Online Marketing Budget Allocation

Are you using ROI to justify your ad spending? An alien analysis might be more effective.

In online marketing, everything is good to do, and nobody wants to be left out.

That is to say, all sub-disciplines, sectors, channels, tactics, and professional organizations in online marketing and advertising compete for marketing budgets, and most claim effectiveness. Many have a good claim.

As I pointed out in the last column, we often question inexplicable marketing allocation decisions. Sometimes, we don’t give management the credit they deserve. Other times, we’re too tolerant of blatant underinvestments and overinvestments.

It’s no surprise! We’re not hard-wired to make accurate bets even in closed, easy-to-predict games of chance. And we’re not generally predisposed to invest for the long term, like say, Warren Buffett is. The key quote from Buffett is that he “never tries to make money in the stock market.” Instead, he buys into companies with real fundamentals, so he’d be OK if they “closed the stock market for five years.” When it reopened, either that company will have grown the size of its cash position and assets, or not.

Shouldn’t at least some of our marketing investments sound like that? Shouldn’t we sink our speculative monies into marketing methods that equate closely to real, predictably-performing assets?

(One fascinating paradox here is that investors like Buffett who talk about the “long term” often focus on finely-calibrated businesses that return mountains of near-term data and successful cash flow events that impact the bottom line in the here-and-now. These “well oiled machines” often pay dividends like clockwork. They are seen as “long term investments,” but not because we’re willing to predict the future based on something hopeful that we can’t quite measure today.)

So is Warren Buffett betting, or guessing? No, we’re told, he’s “investing.” But is “investing” truly an identifiable, praiseworthy exercise that you can pristinely distinguish from gambling?

So I won’t compare sound advertising with “investing.” Good advertising strategy, like good investing strategy, involves more accurately betting more of the time without exposing yourself to undue risk. I would add true diversification, because contagion (if one of your bets goes bad, they all do) is to be avoided at all costs. So is the obvious: putting all your eggs in one basket.

Ideally, we’d close the rationality gap in our marketing allocation decisions. It isn’t as easy as it sounds. Most of us talk a good game about ROI, no matter which part of the industry we focus on. But some strategies are geared to do things that are so far from strict ROI, it’s laughable. Isn’t it time to admit as much? There’s no use bending yourself into a pretzel trying to statistically demonstrate some kind of indirect lift or impact. If ROI attribution isn’t straightforward, there’s a decent chance it’s simply made up, or working too hard to ride on the coattails of other value creators in a company.

A Thought Experiment

Forget the categories you were taught in business class or the ones you learned in your marketing career.

Pretend you came from another planet with no preconceived notion of marketing sub-disciplines – online, offline, SEO, PPC, PR, buying trade show booths, building fancy skyscrapers with your logo on top…you name it.

Now pretend you believe that it’s all one form or another of “gaining mindshare to increase the chances that someone will do business with you, with either near-term or long-term revenue implications.” And it’s all called “Advertising!”

Using that yardstick, some kinds of “advertising” look pretty terrible. Either that, or attempts to measure their impact require so many histrionics and leaps of faith that it might be better just to stick with faith.

Guess what? Many people bring that mindset to marketing and advertising allocation decisions. We tend to justify our prejudices after the fact, and “ROI” is today’s handiest way of rationalizing decisions (especially to cut things).

And most of the time, it’s an unfair yardstick, because it asks everything to become just like performance marketing. It’s a complete oversimplification.

On the other hand, it sure can be a handy tool to cut through the BS. If it really is ROI you’d like to focus on, this type of analysis can really help you focus. But hang on and try to be balanced about this.

Get Real: Recognize Complexity

Aliens often have symptoms of low blood iron (anemia), which can be associated with fatigue, dizziness, and not knowing what the hell is going on.

In fact, alien analysis often descends into name-calling such as “all you of Earthlings are… idiots!” To which any self-respected Earthling would reply: “Now you just hold on, Buster.”

For example: the alien view fails to grasp the subtle fact that not all messages and tactics are confined to a narrow game of attempting to buy or increase mindshare: sometimes, they affect the nature of the recipient’s view of the business in question.

Classics in the industry refer to this as “positioning” – and that can pinpoint various ways of being located in the competitive set, as well as positive and negative responses by members of the public.

Even talk of positioning in itself muddles a variety of powerful forces at work within companies that aren’t easy to slot in: engineering, differentiation, design, culture. Sometimes these reach the public: other times the hoary old separation among the “packaged goods,” the “packaging,” and “going to market” is held together with 1956-era duct tape.

Another way of thinking about it is a simpler concept of “signaling,” used by marketing authors like Seth Godin and Harry Beckwith. While it takes a special kind of hubris to think a company can easily map out its entire positioning – especially when most of that is already done and this year’s effort will be restricted to debating the merits of various campaigns and tactics – certainly you can make all kinds of micro-decisions every year that influence how you’re perceived. That’s the beauty of it! At least some parts of your planning can be small, modular choices, like the choice your neighbor, the homeowner with the decent-sized house down the street, faces when she decides whether to trot out that cheapskate-looking for-sale-by-owner sign or go with RE/MAX.

The point is, it’s artificial to boil all aspects of marketing communications (etc.) to “advertising” and neatly assign an ROI figure.

So as we go through the “master list of online” and “yes even traditional advertising (aka mindshare-to-revenue)” tactics, let’s go through another exercise. Let’s be frank about what kind of ROI is typical, how well we can measure that, and what are the two or three other potential opportunities and threats that come with the territory. Do some tactics, like sponsoring trade shows, also lead to networking opportunities with other sponsors and possible referral business or merger activity? Can social media outreach make you seem more authentic, help you reduce call center volume, but if done poorly, come back to bite you in the ass? Aren’t all tactics, if done poorly, a risk?

I’ll list a menu of 10 potential ways to invest marketing, signaling, and advertising bucks – the list could of course be expanded into the dozens. Unfortunately, I’m out of words again this week! So we’ll get to the stressful and shocking conclusions next time!

Originally posted on ClickZ – Online Marketing Budget Allocation