A lot of heads turned when P&G, one of the world’s largest advertisers with a marketing budget of $10 billion annually, announced the layoff of 1,600 marketing people. Bob McDonald, CEO of P&G, said, “In the digital space, with things like Facebook and Google and others, we find that return on investment of the advertising when properly designed, when the big idea is there, can be much more efficient.”  He also cited the Old Spice campaign as an example of a highly cost effective and successful campaign.

Given the current debate over social ROI, we find his statements very interesting and worth exploring.  The following themes emerge when one considers the layoffs in a broader perspective:

Social ROI is more than direct response:  Part of the reason some marketers contend that social media is not effective is because they view it from solely a direct response lens. For better or for worse, the search engines have spoiled us into thinking that because one can measure metrics in online marketing, it can be held fully accountable in terms of profit and loss in a very short time interval (even a day).  Further, as many direct response marketers start to manage Facebook campaigns they view them with this same lens and quickly come to the conclusion that their campaigns are not effective.

However, this is a very narrow perspective and often misses the bigger picture. Brand marketers like P&G and Coca Cola have known for decades that reaching out directly to audiences builds loyalty and a propensity to buy their products over time. Measurement of the efficacy of these campaigns is tricky and requires patience. However, in the case of social media the ROI can be measured if done right. For the brands that we manage we have seen anecdotal evidence showing when brands interact with their fans they see increased offline store sales. We have also seen evidence of the average order value of products being higher for consumers who have interacted with a brand’s Facebook app.  While the evidence is preliminary, we remain fairly confident that this is part of a broader hypothesis – one that makes both intuitive and mathematical sense. When you reach out to consumers in a meaningful way they are more likely to buy your product.

People are moving away from offline to online media:  Media consumption is moving away from print and TV to online. This should come as no surprise to anyone. Facebook is not only seeing fan growth, but the average fan is spending more time on Facebook. YouTube, Hulu and related sites are also seeing increased usage. The obvious conclusion is to move media dollars away from offline to online sources. This share shift is well underway.

There is also one more key implication. As the media dollars move online, advertisers will be able to gather more data than ever on the efficacy of their campaigns. Not just search, social and mobile, but also video. The smarter platforms will then provide marketers with sophisticated media buying options such as segmentation, real-time auctioning of media spots, demographic information, and cross channel insights to help marketers. These developments will only make media buying more effective.

The age of the Math Men: Chris Moore from Redpoint Ventures recently wrote that we live in the era of the Math Men. I couldn’t agree more. With the sheer volume of data that marketers are being bombarded with, there is an urgent need for statisticians, scientists and analysts to be able to crunch the data, come up with meaningful insights and action them in near real-time. This would be impossible were it not for sophisticated algorithms that do a lot of the heavy lifting to ease the burden on the marketing manager.  Does this mean the death or creativity in marketing?  Of course not. In fact, I would say that there is more need than ever for creative folks. There are two reasons for this: (1) Most non-math folk don’t realize this, but algorithm development is an extremely creative process (take it from a guy who wrote algorithms for years). Finding the right mathematical parameters and then fusing it with business insights can make all the difference between an algorithm that closes your business or one that drives ROI at scale. (2) Algorithms and math can drive your marketing campaign to optimal performance, but it can’t create an interesting and compelling campaign for you. In other words, an algorithm could have found the best way to advertise the Old Spice campaign on Facebook, but it still needed some very creative people to come up with the concept and then execute it. One should view math and algorithmic technologies as extremely effective productivity tools that free time for us to do even more creative marketing.

I see P&G’s shift in focus as part of a broader trend – a shift in media mix from a less measureable offline world to a more measureable, but fragmented online world where integrated tracking, measurement and optimization technologies are vital. We are ready!

Dr Siddharth shah
Director, Business Analytics