When you think about integrated marketing, here’s the Golden Rule for the organization: It’s not about more channel-specific conversions; it’s about identifying the greatest possible potential return from the spend across all digital channels. A powerful way to tackle this is by using marginal return analysis.
MRA is the process of identifying the benefits and costs of different marketing alternatives by examining the incremental effect on total revenue and total cost caused by a small change in the output or input of each alternative. Simply put: “If I have one dollar to spend, what return will I get by spending that dollar? Will I get a 5% return on one marketing channel? A 200% return on another?” And then doing this on every additional dollar budgeted. MRA supports decision making based on marginal or incremental changes to resources, instead of one based on totals or averages. Using it aligns the organization around a common goal.
We can spend our budgets only once, so the goal is to optimize marketing. We define optimization as the tactical process of matching the returns of a marketer’s assets to the cost of those assets to achieve stated goals. No matter how fantastic your strategy, creative, and targeting efforts have been, if you haven’t paid the correct amount for your exposures, you won’t reach your goals.
Say no to silos
The tactical process of optimization can be difficult with siloed campaigns. Conflicting goals, poor measurement and attribution, and single-channel vision can result in inefficient marketing and dollars that are suboptimally allocated among media channels. In addition, the process of optimization can become time consuming and a victim of channel “turf wars.”
In siloed organizations, teams are left to focus on their own goals and budgets. The search team is told that they have a $1M budget, and need a 10:1 ROI and 5M clicks. The display team is told they have a $400K remarketing budget and need to achieve a $4 CPA with 45M impressions. Lack of common goals and measurement create disjointed, and often conflicting, channels.
Integrated marketing campaigns can break free from these issues and open the door to optimization through marginal return analysis, which seeks to answer two basic questions:
1. What was the marginal return of the last unit of cost spent?
2. Where should one invest the next dollar of marginal spend that will lead to the highest marginal return?
By asking these two questions, marketers can optimize within any media channel and between channels. Rather than using standard equalization, which aims to get a target return for all marketing assets combined, MRA will look at how to get the best results overall by taking into account how bidding more here or less there will affect the total.
With MRA, dollars are allocated dynamically across media channels based on where the next best use is. However, to take advantage of this, you must have the ability to develop predictions around how your marketing will respond to changes. These predictions leverage historical data and technology to measure the elasticity changes such as bids, times of days, and frequency caps.
With millions of ads and keywords and hundreds of thousands of daily decisions responding to changes to benefit from MRA, a robust technology that brings the pieces together and harnesses both the predictive component and the automation component is imperative.
Through integrated digital marketing and marginal return analysis, marketers can reduce waste, increase returns, and simplify budgeting. When silos are gone and the next dollar is spent optimally, everyone wins.
Roger Barnette is president of IgnitionOne.
