the rest will take care of itself.
But designing a targeted marketing campaign budget? That's a bit more complicated. The multichannel nature of cross-media marketing, combined with the nebulous statistics on the effectiveness of any particular channel, can make it difficult for marketers to know where to spend. Add to that advances in digital marketing mediums and recent developments in data collection and analytics, and it gets even trickier. In order to understand where to spend, marketers must first know why they're spending.
According to Chad Giddings, executive vice president of marketing and planning for Kansas City, Missouri-based J. Schmid & Associates, that means focusing less on method, and more on audience and message. "Targeted methods such as self-mailers may be effective [on their own], but they may prove even more effective with the addition of e-mail or pay-per-click advertising," he said. "It all depends on the audience and what you are trying to sell, plus your ability to communicate a relevant message and offer."
Even if you've identified your audience and your marketing goals, it's not quite as simple as dumping the entire budget into, say, personalized letters aimed at your target demographic. Cross-media marketing relies on a multichannel approach, and choosing the right channels can be a daunting task given the overwhelming number of options—especially on a limited budget.
So why not just cherry-pick the channels that are most effective? For starters, effectiveness can be hard to quantify. "It is very difficult to state that one method is more effective than another," Giddings commented. "If it were that simple, marketers would choose that method and ignore the others. It depends on what you are selling, whom you are selling to and the resources you have to impact them through any combination of targeted marketing communications."
Giddings listed several factors that can influence the perceived impact of targeted marketing, including how relevant the advertised product is, how aware or educated the target customer is about the product's value, and how easy it is to act on an offer or message. But he noted that one factor, in particular, makes it especially difficult to gauge effectiveness. "The single largest issue is attribution—the ability to truly understand the impact of one media or method over another," Giddings stated. "Especially when the reality is that more than one method had an impact."
He described a scenario where a customer reacts to a direct mail piece, clicks on a paid search advertisement and makes a purchase on the ensuing website. "What gets credit for the purchase—the original direct mail piece or the search ad?" he asked. "They both had some impact on the purchase, one more directly than the other, but the combination of both of them had the largest impact on results."
Cross-media marketing thrives on this layering of channels, but all of that overlapping can skew response rates, making it difficult to assess the effectiveness of individual channels. Still, Giddings noted that response rate statistics can be useful—as long as they're regarded in context.
"There are some targeted campaigns that are deemed to be a success at 1 percent response, but others where 5 percent is a failure or others where 0.2 percent is a success," it all depends on break-even return on investment (ROI)," Giddings explained.
"In a situation where you don't have a track record on what works, start with those methods that are easier to measure," he added.
Debora Haskel, vice president of marketing for IWCO Direct, Chanhassen, Minn., mentioned direct mail as one of those methods. Despite its stigma of obsolescence, the prevalence of digital marketing channels and the mounting struggles of the USPS, direct mail continues to see healthy response rates when used as part of a targeted marketing campaign—up to 3.4 percent, according to the Direct Marketing Association's 2012 Response Rate Report.
Like Giddings, though, Haskel advised against relying exclusively on any one marketing channel, regardless of the response rate statistics. "Direct mail continues to perform very well in terms of both response and preference—it enhances the performance of all other marketing channels and should always be used as part of a targeted cross-media campaign," Haskel said. "But the most successful marketing strategies will use a multichannel approach, meaning other methods should continue to be invested in as long as the ROI makes sense."
Where should marketers actually spend? "It depends," said Giddings. "If you have some track record or knowledge of what has worked in the past, then obviously focus on that more than anything else."
"We usually presume the marketer is looking to improve on past efforts," he continued. "With this in mind, we recommend allocating a percentage of the budget toward testing new things or variables—typically, the percentage of the test budget should not exceed 10 to 15 percent of the total."
Giddings also recommended allocating a portion of the marketing budget for data collection and management, especially if marketers are trying to reach specific demographics. "If you sell high-ticket items to a very targeted and finite universe, you may want to spend quite a bit on data collection and management," he advised. "If [you] see positive results from an ongoing, targeted marketing campaign, investing in an actionable marketing database and robust customer analytics could be well worth the investment."
Still, Giddings explained that break-even return on investment should be the ultimate deciding factor in determining which marketing channels to invest in. "The cost of the method or media, along with the anticipated response, conversion and average order value of that method helps determine break-even ROI," he stated. "A targeted direct mail campaign may have a relatively high cost versus, say, targeted banner advertising. However, the anticipated response rate and conversion for direct mail is dramatically higher."