Media selection is all about Return on Investment (ROI).

One of the least sexy mega-trends of the 21st century is the growing advertiser insistence on bottom line results, accountability and better ROI, according to Ron Geskey’s new book, “Media Planning & Buying in the 21st Century”

Let’s face it, from an ROI standpoint, some digital media have had too little scrutiny of their cost effectiveness compared to conventional media.

Let’s say that an advertiser’s objectives are 1) to generate maximum leads/sales within the budget, and 2) to simultaneously enhance the brand’s image. The advertiser sets aside a $100,000 budget to achieve these objectives. The advertiser decided to compare the projected cost effectiveness and the “branding” potential of three direct response alternatives: banner ads, paid search, and direct mail prior to committing the budget.

The advertiser’s basic question was, “how many conversions can I buy for $100,000 using 1) a combination of banners and display ads, 2) paid search, or 3) conventional direct mail (in this case a modest mailing piece in a letter sized envelope). In relation to the advertiser’s second objective of branding, which approach will likely have the most positive effect on brand equity?

Metrics/Assumptions

The advertiser’s projections of performance will depend on the metrics and assumptions utilized. This comparison primarily relies upon the Direct Marketing Association’s estimates. Following are the advertiser’s assumptions:

1. Banner/display ads are priced at an average CPM of about $6.00 for a targeted audience. According to a report from the Marketing Sherpa, click throughs average about.002 but are falling, and according to the DMA’s latest report (2010), the conversion rate among clickers averages.044.

2. CPC averages $3.79 per click, according to the DMA report, and the conversion rate averages 3.8%.

3. Since the DMA cited results based on a modest mailing piece in a letter sized envelope, direct mail would likely cost about $.75 per piece ($750 CPM), including list, postage, and the mailing piece. The DMA reported an average response rate of 3.4%.

So here is how the options compare, based a budget of $100,000:

Results

1. Banners/Ads Banners – Based on a $6.00 CPM and a.2% CTR,the banner plan generated 16.7 million impressions and about 33,000 clicks which generated almost 1500 responses at a cost per response of $68. The branding effect was rated as “fair” because, assuming adequate creative, the banner ads had an opportunity to communicate a branded message.

2. Paid Search – Based on the $100,000 budget and an average cost per click of $3.89, the CPC campaign would generage over 26,000 clicks with 1000 conversions/responses at a cost per conversion of $100, roughly 50% higher than for banners/ads. The Branding effect was rated as “poor” because there is negligible communication opportunity in a text ad. At $3.79, click cost accounted for the cost performance of paid search. (In order for paid search to be as cost effective as direct mail the CPC wouldhave to be about $.75.

3. Direct Mail – In the conventional media world, direct mail is considered to be extremely costly. In this case, however, assuming a realistic CPM of $750 to send mail a letter sized envelope/package to a highly targeted audience, direct mail would reach a little more than 133,000 recipients. At a 3.4% response rate, the direct mail package would generate 4522 responses at a cost per response of $22, about a third of the banners/ads cost and a fifth of the paid search cost per response. In terms of branding effects, the direct mail piece would also provide the greatest opportunity among these options. (Note: does not include direct mail recipients who clicked to web site.)

Summary

Based on the average metrics used in this example, direct mail was three times more cost effective than banner ads and did almost five times better than CPC (which is hurt with a $3.79 cost per click). From a branding standpoint, the internet pales creatively in relation to what can be done in direct mail (which also generates website traffic). As some of the sparkle wears off digital media, cost effectiveness and ROI will become a bigger and bigger issue.

This example once again demonstrates that media decisions should not be made without proper due diligence and a built in bias for digital media. Planners should forecast results based on the best metrics and assumptions available.