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Media planning tools are geared to taking a budget and finding the plan that delivers the greatest reach. Echoed recently by the marketing boss of the world’s largest advertiser [Procter] [who stated he] is more interested in measuring reach than spend.

But there is a dark-side to wanting more reach…more reach means your advertising campaign will be less profitable! There is a lawlike INVERSE relationship between ROAS (Return on Ad Spend) and Reach. See illustrative chart:

How to read this chart: at 30% reach, this brand can expect to generate $4 in incremental revenue for every dollar of incremental advertising. At 50% reach, the same brand would only expect $2.50 in incremental revenue per incremental ad dollar.

The rationale is that, at lowest reach levels, you should programmatically target your own heavy and medium buyers who will always generate higher ROAS than light or non-buyers. (contact me joel@rubinsonpartners.com for a copy of my white paper, “The Persuadables”).  As you move to middle levels of reach, you add light buyers and prospects to your targeting mix, still somewhat responsive to advertising. Trying for the highest levels of media reach, you can no longer be selective. You are trying to get your message to everyone in a broad demo group, including those who would never buy your brand.  You are forced to use low performing media because you need them for reach. Wasteful!

In effect, whether marketers know it or not (and most don’t), they are SPENDING DOWN ROAS (i.e. ROI) in order to achieve more reach.

Now, this begs the question: How much reach is TOO MUCH?

Imagine our hypothetical brand has 10% annual penetration (typical of many brands). Shooting for 30% reach, it should still generate a highly profitable $4 ROAS and is delivering its message beyond its current buyer base. However, if it tries to get to 50% reach with its media plan (the Procter CMO “more reach is better” principle), the ROAS goes down to $2.50.  Was it wise to sacrifice nearly half of its marketing profitability?

Marketers are creating media plans that unknowingly, might be crushing their marketing ROI!

Marketers should move to ROAS-based media planning.

The current prototypical process is reach-based. Marketers set an ad budget for a brand, create broad channel allocations (e.g. TV, digital, print) then let the media planners find a way to achieve the broadest reach possible. THIS ‘TOP-DOWN’ APPROACH IS BACKWARDS of how media planning could work in an addressable age!

How would ROAS-based planning work differently?

1)      Identify targetable segments that are high performing and allocate saturation rates of spending to those segments.

2)      Recency. If possible, use frequent shopper data or your own transactional data to turbo-boost ROAS by timing ad delivery to a consumer when they are more likely to buy.

3)      Make direct buys with publishers proven to deliver higher ROAS for you, with ad units proven to work better.

4)      Create ad budgets that are self-funded. Here’s how. Create a ROAS target that is a minimally acceptable level (MAL).  For example, if you target heavy and medium users of a brand, budgeting $3MM, with an expected ROAS of $5 vs a MAL of $2, you have generated a $9MM surplus ($3 ROAS increment on $3MM spending). Let’s invest that and add it to the budget. Let’s deploy these funds to light buyers and lookalikes for brand buyers (our next most productive segments).  Let’s say they exhibit a $2.50 ROAS which generates a new surplus of $4.5MM (0.5 x $9MM). Let’s spend this surplus on traditional media.  Let’s say that exhibits a ROAS of $2, equal to our MAL, so we stop there.

In this case, the marketer created a SELF-FUNDED media plan of $16.5MM with an average (profitable) ROAS of $2.75, with more than half of spending going against non-brand buyers. ROAS-based media planning can double ROAS at sufficient reach for brand-building.

But…ROAS-based planning requires that marketers up their commitment to measuring the return of every media tactic by segment and by publisher. This will require the use of MTA (multitouch attribution) as well as extensive A/B testing and perhaps favoring publishers like Meredith who guarantee sales performance and ROI.

With a ROAS-based approach, the benefit to the marketer is significant: potentially doubling ROAS while still investing in the brand, by making very different media choices, guided by ROAS rather than reach planning.

Notes:

1)       ROAS-levels in the graph are informed by my white paper, The Persuadables.

2)       After drafting this blog, I saw the head of insights at GSK coincidentally present the same curve at the Attribution Accelerator 2019 event!  Clearly, some advanced marketers DO get this relationship!

 

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Comments

One Response to “What is wrong with marketers wanting more reach with their advertising? Plenty!”

  1. Graeme Hutton

    I think the graph between reach and ROAS is highly informative. I presume the reach is a weekly metric but could you confirm please. Thanks

    Reply

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