Adopt an incremental benefit mindset and be prepared to kill your darlings – even if it hurts

Pick an instrument. Any instrument. Ask yourself: What did I get for the last euro I spent on this instrument? Was it worth it? Could I put it to better work by changing the specifications within the instrument, e.g., by placing an ad in another environment? The amount you paid for a full-page print ad, for example, might have bought you two half-page ads that would have generated a higher net reach with the same or only marginally lower campaign recall rates. Similarly, the amount you paid for a plain banner ad on a premium website might be worth several rich media ads placed at a less prominent destination. Ask yourself: Would it be worth trading the obvious choice for another option? In a second step, apply the same thinking across instruments: What if I didn't produce a TV commercial next season? The savings on creation, production, and activation could easily amount to the funds you need for half a dozen YouTube clips, a spectacular local marketing campaign, or a sponsorship engagement.

Adopting an incremental benefit mindset means submitting all your activities to the same sober scrutiny: What do I get for my money? What if I invested one more euro? What would it buy me? Would it be worth it? Of course, more is usually better, but how much better? Could we achieve higher impact by investing that extra euro elsewhere? In other words, how does the incremental return compare with the alternatives? There will always be reasons to defend a given investment because of its average impact, or simply because it feels like something you should be doing. What self-respecting brand doesn't run a high-profile mass media campaign before Christmas? Forget the average and forget the sacred cows. Do the math. Calculate, for example, what it cost you to achieve that last percentage point of penetration in your target group. Was it money well spent? If the incremental benefits are slim, consider decreasing your investment in one instrument – or a specific activation pattern – and trying something else instead.

In what follows, we will apply the concept of incremental benefit to three crucial instrument types: classical advertising, digital marketing, and direct campaigns. Please note that our aspiration is to provide you with examples that will inspire your own optimization efforts in these areas, rather than to embark on a holistic treatment of each group of instruments.

Consider the road less travelled by and seek out efficient niches in mass media

TV is a notoriously noisy environment. There are hundreds of channels and thousands of shows. All major advertisers are clamouring for the most prestigious slots, such as Black Friday or the Super Bowl halftime show. Industry observers say that the cost of airing a 30-second ad in this kind of environment may soon hit the 10 million dollar mark, more than the entire marketing budget of many medium-sized companies.⁶ In Latin America, a provider of personal financial services found itself in a spending battle with competitors to secure coveted prime-time spots for 30-second commercials, generating dozens of opportunities to see the same spot for their target audience, much more than the company's marketing objectives would have required – and well beyond meaningful incremental returns in terms of additional recall or likeability. There is nothing wrong with securing sufficient share of voice, but don't let competitors' wasteful practices entice you to overspend in turn.

In a given case, a leading multibrand consumer goods player set out to streamline its investment in TV advertising. The company was spending 50 percent of its total media budget on television. In a stagnating market, the cost per second was increasing at a rate of about 15 percent annually. Overall mix guidelines were already in place, but the optimization of individual instruments had not yet been addressed. After extensive research and analysis, the company made three principal changes to its TV investment:

• Lower reach targets. An analysis of incremental cost per TRP (target rating point) revealed that the last few percentage points of reach were disproportionately expensive. For new campaigns, the average unit cost for each of the last three percentage points (65 to 68 percent) was more than twice as high as that of the base (up to 65 percent). For promotional campaigns, the difference was even more dramatic. The final few percentage points of reach were more than four times as expensive as the base. In response, the company reduced its reach target by 2 percentage points. This de-specification helped cut the TV media budget by more than 10 percent.
• Shorter spots. The share of short spots (15 seconds) was increased at the expense of longer spots (20 and 25 seconds). According to independent research, short spots are almost as effective as long spots. Across countries, 15-second spots reach 78 to 97 percent of the effectiveness of 30-second spots in terms of a combination of metrics such as attention, recall, brand attribution, and likeability (Exhibit 7.1). The company decided to generate 30 to 50 percent of total reach through short spots, and use longer spots almost exclusively during the early stages of a campaign. These changes added up to savings of 9 percent of TV media cost.
• More effective ad break positions. The company opted not only for shorter spots, but also for less costly positions for these spots, moving them from the end of the ad break to its beginning (first or second slot, instead of last or second to last). Although the last slot is typically the most coveted, the numbers don't bear out this preference. Because many viewers only return after the end of an ad break, the number of viewers is below the median for this slot. In contrast, first and second positions typically reach an above-median viewership (13 percent and 5 percent respectively). This change resulted in about 1 percent cost savings for the advertiser.

