Marketing Procurement

Golden Ratios: The end of the 80/20 rule in planning marketing investment

Golden Ratios

The established norm of using golden ratios – such as the often used 80/20 rule for working and non-working media allocation – has had its day

In this viewpoint paper, Ebiquity explores why it is now time for brands to rethink the use of golden ratios. Instead, brands should leverage new approaches– such as brand equity modelling – that draw on data and analytics to inform better marketing investment

The established norm of using golden ratios between working and non-working media to make media investment decisions has had its day. In today’s ecosystem, there are more links in the media supply chain than ever, and more ways for brands to interact with customers. As a result, brands should now move beyond simplistic approaches to budget allocation, the most common being fixed ratio targets for working versus non-working media.

Instead, the journey for building marketing budgets should now begin with overall business objectives. This starting point means that marketers can apportion spend based on actual need as opposed to an arbitrary formula or ratio.

Within the realm of advertising, traditional media and search may still operate at an 80/20 working/ non-working formula, however social, mobile, native, and programmatic very definitely do not. Simply put, the routes to market are more complex, and advertisers have more variability in how the costs of delivering advertising vary.

As an alternative and more modern approach, advertisers should today look to work with agency and technology partners to establish the model that’s right for them, and from that starting point look to optimise spend and secure maximum operational efficiencies within that model.

This requires brand teams to work with their procurement colleagues to ensure they have the right contracts in place with their partners, reviewing terms at least once each year. In the area of advertising, this still requires assessing the performance of buys regularly, and ensuring the correct trade-offs are being made between cost and quality of media. This is even more critical in the digital media supply chain, where cost can always be driven down at the expense of both media quality and better outcomes.

Marketing econometrics – with techniques including market mix modelling and brand equity modelling – are now widely used by brands to allocate budgets most appropriately between long-term brand building and short-term sales activation, after the pioneering and enduring econometric analyses by Binet & Field. Again, this leads to customised investment strategies for advertisers, brand by brand, category by category, rather than arbitrary rules and ratios.

This Viewpoint Paper shows how marketers can apply these principles in practice to deliver marketing – and campaigns – with more impact. What’s more, these same principles can help to deliver marketing that is planned according to the realities of today’s cross-channel, cross device, integrated marketing ecosystem.

About the authors

Laetitia Zinetti is Managing Director, Continental Europe at  Ebiquity

Mike Campbell is Head of International Advanced Analytics at Ebiquity