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How to Budget for Internet Advertising

  |  August 26, 2003   |  Comments

How much should your client spend online? A methodical, three-step approach to budgeting.

A persistent challenge in this business is determining how much money our clients should allocate to this medium. Given online's relative youth, it has no established standards and practices, like our colleagues on the traditional side enjoy. That shouldn't stop us from thinking critically and creatively about counseling clients on appropriate spending levels.

I'll cover planning inputs important to smart budget decisions below. But first, here's a more unrefined, straightforward approach that will suffice if absolutely necessary.

Borrow From the Past

A traditional-side colleague explained how marketers approached cable TV in the early days, before significant audience penetration or established procedures. Although no one could truly quantify cable's value, many marketers recognized its potential value based on two factors: increased penetration and targetability. Both are applicable to the Internet. To take advantage of the emerging channel, many marketers simply earmarked a percentage of their budget (usually 15 percent) and bought cable.

This is hardly scientific. But it's exactly how many companies look at Internet budgeting. They refer to an industry report to identify what budget percentage their category spends online. Then, they follow suit.

It worked for cable largely because customer experience and the creative format didn't differ from network TV. It's significantly less relevant for online budgeting, in part because it pigeonholes the Internet as a one-dimensional medium. By taking 5 percent of an ad budget and allocating it to the Web, marketers sell it short as a promotional or trade vehicle. Online can address multiple objectives from multiple disciplines (trade, promotion, direct, etc.). Budget sources should reflect that flexibility.

If "percentage of total spend" is the only way you can shift some client spending online, so be it.

Here are easily accessible data points that can be included in a budgeting exercise for a more informed recommendation.

Data-Driven Approach

When I was on the traditional side, we started a planning season with a close examination of our client's business situation and its defined marketing and communication objectives. We assessed target audience behavior and media consumption. Then, we looked at competitive activity. Those three simple operations typically framed a good idea of how we should approach our consumer (based on objectives and consumer behavior) and how we had to approach our consumer (defending turf against the competition). We typically created a plan that combined these needs.

Why isn't this more common online?

As with all communication plans, it starts with the client's business situation and overall objectives. If you're not intimately familiar with the necessary inputs, you can't hope to advise your client. Take the time to read the stack of documents piled up on the corner of your desk. Expertise in a specific communications channel is no excuse for not being informed about your client's total business picture.

Within the framework of the client's situation, prepare the tools to assess media consumption and behavior. Too often, fundamentals such as media consumption are overlooked. Did you know women 25-54 spend an average of 12 hours, 15 minutes online per week and only 1 hour, 25 minutes with magazines? I'm certain you do. I'm equally sure your client does not.

Competitive information? I'm the first to admit the limitations of tracking and reporting tools. Taken directionally, they can quite effectively paint a picture of what your competition wants to accomplish. This can be invaluable for either gaining insight into an overall corporate strategy or to dissect a specific brand or business unit's goals. A competitive assessment can reveal a tremendous area of opportunity for your client.

These three simple steps help create an informed recommendation based on your client's needs, its target audience's behavior, and its competition's activity.

Data Driven: One Step Further

As a member of a large agency, I'm fortunate to have access to tools and procedures born out of decades of experience of those who came before me. Many have been modified to incorporate the Internet. One addresses the budgeting issue.

Our proprietary budgeting tool recommends splits across marketing disciplines based on client objectives, audience behavior, and competitive activity. A set number of typical marketing objectives help define the inputs: awareness, buzz, activation, driving volume, and others.

Each objective is given a ranking on a numbered scale. Only a certain number can fall within the high, middle, and low ends of the scale to avoid a situation in which all things are equally important. Marketing priorities are run through algorithms that weigh consumer behavior and media consumption sourced from our biannual media study and other syndicated research. The result is an informed, data-driven budget recommendation leveraging all available relevant inputs.

This is not theoretically different from the basic data-driven approach, described above. It simply enjoys greater economic and human resources than most firms are able to employ.

What's essential are the basic tenets that drive smart budgeting decisions: knowing and understanding your client's business situation and goals, the target audience's behavior, and what the competition is doing. We're all capable of including these in our next budgeting discussion and recommendation.

Mark is on vacation this week. Today's column ran earlier on ClickZ.

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ABOUT THE AUTHOR

Mark Redetzke Mark Redetzke is vice president of online media for Zentropy Partners, a unit of MRM (McCann Relationship Marketing). He's led Zentropy's Minneapolis online media department since 1999, where he develops integrated online contact strategies and oversees all planning and buying. Current clients include Nestle Purina, General Mills, H&R Block, Microsoft, Overture and Sprint. Earlier, Mark planned traditional and online media for Campbell-Mithun. He's a frequent guest lecturer at conferences and graduate advertising and communications courses at St. Thomas University; the University of Minnesota; Minneapolis School of Communication Arts & Design and the 4A's.

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