Saturday, September 26, 2015

Media Spend: Traditional vs Digital

At least once a week I get asked a question by a client like this one I recently received, from one of the world's largest CPG companies:
How do we spend our Digital Marketing budget more rationally?
Often the question is more focused on the transformation underway as companies move from the "traditional" spending categories (print, broadcast, outdoor...) to digital categories (web, mobile, social), like this one from a computer hardware manufacturer:
What percentage of our marketing budget should be spent on digital?
Full disclosure: My qualifications in marketing (other than having worked in marketing for over two decades) are a bit suspect. While my first marketing job was in a direct mail marketing company in the 1980s, the vast majority of my direct expertise has been in leading marketing organizations for digital brands -- an Internet company, a software company, a mobile operating system...

So if you are a traditional marketer, selling soap (or whatever physical good), you might look at my advice and say something like "sure, that would work if my product was entirely online... but my products are made up of atoms, not bits..."

And I sympathize with you, I really do. The past 100 years have taught marketers to believe that there are two measurable things about advertising: reach and recall. How many people did you reach, and do they recall your brand. After all, the important question for marketers has been whether the consumer will reach for your bar of soap or someone else's when standing in the grocery store aisle.

And the medium that we have had available to us (largely broadcast in dollars spent) has lent itself to a logic about advertising that tells the marketer to focus on repetition of a simple and short brand message. Repetition because seeing something over and over again helps the human brain with that recall problem. Simple and short both because our attention span for advertising is short and also because the cost for each advertisement is high (and higher for longer ads).

But two things are happening that should cause every marketer to pause and re-examine everything they believe about marketing and begin asking a different set of questions. First, our purchase patterns are changing -- we are no longer buying something because the packaging stands out from a store shelf. In fact, we are going into physical retail less and less and this trend will continue to accelerate for most product categories. Second, people are moving from a diet high in traditional media to one high in digital media which is changing how we engage with brands and what we expect from them.

A starting point would be to reconsider what Marshall McLuhan had to say about hot and cool media. McLuhan argued that "hot" media were those that provided little stimulus and thus required an engaged and participatory consumption. Whereas "cool" media were those that offered substantial stimulus and where consumption required very little involvement. From his vantage point at the beginning of the development of 20th century media, McLuhan might have assigned "cool" or "hot" differently than we would today, but the basic model of differentiating levels of engagement is applicable as we think about marketing through traditional or digital means.

Traditional marketing fits McLuhan's "cool" media categorization, as epitomized by the goal of repetitive simple and short brand messages. The expectation by the marketer is that the recipient of such advertising will not expend effort in engaging, but must receive the message over and over again in order to get it to stick.

Digital marketing is more complex because many of the techniques of traditional marketing were seemingly transplated into online spaces but the medium itself is "hot" -- we are engaged with the computer or mobile device, clicking and directing our experience and not just passively absorbing whatever might come next. Even with online advertising (the seemingly transpanted traditional marketing approach) success is measured by the click-through -- did the viewer engage!

For digital the marketing equation has been turned upside down. Instead of repeating short and simple brand messages and measuring reach and recall, marketers should be building vehicles that engage people more deeply and then measuring the degree of engagement achieved. And in digital we have an entirely new capability through this engagement: building our knowledge of people (both individually and as groups) through their interactions with our brands. Finally, digital can allow us to connect what we know about a person throughout their entire experience with our brand -- consideration, selection, transaction, receipt, consumption, satisfaction, return... recognizing when and where we have converted a prospect to a sale, or a purchaser into a loyal fan.

Given my self-admitted bias toward digital marketing, it would seem simple to say that companies should be prepared to move ALL of their media spend to digital over the next decade. But in working with hundreds of companies over the last 20 years as digital has continued to mature, I have come to a different conclusion:

Companies should be prepared to move a substantial amount of their total media spend into digital and away from traditional media. This will require a new set of competencies and even a new organizational structure in most marketing organizations. It is crucial to get to a sufficient amount of digital activities to develop true data-driven insights. Without achieving critical mass, evidence for how digital is impacting sales and customer satisfaction will remain anecdotal. For the largest advertisers I have worked with, the threshold was at about 25% of total spend. Smaller companies will likely need to spend a larger proportion on digital.

Digital media should not be limited to "advertising" but should include all experiential engagement with a customer - websites, mobile applications, social media, even customer service interactions -- anything where you can impact customer experience, measure engagement, and increase your knowledge of your prospects and customers. If you aren't already familiar with the concept of "earned, owned, and paid" media, make it a point to read up on these ideas (click for a good article from Forrester to get you started).

As you move to digital and start generating data-driven insights, the transition of spending from traditional to digital will accelerate. I believe that most companies will stabilize at more than 2/3 of their total budget on digital. But traditional marketing will develop to have a new role - the reinforcement of digital marketing activities. One way is to use traditional ads as traffic drivers to digital destinations. Another is to build positive reinforcement cycles for themes that can appear in both digital and traditional mediums. In any case, traditional will often provide the most value when it drives more digital engagement.

In 2015 the thing I am most surprised at is that we are still having this conversation -- that companies are still blindly spending their marketing dollars in the same way they were spent in the last century. Each company certainly still needs to answer for itself, based on the specific industry, buyers, and products, the kinds of questions I mentioned at the start of this article -- how do we spend our digital marketing budget more rationally, and what is the right percentage of spend to move to digital. But answers to those questions won't lead to greater success until we embrace the new role of marketing, that the marketer is now responsible for engagement and customer knowledge -- not reach and recall.

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