Marketing Math

“Half the money I spend on advertising is wasted; the trouble is, I don’t know which half.”

John Wanamaker, American Merchant

More than one hundred years have passed since Mr. Wanamaker shared this perspective on his firm’s advertising investment and his words are as true today as they were when he uttered them in 1919. One could rightly argue that the accelerating rate of change, the dizzying array of message delivery choices, advances in technology, the growth in ad fraud, and an increase in regulatory oversight have further complicated the challenge of optimizing marketing and advertising spend.

Perhaps the biggest challenge posed to marketers is the evolution from full-service ad agency partners to the use of multiple specialist service providers engaged by most organizations. Long gone are the days when a single agency worked in tandem with an organization’s marketing team to develop strategy, craft content and deliver messaging to target audiences. Today, an organization’s agency network can include over a dozen specialist firms ranging from creative and media agencies to PR, graphic design, experiential, shopper marketing, social media and experiential marketing firms.

The question to be asked is: “Have advertisers’ agency networks grown in size and complexity to the point where managing them efficiently cannot reasonably be achieved by today’s marketing teams?” A key consideration for all advertisers is determining how they want their marketing teams to invest their time and effort. Building brands, driving revenue, capturing leads, optimizing customer lifetime value? Or vetting third-party invoices, assessing agency contract compliance, testing consumer data privacy regulation compliance, evaluating emerging technologies, and measuring the efficacy of audience delivery across a myriad of media alternatives?

Few organizations have marketing staffs large enough, with the diverse skill sets and breadth of experience to perform the tasks necessary to truly optimize agency efforts across the network. While some advertisers are fortunate to have engaged, proficient procurement and or marketing operations teams working hand in hand with marketing to address each of these areas, others may be falling short in this area.

In addition to dealing with the question posed by Mr. Wanamaker regarding “which half” of one’s budget may not be effective, the level of financial risk associated with increased regulatory activity poses additional challenges that can negatively impact brand reputations and company balance sheets. For example, as it relates to regulatory challenges, advertisers have already been fined tens of millions of dollars for failure to comply with consumer data privacy guidelines issued by the GDPR. Further, in October of 2021 the Federal Trade Commission (FTC) issued letters to over 700 advertisers of its intent to enforce and monitor regulations governing the activities of social media influencers, with a per occurrence civil penalties of over $43,000. This following a lawsuit brought by the FTC against tea and skincare marketer Teami, which alleged among other things that its social media influencers failed to disclose that they were paid to endorse Teami’s products. The suit was settled for $15 million.

Optimizing marketing spend and mitigating regulatory risk can both be achieved with the proper level of oversight. Monitoring and periodically testing agency processes, controls, reporting, and performance can go a long way to the attainment of this goal. If internal resources are limited, engaging independent consultants with the necessary subject matter expertise can yield tremendous value in the form of future savings, cost recovery and regulatory risk avoidance.

Given today’s environment and the strains being put on marketing budgets, fine tuning one’s agency network and enhancing the performance of each individual service provider should be a strong consideration for all advertisers.

Which of the following two statements do you find most surprising:

1.  Only 30 cents of every dollar an advertiser invests programmatically reaches the consumer.

2. More than 8 out of every 10 U.S. marketers use programmatic technology to purchase media.

The Association of National Advertisers (ANA) indicated that global programmatic spending “is on track to exceed $200 billion” this year. Further, it noted that PwC estimated that “more than 70% “of a typical advertiser’s budget “does not result in media that reaches the end consumer.”

Where does the money go you ask? According to the ANA the shortfall “factors in ad fees, fraud, non-viewable impressions, non-brand-safe placements and unknown allocations.”

These findings should do little to inspire confidence within the C-suite of any advertiser organization. The alarm bells should be going off when one considers that more than 50% of an advertiser’s spending goes to digital media and that the majority of that is purchased programmatically. Add in the growing percentage of TV, radio and out-of-home advertising being purchased programmatically and the level of working media for most advertisers is seriously compromised.

Thus, while we applaud the ANA’s recently announced initiative to engage PwC, Kroll, and Trustworthy Accountability Group (TAG) to conduct an in-depth study of the “programmatic buying ecosystem” we continue to have reservations.

The reason for our apprehension? The lack of meaningful progress that followed the findings of the ANA’s 2016 study of “Media Transparency in the U.S. Advertising Industry.” This combined with the fact that advertisers continue to allocate a greater share of their ad budget to sectors of the media marketplace that are fraught with non-transparency and brand safety challenges, fraudulent activity and where intermediaries tack on fees that seriously dilute an advertiser’s investment.

We understand that the advertising marketplace is complex and rapidly changing. But there is no rationale for money being siphoned away from delivering an advertiser’s message to consumers.

It is our belief that the quickest way to address these challenges is for advertisers to publicly announce that they will be curtailing their programmatic ad spending until the requisite safety measures and processes are in place that safeguards their investment. Then and only then will media ownership groups, ad technology providers and media service agencies get serious about eliminating waste and improving efficiencies. In the words of the 18^th century French writer, Voltaire:

“When it is a question of money, everybody is of the same religion.”

At a minimum, as good measure to vouch for the funds already invested, advertisers may want to seriously consider a combination of financial and media performance audits to fully understand how their advertising investments are being managed.