Despite efforts to clean up the digital advertising ecosystem, as much as $35 billion of the money spent by consumer goods manufacturers on digital advertising last year failed to deliver any noticeable ROI says a new study by global consulting firm AlixPartners.
The study is based on a survey of more than 1,100 consumer goods executives in the food, beauty and household goods categories—including 73 from companies with more than $10 billion in annual sales—who were asked to evaluate their company’s digital proficiency.
Based on respondent answers, AlixPartners concluded that just $33 billion of the estimated $79 billion spent on digital marketing (including ads and trade spend) last year contributed to positive ROI, with as much as $36 billion leading to a negative return. The ROI on a further $11 billion in spending was not known.
In terms of advertising alone, AlixPartners concluded that of the $60 billion spent globally, just $25 billion resulted in positive ROI, $27 billion generated negative ROI and the effectiveness of another $8 billion was unknown.
Such glaring ineffectiveness raises questions about efforts to improve the digital advertising ecosystem in recent years.
P&G’s chief brand officer Marc Pritchard, who has long been an outspoken critic of what he famously described as a “murky at best, fraudulent at worst” digital advertising ecosystem, has called for a complete reinvention of the media supply chain.
“The next great revolution in using technology to make people’s lives better is underway, but along with this are potential pitfalls that can’t be ignored: data misuse and privacy breaches, transparency lapses, fraud, brand safety and more,” said Pritchard, one of the world’s most powerful marketers, at the ANA Media Conference in April (main picture).
In that speech, Pritchard called for a new supply chain “grounded in quality, civility, transparency, and privacy—a supply chain that levels the playing field and operates in a way that is clean, efficient and accountable. One that is a force for growth and a force for good—for consumers, brands, the industry and society.”
Other industry efforts to improve the digital ecosystem include Unilever’s work with IBM to test blockchain-based solutions to tackle problems associated with the media buying process.
“As a distributed ledger for transactions, the blockchain could theoretically provide a clear chronology of media activity that is approved by all parties, rather than relying on a single gatekeeper to generate data,” wrote WARC in an assessment of the program last year.
In another report earlier this year, WPP’s buying arm GroupM suggested that blockchain is well-aligned with digital marketing because of its ability to boost both efficiency and transparency while reducing costs and fraud.
Uncertainty around the viability of their digital marketing investment continues to be a significant pain point for marketers, with the AlixPartners report noting that many respondents expressed “continued frustration” at their inability to track and measure marketing outcomes.
The study did suggest that there has been progress for businesses that have spent more time working to improve their digital marketing efforts, noting that leading companies were 70% more efficient in driving positive ROI than companies at the very beginning of the process. “Success is, therefore, achievable with the appropriate investments and fine-tuning to get it right,” the study concluded.
The AlixPartners study went beyond digital advertising to look at the importance of larger digital transformation initiatives, concluding that getting digital right is an “urgent priority” for consumer products companies as the physical and digital worlds converge and the consumer path to purchase becomes increasingly non-linear. “There is a learning curve involved, and it takes time to get ROI from digital marketing,” the study concluded.
AlixPartners predicts that the global digital market for consumer goods will double from $219 billion in 2018 to more than $440 billion in the next five years, with the growth largely additive for traditional brick-and-mortar businesses. “In our study, over half of the companies that are fully digitized or close to fully digitized strongly agree that digital commerce will not cannibalize their traditional businesses,” said the study.
When asked how they expect what functions they expect to change in the next five years as a result of digital transformation within their organization, 78% of respondents cited marketing and insights (IT/technology was the most cited at 83%, followed by logistics at 79%).
“Technology, which enables digital transformation, has migrated from a back-office function to the commercial front end to now permeating the entire organization,” said the study authors. “The borders that long existed between ‘technology’ and the ‘business’ are coming down, allowing for greater agility, higher connectivity, and deeper insights. Today, technology truly helps define the business.”