How poor Metrics undermine Digital Marketing

The McKinsey Quarterly

feature_hopo08The rapid growth of online advertising hides a serious challenge: the digital world has developed faster than the tools needed to measure it. Marketers are failing to tap the digital world’s full power. The inability to make accurate measurements of digital advertising’s effectiveness across channels and consumer touch points will continue to promote the misallocation of media budgets and to impede the industry’s growth.

The measurement challenge
Respondents whose companies are introducing rigorous measurement techniques report a higher level of satisfaction with digital marketing. In fact, 55 percent of them are cutting their expenditures on traditional media in order to increase funding for their online efforts, compared with only 43 percent of the respondents whose companies don’t measure the impact.

In response to a question about how budgets are allocated across different media, 80 percent of the respondents say that their companies either use qualitative measures—that is, subjective judgments—or simply repeat what they did last year.

The European broadband study showed that 60 percent of online purchases involve an offline touch point.

cross-channel_impact

Emerging solutions

“If we can’t measure it, essentially, we don’t do it.”

As for allocating ad budgets, leading marketers are now using metrics that permit comparisons between offline and digital spending. One marketer used a method called RCQ (for reach, cost, and quality) to optimize its allocation of spending among ad vehicles. It also includes a quality factor based on changes in engagement, attitudes, and behavior.

The campaign, targeting online customer segments, sought to maximize the ROI of each individual ad opportunity by serving whatever ad most promisingly combined likelihood to convert with profitability of conversion. After the company segmented its customers by the sites they visited online, it could use each person’s past behavior to deploy the most appropriate ad vehicle—e-mail, graphics-rich media, or video. This strategy raised conversion rates by 50 percent.

McKinsey research on telephone users’ social networks suggests that even they can be measured to allocate marketing budgets more successfully. One telecom company, for example, has learned how to retain phone customers by assessing the strength of the relationships among them. The company used call patterns, changes in call volumes, types of payment (prepaid or contract), handset types, and other traits to identify customers likely to leave for another carrier. Meanwhile, it constructed a diagram of their social ties, derived from the people they called, the people those people called, and how often. In general, the more closely anyone was tied to someone who unsubscribed, the more likely that person was to unsubscribe in turn. In this way, the telecom company improved its churn prediction model by 50 percent. Moreover, by identifying the most influential potential churners and working to retain them with new services and price plans, the company not only retained a quarter of them but also reduced the churn rate within their social networks by almost 40 percent.

 

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