IPA warns of 'death spiral' as marketers prioritise ROI over budget

Budget is the biggest determinant in the success of marketing campaigns, and not return on investment, according to research by the IPA.

An analysis of the IPA Databank found budget was eight times more important than ROI when it came to driving effectiveness.

However, a survey commissioned by Medialab, involving 500 senior marketing decision-makers, revealed that just over a third (35%) believed budget was the most critical contributor to effectiveness, compared with almost two-thirds (65%) who cited ROI.

The IPA described this as a “disconnect” between marketers’ beliefs and the “true factors driving marketing effectiveness”, which risks a “death spiral” of shrinking budgets, campaigns and profits.

The findings are due to be presented by Les Binet, author, consultant and visiting professor at Ravensbourne University, and Will Davis, chief data officer at Medialab Group, later today (Wednesday) at the IPA Effectiveness Conference in London.

Binet said: “Our industry is obsessed with efficiency, and rightly so. We’re spending other people’s money, and we need to spend it wisely. But efficiency isn’t everything – you also need scale.

“Our research reveals a paradox: the more we focus on efficiency, the less money advertisers and agencies make. We believe that the only way out is to rediscover advertising’s super-power: to deliver creativity at scale. We need to go big or go home.”

The research also found marketers are “scaling back their ambition and reducing the scope of their activities as a result of tight budgets”, with over half (56%) targeting “sub-segments” rather than all potential customers.

Older generations are being “neglected”, with 62% of marketers not targeting over-45s, despite that cohort accounting for 50% of consumer spending. Narrow targeting is often matched with a narrow media mix, the IPA said.

Davis said: “This isn’t about digital versus offline or brand versus response. It’s about balance: doing all of these things well and at the right scale. Efficiency is vital, but the data shows it drives larger growth when combined with scale, creativity and the bravery to experiment.”

Meanwhile, separate IPA research into influencer marketing has found the short-term ROI of influencer marketing is “comparable” with all channel averages, but the longer-term effect is “the strongest of any channel”, with linear TV in second place.

Laurence Green, director of effectiveness at the IPA, said: “This is a landmark moment for influencer marketing. For the first time, we have comprehensive, cross-industry evidence that shows influencer campaigns can deliver real commercial impact, not just in the short term, but over the long haul. 

“With the right influencer-brand fit and powerful ideas, influencer marketing has the potential to punch well above its weight.”