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March 13, 2017

What mix of Paid, Earned & Owned generates the most profit for brands?

by Hillary Miller, VP, Account Strategy

Clients and agencies are continually in pursuit of the golden mean of marketing: What mix of Paid (e.g. digital display, TV, print), Earned (e.g. organic search, social mentions, PR) and Owned (e.g. website, email) is best? What ratio of working dollars is most effective in growing a brand’s bottom line?

While many are testing into this to find the right answer for their own brand, the UK’s marketing industry organization, the Institute of Practitioners of Advertising, or IPA, has funded a longitudinal advertising effectiveness report that’s worth studying in the US.

While the full report won’t be released until 2018 (good data takes time!), a recent article from The Drum summarizes some of their findings so far. Here’s a topline of some key quotes:

“Paid online media is much more effective than unpaid”

The IPA report shows what many marketers understand instinctively, Paid online media reaches potential customers, and that’s who grows your business. Unpaid online media (either owned or earned) typically reaches the ‘already converted’. Face it, who’s more likely to follow your brand on social media—a current loyal customer, or someone who’s never shopped you before? You need prospective customers to continue topline growth.

The article goes on to quote marketing giant P&G’s confirmation of this finding. Mark Pritchard, Global CMO, said they are reevaluating their Facebook spend, stating “we targeted too much and went too narrow.”

The secret sauce is balance. Not an either/or scenario. The IPA shows “owned media typically increases the effectiveness of a paid campaign by 13% and earned media by 26%”. However, a campaign without paid media is a much weaker campaign overall.

“The vital ingredient marketers are overlooking: emotion”

In the quest for measurable ROI, many marketers are tipping the scales heavily toward digital channels, where every click, open or download can be counted. This gives clients a sense of security and a benchmark to compare to their corresponding spend in that channel. It also leaves traditional Paid media in the lurch. Few clients can afford the time or expense of a detailed regression analysis of their TV, print or other ‘offline’ channels.

However, in terms of channel effectiveness, the IPA study found that good old TV “increases effectiveness by 40%” and it’s also “best for generating top-line growth that drives profit, with a 2.6% market share point gained per year when using TV”. That’s because TV offers sight, sound and motion–and when used correctly it conveys emotion like no other channel. Add online video to the mix and the numbers get even better–“a 54% increase in the average number of business effects” when TV and online video are used in tandem in a campaign.

“Maintain the 60:40 Ratio”

The IPA has long stood by the recommended ratio of 60% long-term brand building tactics to 40% sales activation tactics. But few clients adhere to that these days. Due to the challenge of attributing a sale to a channel, many clients think either their website or email was the only channel that drove sales, because that’s where the last click came from.

True sales attribution models take into account all of the ‘non-clickable’ channels that generated and warmed the lead in the first place. Even in the absence of a detailed attribution model, smart marketers make educated assumptions on the importance of brand building first. If no one knows what your brand stands for and what sets it apart, why on earth would they go to your website or open your email?

In the UK, the IPA is seeing a “sub-optimal focus on short-term activation strategies at the expense of long-term brand building”. It’s easy to be pressured by your CFO to put more dollars into the channels that can be easily measured, instead of focusing on the channels that ultimately drive brand awareness and preference, but are harder to prove on a spreadsheet.

What does this mean for your brand? Do a quick self-assessment:
• What percentage is spent on paid media vs. owned/earned?
• What percentage of your marketing budget is spent on conveying what your brand stands for?
• What percentage is spent on emotion?

If you’re out of line with the data generated from the IPA’s study, perhaps it’s time to reevaluate your budget ratios this year.