15 September 2005

McKinsey: The Marketing ROI That Isn't

Kurt Oeler pointed me to a great piece in the latest McKinsey Quarterly by David C. Court, Jonathan W. Gordon & Jesko Perrey, "Boosting Returns on Marketing Investment".

“. . . Real spending on prime-time television ads . . . has continued to rise, even as the number of viewers has plummeted (Exhibit 2). The spending patterns of the US automakers, which increased their marketing expenditures per car during the 1990s even as advertising became less effective and their collective market share declined, typify these trends. Marketing powerhouses such as P&G are also quite concerned. At the 2004 meeting of the American Association of Advertising Agencies, Jim Stengel, the company’s global marketing officer, said, ‘I believe today’s marketing model is broken. We’re applying antiquated thinking and work systems to a new world of possibilities’. . . . ”

Btw, Exhibit 2 looks like this: X. The audience for prime-time broadcast TV was around 45 million viewers in 1994; it dropped to about 25 million by 2003. Yet inflation-adjusted ad spending on those networks during prime time grew from $5 billion to $7 billion.

Not long ago I heard a marketing VP at Visa admit that TV advertising wasn't working nearly as well as it was 10 years ago, yet CPMs continued to rise. She griped that the networks had fewer & fewer viewers, but they charged more & more for each one. So Visa reduced the share of ad dollars spent on broadcast TV spots, from 95% to 75% of its total ad budget. The shocker to me is that Visa continued to invest 3 out every 4 of its ad dollars into something that wasn't delivering the goods.


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