Additionally, the company reduced the number of its weekday morning spots for its drinks and dinner brands and booked more evening positions instead. The objective was to move the communication closer to the consumption occasion and increase the ROI through higher impact on consumer behaviour. Finally, the advertiser invested in a tracking tool that helps the media team monitor and adjust advertising intensity and spending patterns almost in real time. In total, the savings reached a magnitude of 25 percent of the company's TV media buying budget without compromising consumer impact.

In another case, a Chinese car manufacturer drove up return on classical advertising spending dramatically, mainly by synchronizing air times of campaigns for new models with the availability of cars for delivery, the readiness of the dealer network, and periods of low competitive advertising pressure. For an overview of these and other such levers across selected classical advertising instruments, please see our checklist (Exhibit 7.2).⁷ Obviously, the list is not exhaustive, nor is it meant to be. But if you apply the same kind of thinking – generate the same impact at reduced cost by finding smart alternatives to obvious choices – to other trade-offs, you will be able to cut a lot of waste. As the poet says: “Two roads diverged in a wood, and I – I took the one less traveled by, and that has made all the difference.”⁸

Break the average in digital marketing and focus on the keywords and inroads that drive your business

Half of all digital ad spend goes to search engine marketing (SEM).⁹ If you spend anything on digital marketing, chances are it will be on search engine optimization or advertising, and this is also the one channel that you need to get right in terms of smart activation. You can easily waste millions by having your messages displayed to users who couldn't care less, or by trying to outbid your competitors for the same half-dozen search terms. Do you really need to claim the most popular keywords? And should you invest in the same keywords all the time? Of course, digital marketing goes well beyond search engines. While SEM still accounts for at least half the budget in many industries, other online media types are catching up. According to industry observers, each of the following instruments accounts for budget shares of up to 25 percent:¹⁰

• Display/video advertising
• Referral from other sites
• Outbound e-mail and newsletters.

We encourage CMOs to take an active interest in driving the return on their investments in digital instruments. Consider the case of a leading European online transaction platform that reaches some ten million users per month in more than a dozen countries. Inspired by best practices observed in other categories and industries, the company submitted the biggest positions in its multimillion euro digital marketing budget to systematic scrutiny. The objective of the effort was to identify and eradicate inefficiencies in individual instruments to drive the return on marketing investment. Examples of improvements include:

• SEM keyword portfolio streamlining. The keyword portfolio used for search engine advertising was reviewed systematically to determine incremental contributions, down to the profitability of each keyword. The company quickly discovered that it was too costly to own generic keywords, such as “marketplace”, at least in developed markets. In response, some funds were shifted from a small number of generic keywords to a long tail of less popular keywords because these were found to yield a better return on investment in this case. In addition, ads and landing pages for high-value keywords were refined to increase conversion rates. As a result, the cost per click decreased by up to 20 percent, and the cost per lead went down by as much as 40 percent. As part of the effort, the company also reviewed its overall keyword strategy based on a simple question: Which searches have the biggest potential to generate revenues? Today, the list of keywords the company bids for in automated auctions is reviewed and adjusted on a daily basis.
• Affiliate marketing revision. The company generates a lot of leads through referrals from affiliated partners – such as comparison sites, content aggregators, and blogs. As part of a de-specification effort, all such partners were screened with regard to the return on investment (cost per lead). Cooperation agreements with low-performing partners were discontinued. New incentives were put in place – such as tiered bonuses for leads exceeding the contractual agreement. The company also devised clear guidelines for all affiliates – especially regarding the integration of ads into the partner's offering – and now keeps a blacklist of repeat violators. As a result, the average cost per lead went down by 24 percent. Because of this jump in efficiency, the company ended up shifting funds from other instruments to affiliate marketing.

