WWO: Focusing on ROI is Killing Your Growth
The Cumulus Media | Westwood One’s Audio Active Group blog looks at the of advertising ROI based on a new study by Les Binet and Will Davis titled, Go Big Or Go Home: How Small Thinking is Killing Advertising and What To Do About It. A number of key points from the study conclude the following: 1) The advertising industry’s maniacal fixation on ROI has resulted in a modest 4% 
increase in ROI since COVID but a worrying 11% erosion in advertising driven profits; 2) ROI is mistaken for business outcomes such as sales growth, profit growth, and customer growth. ROI is none of those things. It is simply a ratio of revenue/profit generated by ad spend; 3) Surprisingly, ROI and revenue/profit growth move in the opposite direction. Low profit growth produces high ROI. Strong profit growth results in lower ROI; and 4) Perception vs. reality: Marketers mistakenly believe ROI trumps budget in driving profit growth. The reality is budget is 9 times more critical than ROI in generating profit.
Ultimately, the lowest ad budget will show the highest ROI, but that’s not a recipe for sales growth. Further, since ad budget is nine times more likely to predict profit growth than ROI, Binet and Davis offer three approaches to thoughtfully setting ad budgets: Ad spend ratios, task-based budgeting, and share of voice analysis. All three can be utilized for a well-reasoned process for developing advertising budgets. See the full blog post here.
driving brand preference is ‘mental availability’: how well known a brand is, and how easily it comes to mind. Brands with low mental availability tend to struggle, rejected in favor of more familiar rivals. Or not considered in the first place. Brands with high mental availability don’t have to push so hard to sell, so tend to have higher market shares and better margins.” The authors also advise, “Always aim to get more customers from all segments of the market. It’s the main way brands grow.” The blog post concludes that AM/FM radio makes your media plan better by increasing reach. One example is illustrated as follows: Edison’s “Share of Ear” study of ad-supported audio reveals the combined persons 18+ daily reach of Pandora and Spotify is only 12% of Americans. Adding podcasts causes reach to surge to 29%. The introduction of AM/FM radio lifts daily reach to 74%.