Budget and Response Mismatch

“A BUDGET AND RESPONSE MISMATCH MEANS MEDIA SPEND IS BEING WASTED”

Companies typically spend up to half of their marketing budgets on traditional media to generate only 10-20 per cent of their response, and a much smaller amount on online media which generates up to 50 per cent of their response. This mismatch between budget spend and response means that businesses could be wasting a third of their marketing budgets.

These results are based on evidence from Mediahawk’s analyses of response activity to both traditional and ‘new’ media.

Following five years of monitoring companies’ media response, we have seen an interesting trend emerge whereby there seems to be a mismatch between how companies spend their media budget compared to where they get their response from. And as online is increasingly the way in which people access products and services, we suspect that the ‘mismatch gap’ is growing wider.

Media channels have increased in number and have fractured. Traditionally, advertising was on a mass basis but people are now consuming media in a different way and moving towards their interests (especially online). This is making it more difficult to target respondents with mass communication. However, marketing managers are still spending a large proportion of their budget on more traditional media compared to some of the newer areas.

So why is this happening?

The reward structure for traditional media owners is based on media buyers getting a commission. Until they find a way of replacing this commission through other means, media buying agencies are not strongly incentivised to move their clients to other channels that will result in less fee income;

Rates on the internet are still relatively cheap compared to traditional media. Currently, as a rule of thumb, getting exposure on the internet is between 10-20 per cent of the price of an equivalent advert in a newspaper. This differential will no doubt decrease as traditional media drops its rates and the internet – specifically those sites that can demonstrate high response levels – becomes more expensive;

Companies’ spend on internet marketing as part of their media budget seems unrealistically low because the cost of building and running their websites often falls into an IT, rather than a marketing, budget;

The internet can produce high website activity because it piggy-backs on the ‘noise’ created by all the other marketing work that drives people to websites;

The noise effect is difficult to measure but it’s important to remember that a great deal of work to drive response to websites doesn’t have to rely on traditional media. It can be done for free by, for example, updating Google maps, making sure you’re on Yell.com etc., and the only cost of this is human input;

Marketing managers as a breed are conservative and are reluctant to change what they know works because ultimately, if response rates reduce significantly, the buck stops with them!

What are the implications?

We are in a period of structural change on how companies spend their marketing budgets and in the coming years we will see some significant changes.

Specifically, media agencies will increasingly start charging on a professional time basis rather than rely on receiving their income from commissions. The transition will be bumpy as marketers will need to start working out what “value” their agency provides. If they continue to use an agency, they’ll also have to budget for the cost of the agency alongside the cost of the advertising campaign.

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