• Outbound e-mail optimization. Benchmarking revealed that the portal's e-mail-driven traffic was below the industry average, and that leading players generated up to five times as much traffic through outbound e-mail. Taking inspiration from best practices, the company engaged in systematic A/B testing of different targeting approaches. At any one time, thousands of slightly different e-mail campaigns were in progress. For example, e-mails to repeat visitors might include a link to a category that the customer has researched before, while known bargain hunters might receive alerts to special deals. Some variations were much more subtle, such as different colours for a key visual. In addition, the company introduced frequency caps to make sure a unique user doesn't receive more than a prespecified number of e-mails in a given time period. As a result of these efforts, click-through rates increased by 26 percent.

• Display ad fine-tuning. The company conducted a simple experiment with display ads. The actual banner was displayed only in half the ad spaces the company had paid for, while the other half was deliberately left blank. This test revealed that as many as 70 percent of all ads were ineffective, partly because they were served outside the viewable screen area. In response, the company renegotiated contract terms and included incentives to reward ad sellers for incremental traffic. As a result, the cost per click for certain ads went down by 40 percent.

In total, the de-specification effort resulted in savings of 20 percent of the online marketing budget without decreases in traffic or revenues. The biggest mindset change was to move from hypothesis-driven marketing (doing what you think might work) to data-driven marketing (doing what is proven to work). Currently, the company is looking into shifting funds from SEA to SEO. There is some indication that SEO might eventually replace all SEA. But further tests are required, and the company will have to invest in proprietary content around major traffic-driving categories.

As this example shows, there is a lot of room for improvement in the way individual digital instruments are used. Please see Exhibit 7.3 for an overview of some smart activation levers for a range of digital instruments, from search engines to social marketing.¹¹

Digital marketing is a very dynamic environment. As new technology becomes available, new opportunities for arbitrage are bound to arise. Be prepared to test new solutions quickly and measure their impact on your marketing objectives – and don't hesitate to stop using them if they are not working. If you don't, your budget will inflate in all the wrong places.

Experiment with different combinations of distribution, frequency, sequencing, and specifications for direct marketing activities

In theory, direct marketing is immune to waste. By definition, direct marketing messages are only sent to members of your target group, and you only expose them to messages you consider relevant for them in light of their needs and preferences. In practice, there is still significant potential for optimization. Start by putting yourself in the shoes of your target customers: What do they really care about? What are they indifferent to? And what are the things that really bother them? Before long, you will come up with changes to your direct marketing specifications that will spare your customers undue disturbance and save your company a lot of money.

In many markets, leaflets are still the most important marketing instrument for brick-and-mortar retailers. In a given case, leaflets accounted for more than 60 percent of total marketing spending at a European retailer. Traditionally, distribution areas were chosen based on ZIP codes, with each ZIP code comprising thousands of households.¹² An initial cross-analysis of leaflet distribution and shopper data gathered at the checkout revealed that 20 percent of all leaflets went to postal codes that generated only 2 percent of revenues. To reduce scatter losses, the retailer conducted regression analysis to identify the real drivers behind revenues generated by leaflets: driving distance to the closest store, purchasing power, and household size. Based on these indicators, the company defined new distribution microclusters of no more than 50 households each. The company used McKinsey's Local Media Excellence (LoMEX) geomarketing tool to adjust the leaflet budget, optimize the selection of distribution areas, standardize the decision process, and generate reports. The leaflet budget was reduced by 15 percent, and profits increased by 1.5 to 5 percent, depending on the performance of individual stores.¹³ In a similar fashion, IKEA reports that geomarketing has helped the company cut the circulation of their catalogue by 500,000 copies in Germany alone.¹⁴

