Determine the Incremental Value of Advertising Efforts

Anja Lambrecht, Professor of Marketing at London Business School suggests using an iterative approach to optimise advertising strategies based on real data rather than guesswork. She shares four major trends set to drive digital growth in the next five years.

“If you think about advertising, it’s sometimes difficult to design very clear, clean tests, but even then platforms offer ways to allow firms to run tests to find out what the impact of incremental advertising spend actually is,” says Anja Lambrecht, Professor of Marketing at London Business School. Her research focuses on digital marketing and the digital economy.

In the early days of digital marketing, brands approached it with a simple strategy: spend as much as possible and hope for the best. The landscape has changed dramatically since then. As digital marketing grew and became an essential component of brand strategy, the questions around its effectiveness grew louder. Companies, once content to throw money at digital platforms, now demand precise answers: What is the return on investment?

The Challenge of Measuring Effectiveness

Measuring the effectiveness of digital marketing actions has become a critical concern. Years ago, companies like Procter & Gamble (P&G) pulled back significantly from their digital marketing investments, citing the inability to measure returns accurately as a primary reason. This move underscored a significant shift towards a more analytical approach to digital marketing.

“The great power of digital marketing is really actually being able to measure. Large digital platforms excel at running A/B tests to optimise their strategies. For example, if a platform wants to determine the effectiveness of advertising for products sold on its site, it might conduct an A/B test. You’re a multi-product platform with merchants such as Amazon and you want to see whether it’s worthwhile to have ads, right? So then you can have merchants buying an ad for their products. And you have some set of consumers who would be exposed to that ad and another set of consumers who might not be exposed to that ad,” says Anja.

Platforms provide tools that allow firms to run tests and determine the incremental value of their advertising efforts. This iterative approach enables marketers to optimise their strategies based on real data rather than guesswork.

The Marketing Trends Set to Grow

According to Anja, there are four major trends that are set to drive digital growth in the next five years.

Growth of Streaming and Targeted TV Ads: The rise of streaming services will lead to a significant increase in targeted TV advertising. This shift will change how TV ads are targeted and measured, offering more precise data and insights.

Increased Focus on Privacy in Advertising: Initiatives like Google’s Privacy Sandbox aim to balance targeted advertising with consumer privacy, potentially altering the landscape of digital marketing.

Expansion of AI in Advertising: AI will continue to grow in importance, particularly in ad design and targeting. While the current applications of AI are promising, they still have room for improvement. As AI technology advances, it will become a more integral part of digital marketing strategies.

Authenticity in Influencer Marketing: The demand for authenticity in influencer marketing will persist. As brands and influencers navigate this space, maintaining genuine connections with audiences will be crucial for success.

Talking about sustainability, she added: “Some may try and position themselves on sustainability. It’s not going to work for everyone. I don’t think that will be a key digital marketing trend because of the need for authenticity. If every brand positions itself on sustainability, in consequence, it’s not going to be a differentiator and it’s going to lose importance. 

Evolving Personalisation: The battle between personalisation and privacy will become more pronounced. Brands that build high levels of trust with consumers will be better positioned to leverage personalised marketing effectively.

“Another trend in digital marketing will be the increasing importance of digital platforms. We see across many consumer-facing industries that platforms are gaining an increasing share in transactions. As consumers seek one-stop shopping and platforms are able to gather intelligence about consumer needs, this trend will only continue to grow.

Preparing for Disruptions

To prepare for future disruptions in digital marketing technology, especially those driven by AI, marketers should remember some fundamental principles:

“The next major disruption is probably going to come in through AI. There will be disruptions through targeting and ad design. To prepare, the key would be to not lose sight of Marketing 101,” says Anja. 

• Stay Grounded in Marketing Fundamentals: Understand your product, brand positioning, and target consumer segments. These core elements remain vital even as technology evolves.
• Adapt and Innovate: Keep an eye on emerging technologies and be ready to adapt your strategies accordingly. Staying agile will help you navigate disruptions effectively.

Expert Tips for Effective Digital Marketing Actions

Measure the Effectiveness of Your Digital Marketing: Regularly assess the impact of your digital marketing campaigns to ensure they are meeting your objectives.

Take Your Data Seriously: Gather data diligently and use it to inform your decisions. It’s not enough to collect data; it must be analysed and acted upon.

Test Continuously: Embrace a culture of constant testing and iteration. This approach will help you refine your strategies and maximise ROI.

“Often, when there are new trends, there is a lot of excitement about those and marketers might be willing to invest. Some experimentation with new trends or technologies is good, but be very careful to what extent that actually improves your revenue sales profitability,” concludes Anja.