Marketers Know They Aren't Calculating Digital Advertising ROI Correctly by Chris Trayhorn, Publisher of mThink Blue Book, April 7, 2009 Marketers don’t need to change the way they think. They just need new digital marketing technology and measures that conform to the way they think. Thankfully, while the old model for measuring the return on investment (ROI) from digital advertising falls short, a new model is gaining momentum. Digital marketing continues to incur an enormous amount of growth. The proliferation of new digital channels, compelling websites and countless new opportunities makes it difficult for marketers to keep pace – and even more challenging for marketers to reach and engage their audience. Large brands and direct response marketers are therefore constantly seeking the right mix of channels, sites and interesting creative to engage their audience as effectively as possible. Yet when a digital advertising campaign is successful, they can only credit one of the many touch points their audience experienced. Typically, between 93 percent and 95 percent of audience engagements with online advertising receive no credit at all when advertisers review the ROI on their campaigns. Although the universe has been getting bigger, marketers have been forced to view it through a very limited kens. And this limited view has constrained their vision, creativity and success. The reason for this misalignment is that the industry has been using a method of ROI measurement that only attributes credit for advertising effectiveness to the last ad clicked or viewed prior to a customer conversion (Figure 1). The “last ad” standard forces marketers to pay attention to a small set of data and ignore key information required to properly calculate the ROI for each site and channel. In addition, it goes against conventional marketing wisdom, and therefore stands in the way of adoption, creativity and the innovative evolution of digital advertising by marketers who are seeking better results. THE ‘LAST AD’ MODEL VS. CONVENTIONAL WISDOM To date, the industry’s online ROI measurement models, including click-through rates and the “last ad” standard, have been significantly out of alignment with basic marketing fundamentals. For example, a critical marketing concept, the sales funnel, is completely disregarded by the “last ad” model. The idea is simple: different marketing messages play different roles for consumers. Some marketing messages drive awareness; others close the deal. In the off-line world, broadcast media have typically been at the top of the funnel, while other channels, such as direct mail, have been used to induce a purchase. In the last 10 years, online media have moved from being strictly a direct response medium to becoming a multifaceted channel with the potential to reach consumers across every point in their journeys. The “last ad” model is exceptional at measuring ROI if your only goal is to measure the bottommost touch point in the sales funnel. In this regard, our current conversion attribution standard is sadly out of touch with the reality of online marketing today. Based on only a single engagement, the “last ad” model forces marketers to place greater importance on the aspects of their advertising that support the model than on those that truly support advertising success. Given all of these factors, it’s fair to wonder why the industry persists in using the “last ad” model. The reason is that until now, digital marketing technologies enabled only a limited set of capabilities and measures of digital media. Marketers, however, need to be able to calculate the ROI on all of the exposures and interactions the audience experiences on each media owner’s site – not just the last one (Figure 2). The result of this more comprehensive calculation is a measurement known as engagement ROI. Advanced digital advertising technologies are now making it possible to calculate engagement ROI (see “Factors That Impact Engagement ROI,” on the following page). ENGAGEMENT MAPPING: YOU CAN GET THERE FROM HERE The new model enabling the calculation of engagement ROI is called Engagement Mapping. It’s based on the following three simple premises: Marketers need to attribute credit to multiple sites and engagements, not just the last one. Marketers need to have true transparency and the flexibility to weigh the importance of influential factors such as ad size, frequency and rich media interactions in their ROI calculations. Marketers need to be able to easily adopt and transition to the new model from the old. Engagement mapping is made possible by back-end technology that analyzes many factors behind the scenes. In the new model, key influential factors can roll up into a straightforward site-by-site analysis to succinctly summarize engagement ROI. Factors that can be taken into account include frequency, ad size, recency, media type, interaction and order of engagement. By considering these experiential factors, advertisers will be able to learn from previous campaigns and fine-tune their media strategies while their campaigns are still in progress. Marketers can then manage their digital media investments by channel, placement, site and media type (among other factors). WEIGHTING FACTORS The Engagement Mapping model allows you to easily customize your application of the model to the factors you deem important for measuring your specific campaign (Figure 3). The various factors can be weighted differently in your engagement ROI calculation. For example, passive events (like viewing a text link or a display ad) can be weighted one way, while active events (like clicks and rich media interactions that convey a higher level of interest) can be assigned different values. If you aren’t sure how much weight you should assign to a factor, you can simply choose a setting that closely reflects your marketing objectives from a collection of default settings. PRACTICAL APPLICATION OF ENGAGEMENT MAPPING: SINGLE SITE EXAMPLE Engagement Mapping isn’t just conceptual. It’s a model that you can begin to apply practically today. When the model is applied, each exposure and interaction can be attributed a portion of the credit for a conversion. Here’s a hypothetical example of how Engagement Mapping attributes credit differently (see Figure 4). Let’s say you have a site right now that gets 1,000 conversions under the “last ad” model. When frequency is figured into the model, it actually boosts the attribution number up to more than twice as many conversions. So your number of conversions credited to the specific site has jumped up to 2,000. But it turns out a lot of these frequent impressions are not very large. When you factor in ad size, it turns out that a high number of exposures were actually small text links. By factoring in ad size, the number of conversions attributed to the specific site is revised downward to 1,400. Continuing down this path, the Engagement Mapping model also accounts for creative type, recency and order. The model ends up attributing 1,600 of your conversions to this one site. Thus, when you evaluate the sites that produced the greatest return on your media investment, this one site looks very different than it did when you used the “last ad” model. By being able to weigh the importance of various factors, you can put a greater focus on those that matter more. Thus, if you’re a direct-response marketer, you might want to place more emphasis on factors like clicks and recency, but if you’re a brand marketer, you might want to give more credit to more passive engagements – such as video views and ad size – even if there’s no interaction. Or your objective might lie somewhere in between. Flexibility and transparency in the way you measure each factor are important components of the new model. As you get more familiar with the new model and how each factor affects your results, you can begin to test your well-exercised intuition. For example, most marketers that employ rich media do so because intuitively they know that it’s a strong way for the audience to experience their product or brand. The new model gives advertisers the ability to make specific adjustments, and set the dials to reflect the impact of the factors they believe have the greatest impact on their engagement ROI. STAY ON COURSE; GO A LOT FARTHER Great marketing comes from a healthy combination of right- and left-brain thinking. Once marketers move beyond the “last ad” measurement model, they’ll benefit from greater flexibility and transparency. And they’ll be free to combine attention-getting creative with smarter buying practices that achieve awareness goals and take full advantage of the infinite opportunities presented by digital media. Your campaigns will likely garner more attention once you can measure and justify the use of a greater variety of formats, sites and channels. Filed under: White Papers Tagged under: Perform, Robert Haskitt, White Papers About the Author Chris Trayhorn, Publisher of mThink Blue Book Chris Trayhorn is the Chairman of the Performance Marketing Industry Blue Ribbon Panel and the CEO of mThink.com, a leading online and content marketing agency. He has founded four successful marketing companies in London and San Francisco in the last 15 years, and is currently the founder and publisher of Revenue+Performance magazine, the magazine of the performance marketing industry since 2002.