Conventional wisdom in direct response media planning would tell us that the most effective media plans should have budgets allocated ‘from the bottom, up’. In simple terms, this involves maximising investment into the media channels and placements that yield the greatest ROI return. This is a simple, no nonsense approach that has been used for many years in the world of offline direct response media planning.
But can this same approach be applied to digital DR campaigns? I believe the answer should be ‘sort of’ – because understanding true ROI is actually far more complex than most media planners would have you believe.
If someone told you that a brand saw a drop in ROI across all of their digital channels, you would be forgiven in thinking that the brand had a terrible year. But Domino’s Pizza experienced this exact scenario in 2014, yet also saw record breaking sales growth. So how did this happen?
ROI in its simplest terms is just an equation of media spend vs return. ROI can (and should) be used to assess the effectiveness of an overall business or marketing strategy – but when used as the only KPI on an individual media channel, it starts to become very dangerous. This is because ROI led channel planning encourages media to target ‘easy win’ sales, ignoring the context that many of these sales would have happened organically without the need for paid media investment.
So if ROI is not the best metric to plan against, what metric should be used? We think the answer is ‘value’.
Value may sound like an abstract term, so we built a measurement framework for Domino’s Pizza around this which we call ‘The Value Model’ to help articulate where media channels may be creating value. The Value Model assesses the contribution of media in 3 ways and was one of the drivers of Domino’s record growth:
· Measured value. This is the direct ROI and sales contribution of media, ideally examined from a range of attribution models to give a balanced view of media effectiveness. Most brands only assess value against this metric, which we think leads to imbalanced media schedules that fail to create new demand, therefore stifling the brand’s ability to grow.
· Non-measured value. This covers all forms of value add to the business that are not seen within standard performance reports. This includes (but is not limited to) the brand effect of media, the type of customers being attracted by media (new customers usually unlock a degree of lifetime value, meaning they are often more highly valued), and the likely contribution into sales platforms outside of the web (for Domino’s this is both in store and in app).
· Opportunity cost. This covers the negative impact on wider performance from deploying media budget. Within this category we examine sales cannibalisation between channels and the marginal cost per sale achievable from our budgets. We strive understand if paid media is taking sales away from organic channels. And we wish to move thinking away from total channel performance - instead we wish to understand the impact to the business of the next £ invested, as all media is subject to the law of diminishing returns at varying levels.
The value model assesses the contribution of performance channels in a more holistic way. Using this approach has allowed us to recognise where media channels like branded search may deliver great last click ROI, but limited business growth. It allows us to compare branded response media channels like display advertising with response driving activity like affiliate marketing and understand which is of producing more… well, value.
The results for Domino’s using this approach have been truly staggering. Revenue targets were surpassed by almost 10%, representing YoY growth of 30%. ROI in all paid media channels appeared to be at their worst ever levels – but we saw additional £201m revenue from organic channels as we stopped using paid media to drive easy win sales. For a market leader in an already mature marketplace, this was without doubt a phenomenal result.
It is a good indication that the Value Model is set to challenge ROI and is indeed working for brands in the digital world.
By Aidan Mark, Digital Performance Strategist at Arena Media.
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