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Can I let you in on the dirty secret of digital marketing?

This is the only secret marketing managers protect better than anyone: digital ads are nowhere near as well as they are advertised.

Most of the time, their effectiveness is wildly and brazenly oversold. Stratospheric conversion rates and returns are almost always overvalued by a factor of three and sometimes by a factor of ten or more. For companies, this means that instead of the 4,100 percent expected ROI, they could actually get a 63 percent negative ROI.

These numbers are not hypothetical. I'm not pulling them out of the air. These are the actual overestimates of ad effectiveness found in a large-scale study on eBay. In addition, eBay is not an outlier. That's the norm.

Comparing traditional measures to a large experiment measuring the return on investment of web display ads on Yahoo! Randall Lewis and David Reiley found an ROI inflation rate of 300 percent. In a large-scale experiment that tested the effectiveness of retargeting ads against industry studies, Garrett Johnson, Randall Lewis, and Elmar Nubbemeyer found an overestimation of up to 1,600 percent. In a study of fifteen large U.S. advertising experiments with 500 million user experience observations and 1.6 billion ad impressions, Brett Gordon, Florian Zettelmeyer, Neha Bhargava, and Dan Chapsky found that traditional ad effectiveness measures increased Facebook ads by up to 4,000 overestimated percent.

The good news for anyone involved in digital marketing is that some digital and social media messages are very effective. But only if you know what you're looking for. Lift, the behavior change caused or brought about by compelling social media messages, is key. This is a measure of the extent to which an ad, video, or other compelling message changes people's behavior. The elevator is real and measurable – it just isn't properly measured or managed.

An experiment by Lewis and Reiley at Yahoo! showed that online display ads profitably increased purchases by 5 percent. It also exposed two misconceptions about digital advertising.

• 78 percent of the increase in sales came from customers who never clicked an ad. Which highlights another dirty secret in the marketing industry: clicks are a terrible substitute for conversions. People who click ads rarely convert into sales. And people who convert to sales rarely click ads. There is usually no correlation between clicks and conversions.
• 93 percent of the increase in sales came from the retailer's brick and mortar stores and not from direct online responses. While direct response advertising – click through to buy an online ad – may be easier to measure, it is an incomplete measure of advertising effectiveness for brands with offline sales channels.

Which brings us to the story of how P&G cut its online marketing budget by $ 200 million and still increased sales by 8 percent.

Marc Pritchard, Chief Brand Officer of P&G, took the stage at the Interactive Advertising Bureau (IAB) annual leadership meeting in 2017 and held an address that the digital marketing industry will be talking about a few years later.

In a calm voice, he unleashed a measured but in its own way devastating criticism of the opacity, deception and inefficiency of digital marketing. Pritchard announced an action plan for media transparency and informed the market that within the year P&G would no longer do business with partners who had not introduced a common validated visibility standard, transparent contracts with media agencies, accredited third party and third party measurement verification -party- certified fraud prevention. P&G then put its money where it was and reduced its digital marketing budget by $ 200 million.

Agencies grumbled and social media analysts were in an uproar. But two years later, despite the drastic reduction in the budget for digital advertising, P&G achieved organic sales growth of 7.5 percent, almost doubling the competition in its industry. “How did it do that? By leveraging performance-based digital marketing trends.

• First, P&G shifted its media spend from a focus on frequency – clicks or views – to a focus on reach, on the number of consumers it touched. Its data had shown that it previously met some of its customers 10 to 20 times a month with social media ads. As a result, the frequency of ads was reduced by 10 percent and those advertising dollars moved to reach new and infrequent customers who did not see ads.
• Second, P&G became more sophisticated in targeting the right people. A “very targeted audience” was reached by collecting a large database of first-party consumer data that contained one billion consumer IDs. For example, in its fourth quarter 2019 earnings call, it described moving from "generic demographic targets like" women 18-49 "" to "smart audiences" like first-time mothers and first-time washing machine owners.
• Third, between 2015 and 2019, the company cut its agency list by 60 percent and streamlined its agency contracts. It reported savings in agency and production costs of $ 750 million and improved cash flow of $ 400 million. In 2019, she committed to reducing the number of remaining agencies by an additional 50 percent to save an additional $ 400 million.

Measuring the return on digital marketing is straightforward in some ways. But in other ways it's deep, probably even philosophical. At the turn of the 20th century, John Wanamaker complained that “Half the money I spend on advertising is wasted; The problem is, I don't know which half. "Now, a hundred years later, the tidal wave of granular, individual-level personal data created by online advertising has given us the opportunity to resolve the Wanamaker paradox.

Contribution to brand strategy Insider By: Sinan Aral. Excerpt from his book: THE HYPE MACHINE: How Social Media Disrupts Our Choices, Our Economy, And Our Health – And How We Must Adjust. Published by Currency, a reprint from Random House, a division of Penguin Random House LLC. All rights reserved.

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