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“Working” and “non-working” marketing spend are dangerous misnomers.

November 30, 2016

 

As H.L Mencken put it:

 

“For every complex problem there is an answer that is clear, simple, and wrong.”

 

The widespread belief that “non-working” marketing expenditure should be sacrificed of the for good of “working” marketing expenditure is just such an answer, wrong. It perpetuates an elementary misunderstanding of how advertising works. Most importantly, I believe that this strategy often compromises advertising effectiveness.

 

Let’s first define our terms first, and then I think we can redefine them more usefully:

 

In current marketing and business parlance, “working” marketing budget means money that is invested in the exposure of a brand’s advertising message; for example, traditional media channels (TV, Radio OOH, print etc.); also brand activation – the discounting or bundling of products and the immediate, measurable impact on sales, and other measurable activity such as email.  “Non-working” marketing budgets are those spent on the production of that message: marketing staff cost, fees paid to agencies, design, the cost of producing TV commercials, the cost of photography or illustration to make press ads and the cost of duplication, adaptation and distribution of those ads to the media channels in which they will appear.

 

So, first off, “non-working” suggests that this money doesn’t “work”.

 

And of course it does.

 

It may well be the case that it works to varying degrees of effectiveness, but without a message you only have the media asset. The message a media asset contains may be effective to a greater or lesser degree, but to call it non-working is quite clearly an unhelpful misnomer. So, let’s rename both terms - “direct” instead of “working” and “indirect” instead of “non-working”. However, indirect is still inadequate…

 

Within indirect spend, money is spent on a range of things from original market research to

printed proofs of out-of-home posters – a huge spectrum of activities and spend. Some of these things are solutions to problems with unlimited possible solutions – ideas, creativity; and some are solutions to problems with finite solutions – such as the duplication and distribution of assets.

The vital difference between these two groups is that the former represents an investment and the latter represents a cost. Investments are desirable, they’re meant  to provide a return to the investor greater than the principal, whereas costs are undesirable, they are simply the cost of getting business done.

 

So, employing that distinction, let’s now use “direct investment”, “indirect investment”, and “indirect cost” and look at how these need to be managed differently:

 

 “Direct investment” is desirable, insofar as advertising messages need exposure - coverage and frequency.

 

“Indirect investment” is desirable, too, insofar as one should expect a return from it. A persuasive message is more desirable than an informative yet passive, unpersuasive message; therefore, done properly, indirect investment is also a good thing.

 

“Indirect cost” is undesirable, insofar as it does not contribute to the value of the return on investment once it has reached its quality criteria of 100% (e.g. the right ad, duplicated perfectly, distributed correctly and on time). There is no greater value available here except the reduction of cost. (There’s some nuance in the process of ad adaptations and process innovation, but let’s not get ahead of ourselves just yet.)

 

But the nature of how large-scale advertising works makes this distinction very important.

 

We know that if a brand buys a 10% greater share of voice than it has in market share then it will likely enjoy a 0.5% market share growth – all things being equal and with average performing copy. This is an expensive, low risk and generally reliable way to grow a brand. However, an appropriate amount of indirect investment to make that copy more effective (such that a brand doesn’t have to buy market share with media) is a far less expensive way to grow your brand. Crucially, what this means is:

 

Driving down your indirect investments

in favour of your direct investments is most

likely creating a commercial loss.

 

Because arbitrarily reducing your indirect investment reduces your power to persuade.

 

The difference between these two strategies for growth is predictability. But, with good agency talent working on an account, sound data upon which strategies are being built and a progressive and accountable approach to the development of creative work, most marketers should enjoy greater returns if they look more at maximising the effectiveness of their indirect investments, not cutting them; but minimising their indirect costs where they can.

 

(Some might argue that quantitative research will check the ads’ powers of persuasion, but it won’t show advertisers what could have been their more persuasive proposition, or strategy or ad that they didn’t get to see because they reduced their indirect investment – because their agency didn’t present them, or even write them.)

 

So how much should marketers spend on indirect investments?

 

The challenge is to find the right investment level; one that is above the critical mass required to be effective in the first place, but below a point of diminishing returns when additional funds are merely gilding the lily. Determining these investment levels is a value judgment and one that should change depending upon myriad other factors: the market you are in, your market position, competitive activity, the brand, the product and so on. Like any other investment it is easy to reduce your indirect budget – you just invest less. But, consistent with the principles of economics: if you want to invest less and maintain or increase your return, you must increase your risk. So there isn’t a single answer – in truth it can be difficult. But, it is better to try to judge the level than to actively divest from your message’s persuasiveness.

 

Bearing all this in mind, patently it makes no sense for a strategy to sweep an industry reducing “non-working” spend in favour of “working”, yet that appears to be what’s happening.

 

If the industry continues to fixate on the reduction of indirect investment in favour of the investment in direct, it leads down a path they might consider risk averse, where the power to persuade a consumer becomes secondary to the power to reach one with an effective message, which ironically jeopardises the return. Because with the abundance of messages and channels only on the increase – let alone the volatility of the economy and increasing costs of goods, never have the powers of creativity and persuasion been so important as they are now. Not least in the long term according to the evidence presented by Binet and Field in the IPA’s The Long and the Short of it.

 

So, in the interests of better business performance, and our sanity, can we dispense with these ill-informed, inappropriate misnomers of “working” and “non-working” and instead have sensible conversations about investments, risk and return?

 

Because that’s what marketing is and always will be.

 

 

David Meikle,

Author – How to Buy a Gorilla – LID Publishing, release date May/June 2017.

Consultancy, agency sourcing and pitching, training, keynotes.

 

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