Here are some thought starters for similar de-specification opportunities in other areas of direct marketing:

• Do you need to deploy multiple direct instruments? If yes, should you use them in parallel or in sequence to maximize the impact? For example, assume a user frequently clicks on links in your electronic newsletter or e-mail messages. Do you really need to send that same person a letter as well? If yes, when is the best time for the mailing? Channel preference modelling will help you determine the best instrument – or combination of instruments – for every single user.¹⁵
• Do you need to start your campaign with the costliest instruments? Best-practice players establish initial contact through instruments that generate high reach at low cost before deploying more expensive instruments. A personal finance company, for example, started their acquisition campaign by sending e-mails to a long list of prospective new customers. In a second wave, those who had responded to an e-mail received an outbound call. Only customers who had expressed serious interest in a call centre conversation were eventually contacted by a sales rep in person.
• Can you piggyback on inbound calls or other service interactions? Outbound calls are a nuisance for many people. Why not use an existing interaction – such as a customer's inbound call – for upselling or cross-selling instead? Insurance companies, for example, do it as part of claims management. You should also consider enriching transactional communication, such as a bill or a sales confirmation by e-mail, with direct marketing messages. This creates little to no additional cost, and your message will reach customers in a situation in which they are already tuned to your company.
• Do you need glossy paper and full colour for your catalogue? Do these features help trigger higher purchase frequency or bigger basket sizes? To find out if they do, conduct a real-life test. Send a simpler version of the catalogue to a predefined group of customers and closely monitor the impact relative to recipients of the high-end catalogue. Perhaps you can inflect your mailing according to customer value: restrict the full, glossy version to A and B customers and send a plain ten-pager in black and white to C, D, and E customers. You'll be surprised by how small things like these add up to substantial savings. The cost-cutting potential can amount to as much as 20 percent of total cost.

See Exhibit 7.4 for an overview of smart execution levers and typical trade-offs for various other direct marketing instruments.

Make a habit of evidence-based activation planning and establish golden rules – both across and within individual instruments

Smart activation is as much a mindset as it is a process. Don't think that you can go through one round of de-specification and be done with it. While you are busy streamlining classical media planning, chances are that one of your well-intentioned fellow board members is about to sign off on a new sponsorship deal without asking the big questions: Does your target group care about it? Will the features of the event drive your business objectives? And do the licence fees leave enough wiggle room for activation? Does the investment promise appropriate returns? Make a habit of challenging both new deals and current activation practices from an incremental benefit perspective. Ask for evidence that supports the specifications of all major marketing activities. If in doubt, don't hesitate to commission additional research to find out whether a premium placement, a rich media ad, or a glossy mailing are worth the added expense, or whether less costly alternatives have the same effect. Control group tests should be a matter of course for your team to assess alternative specifications, especially for online advertising and direct media that allow you to measure the effect on a single user basis. Don't tackle all topics at once, though. Focus on the big buckets, and keep checking back on practices that were state of the art three years ago. Chances are that things will have changed. Try something new, even if it feels like a long shot. Take a chance to fail on a small scale in order to win big eventually. And don't hesitate to stop doing things that don't work – or don't compare favourably with alternative investments – even if it hurts.

As you get more experienced, start compiling smart activation guidelines for key instruments. Draw on your own experience, lessons learned from past campaigns and tests, the expertise of your team and your agencies, and relevant industry best practices. While these rules will typically be specific to each given instrument, some golden rules apply across the board. Examples include:

• Don't sign off on a premium ad placement – be it offline or online – unless there is a clear and plausible business case to support it.
• Always get a second opinion on the activation plan for a major campaign, ideally from an independent media planning auditor.
• Employ advanced analytics to narrow down the target group for a given campaign; for example, with channel preference or next-product-to-buy (NPTB) modelling.
• Only pay for what your predefined target audience actually gets to see, hear, or experience – especially online.
• Before you green-light a new creative idea, testimonial, or sponsorship deal, check whether you could make more of your existing assets.