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ROAS and ROI have always been dirty words.
Here’s three reasons why they might say that:
Most of these ROI-focused levers fall pretty low in terms of advertising profitability when compared to Data2Decisions’s analysis of the top 10 drivers of advertising profitability (rank eight and ten).
This is because ROI can only tell us how efficiently we've converted $1 into many, but it can't tell us anything about effectiveness. It tells us nothing about price elasticity, brand equity, net profit, and shareholder value – which incidentally, is more in line with how advertising actually works.
The easiest way to increase ROAS or ROI is to cut ad spend. But, as Warc & Cannes Lions’s Creative Commitment analysis shows: more budget = more effectiveness.
Despite having a low impact on profitability, these ROI-focused levers also fall pretty high in terms of what marketers think drive advertising profitability (rank #2 and #3 respectively).
Compared to the three largest drivers of advertising profitability, brand vs performance and target audience offer very little advertising value. But they are easier to optimize than the brand size, creative quality, and budget setting across geographies, which can be roughly clumped into two activities: invest in high quality creative and maximize ESOV. Because they are easier to optimize and attribute, marketers invest more in them, leading to a misconception or fallacy that they are more valuable.
It’s a classic case of measurement bias (more on this in next month’s Solve for X).
What is the solution?
Earlier this year we sat down with the Global CMO of Nestlé, Aude Gandon, to discuss how and why they used creative data to revamp their 50-year old marketing practices.
Aude revealed that Nestlé increased ROAS by 66% for creatives with a high Creative Quality Score (CQS) on Meta platforms by rallying her marketers around a metric – the CQS – that helped them make the shift from building ads for TV to building for Digital and Audience first.
For those unfamiliar with the CQS, it is a creative metric that measures the adoption of platform creative principles, like Meta’s Brilliant Basics and YouTube’s ABCDs. Despite only featuring in <30% of YouTube impressions, the ABCDs, for example, deliver 31-38% improvement in sales lift and ROAS. They matter.
It shows how a new CMO can come into a massive organization and make an immediate impact in demonstrating the value marketing has on the bottom line. Particularly when demonstrating marketing value, especially the creative, has become a challenge (a recent report from Cannes Lions reveals that “only 12% of brands feel extremely confident in convincing the CFO to invest in high-quality creative”).
Nestlé are increasing their digital media investment above the 50% mark. By using creative data to isolate, automate, and scale a set of creative elements that should be present in their digital content (e.g. brand early, optimise for sound off, and frame for mobile), they can prevent any wasted spend on ineffective creatives. With digital spend increasing, the 66% ROAS gains could be even more potent.
If traditional ROI/ROAS levers like targeting, ad spend, and brand vs performance remain fixed, then the efficiencies gained (e.g., 66% ROAS) should not, in theory, negatively affect price elasticity, brand equity, net profit, and shareholder value by cannibalizing future demand and market penetration. Rather they should positively impact these marketing-influenced levers. Creative efficiency ≠ marketing efficiency.
All of this happens before you layer in other CQS efficiency gains that can occur. For example, our regression analysis of Nestlé’s CQS found two statistically significant findings that further demonstrate the value of creative efficiency.
Marketers looking to increase effectiveness as well as efficiency could do worse than using a CQS to measure their creative.
Efficiency doesn't have to be a bad thing, nor a dirty word. A highly effective brand, one that has invested heavily in creating future demand and that successfully balances the Long and the Short, can also be efficient at driving sustained sales volume in the short term.
ROI and ROAS are appropriate and useful metrics to demonstrate the impact of short-term work, Mark Ritson recently admits as much – despite his general dislike of ROI as a metric. The truth of the matter is most marketing impact happens in the long-term.
These things are worth considering, particularly in today's macro-economic environment. As marketers look for ways to make their under-pressure budgets go further, focusing on ROI and ROAS is typically a dangerous and misleading slope to go down.
That is, unless you’re optimizing for high quality creative and maximizing ESOV.
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