Study finally reveals the most potent off and online mix

Marketers may be seemingly ploughing their budgets online as if it is going out of fashion but the most powerful mix is to spend 55% offline and 45% online, according to a new analysis based on campaigns which account for £5bn worth of ad spend.

The new Advertising Research Community (ARC) project, that comprises a database of non-awarded campaigns, is launched by economist and Magic Numbers’ Founder Dr Grace Kite, with the support of the IPA, at this week’s EffWorks Global 2021 event.

The ARC project collects new effectiveness data and insights from non-awarded cases and comprises a 2021 database of 343 typical campaigns that use effectiveness modelling.

From interrogating this rich dataset Kite asserts that, while marketing effectiveness may have declined in the past, this new evidence – reviewed by expert econometricians and researchers – reveals a considerable uptick in return on investment over the past five years.

She highlights that these cases, from the non-awarded front lines of UK businesses “where CMOs don’t always last in their jobs, where budgets are hard to justify and where things go wrong” generate on average 3.80:1 ROI.

This proof that advertising works, according to Kite, is underpinned by marketers’ better understanding of the ratio of investment in online marketing and a better grasp of the online channels themselves.

While asserting the rules that these typical campaigns adhere to and gain success from, Kite also points to the value that marketers can also gain from studying award-winning cases.

Advertisers are having success with campaigns that divide their media investment in both on and offline with revenue per £1 spent highest when 40-50% of the budget is spent online.

The same picture emerges when analysing the data, adjusting for size of advertiser (ARC data reveals that an average business with £50m more turnover gets 40p more revenue per £1 spent on advertising).

The same picture also emerges when analysing the data across category, using size-adjusted ROIs: for the range 0-30% spent online, category ROI increases as share of budget spent online goes up.

As of now, and for the UK as a whole, the optimum budget split for offline/online, according to ARC analysis, is 55%/45% respectively, which is close to the UK overall split, according to 2019 Group M data, of 52% offline/48% online.

Outside of awards entries, recent ROI figures have returned to where they were in 2005.

Between 2005 and 2016 there was a significant shift in the amount of investment being allocated to newer channels online. In that same period, effectiveness appeared to have fallen, which could suggest the online share went too high.

After 2016, however, ARC data reveals the share of budget allocation to online channels has become more stable, suggestive of a new equilibrium where advertisers are more knowledgeable about how these online channels can fit into their plans.

Delving into the specific choices of online channels, there were sweeping changes being made in the years ROI was increasing. Within the online category, display lost half of its share going from 50% in 2016 to 25% in 2019. Paid search was the first channel to benefit before falling back slightly. In 2019, paid social expanded to match paid search.

These developments reveal a period of experimentation, with advertisers learning how to use the new options available to them and moderating their choices, in so doing increasing effectiveness and ROI.

Perhaps unsurprisingly, the study shows IPA Effectiveness Award winners are different and more than three times more effective than the “typical” campaign in the ARC, returning on average £9 more revenue per £1 spent on advertising (£13.00 vs £3.80 respectively).

This is also true within categories. For example, in FMCG, the ROIs for IPA Effectiveness awarded cases return four to six times more than the typical campaigns in the ARC.

Dr Kite said: “By unlocking these learnings from typical campaigns we can see the full lay of the land for marketing effectiveness: what’s working, when and how. The evidence shows that we are in a far stronger position than perhaps the wider industry might have imagined.

“Our ARC work shows that advertising works, that we understand the online channels better than we ever have, and that non-awarded campaigns can learn from – and perhaps rival – those that have taken home the most coveted effectiveness trophies.

“It’s important that this learning collaboration doesn’t stop here, and I urge everyone to ask their econometrics providers to participate in future rounds.”