Ad Value Ratio: The New Metric System

The agency community hasn't been in a hurry to answer the ultimate question of accountability: Does our advertising actually work? At best, we've claimed credit for marketplace success ("Well, sales rose dramatically, so the campaign obviously worked") and taken cover during a slump ("There's much more to sales than advertising alone"). Our business needs a real metric based on the inarguable value of advertising. Here's a hint: It's not ROI. ROI is a measure that's been extracted from finance and strapped on, none too securely, to advertising and media. While the concept is right, the value of the measurement collapses upon examination. Too much happens between the commercial pod and the store shelf -- packaging, distribution, promotion, pricing and more -- to isolate reliably the precise impact of the advertising.But that doesn't mean we can't measure the effectiveness of our efforts. More importantly, we have to. Client budgets today aren't getting any bigger, and the digital space, which does have hard-and-fast metrics to measure the value of advertising, is driving calls for similar measures in the "real world." Given that the best defense is a good offense, it would be smart for the agency community to develop its own metric, before one gets shoved down our collective throats.What should this metric look like? First, it needs to be grounded in something that everyone agrees advertising impacts. Second, it must be something for which the research muscle already exists. Finally, it should be simple and straightforward.Ad Value Ratio (AVR) puts advertising performance on the right platform. We came up with AVR at ONE/x, an agency I co-founded this spring with Jason Wulfsohn and Duffy Humbert, a new venture that was built upon our work with consumer electronics brand Vizio. We developed AVR to provide a framework for evaluating campaigns -- could we assign a quantitative value to putting the right messages in the right media?"What began as a tool has quickly showed itself to be an operating framework with the potential to put advertising on a higher level. AVR is grounded in awareness -- something that no one disputes advertising affects. Awareness tracking is commonplace; it's a fixture on any list of industry best practices. And awareness is simple to understand, yet broadly defined; it's the measure of what advertising does best.AVR is derived from a fraction, with the percentage increase in awareness on the top, and the percentage increase in the ad spending on the bottom. A ratio of 1 or higher indicates success. For example, a 20 percent change in awareness atop a 10 percent increase in the budget yields a ratio of 2, which is good. The reverse gives you a ratio of 0.5, which is not.Obviously, AVR can be tweaked based on the product in question and the goals of the campaign. For an established brand or a repositioning campaign, brand perception can be substituted for awareness. Adaptability is one of the great advantages of AVR as a framework. AVR can also be used to measure the impact of a decrease in ad spending by simply inverting the fraction. Say a budget is reduced by 50 percent, but awareness falls only 20 percent. That yields 5 over 2 for a ratio of 2.5, indicating that the drop in spending didn't result in a proportionate loss of presence in the marketplace.Strategically, AVR acts as a focusing agent. In the course of talking with clients, we all spend a great deal of time discussing the goals of any campaign. But when we get to buying media, it's easy to be distracted by an efficient buy here, or a targeted but really expensive avail there. AVR keeps everyone focused on top-level objectives, because off-target media choices will only lower the ratio. As such, it's also a perfect tool for rewarding media people. We have a bonus structure in which compensation is tied indirectly to AVR. People tend to pay a lot more attention to a campaign when they have some skin in the game. On a management level, using AVR as part of a performance-based bonus package helps us identify, reward and retain our best and brightest people. It also establishes a framework for attracting real business expertise to the profession.Since awareness tracking is already so widespread, AVR cannot only be implemented quickly, but continuously. Ad campaigns can be measured on a rolling basis, month to month to month. It also provides a basis for comparing campaigns. How did this year's campaign compare to last year's, or Q1's to Q3's? Some brands have years -- and more -- of awareness data. Using AVR, you can analyze what worked and didn't work in the past and apply that knowledge to present and future campaigns.Ultimately, AVR will provide a pay-for-performance basis that makes sense for agencies. That's critically important for our collective future, as clients raise the bar of proof on every dollar above cost. AVR gives us an answer we don't have to be afraid of, because it's based in what we do best. And we'd better take it, because soon or sooner, clients will come up with their own answer -- and we might not like that result.Ben Tiernan (btiernan@one-x.com) is vp, media and interactive at ONE/x.

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Ad Value Ratio: The New Metric System

Ben Tiernan

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Ben Tiernan