Optimizing Marketing Spend in a Digital World (Part 1)

Spend Matters welcomes a two-part guest series from Amy O'Brien-Bird, Managing Director, and Bill Stotzer, Senior Director, Alvarez & Marsal.

Marketing has not historically been an easily measured function. While component goods or even other services were easy targets for the procurement function's cost reduction efforts, marketers have always held that measuring the impact of their spend was "part art, part science." Marketing is still "part art," but thanks to changes in media, consumer targeting, and availability of data, the ability to measure--and impact--your company's marketing spend is taking a big step in the direction of science.

The move to digital and more fragmented content has been the leading influencer in being more scientific with spend. This shift has provided marketers with an increased ability to:

  • target specific audiences or niche markets at more cost-effective rates;
  • track the conversion of a customer (and shift from pay-per-click to pay-per-lead);
  • diversify media buys away from traditional agencies, negotiating the best available pricing;
  • engage with and influence customers during their decision-making process;
  • significantly reduce the cost and cash flow commitment of creating and warehousing printed materials.

Although effectiveness has typically been the primary evaluation driver of marketing spend, costs in today's environment can be reduced while maintaining--and in some cases improving--the effectiveness of the marketing messages. Understanding and adapting to these trends is critical to measuring, quantifying and delivering the appropriate marketing message to customers.

Digital Media is Driving Fragmented Audiences. Digital platforms allow content to be disseminated and created at much greater speeds and much lower costs. These reduced costs enable content producers to target much more specific customer segments, giving them much more relevant content. The creation of highly aggregated and specific audiences means marketers no longer have to waste media dollars on consumers they don't need to reach: a medium-sized gourmet gifting company, for example, may not be able to afford to advertise in full print distribution of USA Today, but they may very likely be able to advertise in the online edition of the New York Times' "Style" section, which they know their target consumer is more likely to read.

So while traditional media outlets like newspapers, magazines, television and radio have become less effective in reaching consumers in a cost effective manner, customer fragmentation has made smaller media--which were once unattractive because of their lack of scale--much more effective in delivering more relevant consumer segments. More fragmented audiences also require that marketers have a very deep understanding of their target customers: fragmentation is useful when marketers recognize there is a tight audience for a particular channel that they can use to drive effective reach and efficiency, but without a deep understanding of the consumer they need to reach, fragmentation only amplifies the earlier frustration of wasted spend.

Data and Measurement Enables Customer Conversion Metrics. A core benefit of the migration toward digital advertising and promotional activity is the capability to collect detailed data, execute sophisticated analytics and identify the direct linkage between spend and ROI. Instead of inferring that advertising activity is driving purchases, marketers can now directly track a consumer's path from ad to website to purchase. Though this seemingly unlimited amount of data can make a marketer's job easier, it requires tight coordination with information technology and analytical resources to harness insights. Determining what to track, which metrics to use, how to report on the data, and ultimately how to act on the information produced to deliver results at the lowest cost is a much more technical process than traditional advertising plans that focused solely on reach and frequency. Marketers must understand the ROI on spend and the customer experience to drive loyalty, repeat purchases and ultimately retention.

Stay tuned as we continue this series next week.

- Amy O'Brien-Bird, Managing Director, and Bill Stotzer, Senior Director, Alvarez & Marsal

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