Survival in a digital world: the 80/20 rule

Even many of the biggest, most sophisticated advertisers still seem to have a lot of fear when it comes to investing in digital. The more innovative the digital ideas on the table are, the worse the fear becomes. For people who work in digital and see everyday how effective the medium can be, this fear often seems misplaced.

This fear is even more noticeable in Australia than in the more advanced markets such as Europe and the United States.

Giles Rhys Jones, a director of Ogilvy’s strategy practice in London, notes this fear as a serious risk to both advertisers and agencies. As clients cut budgets due to tough economic conditions, the first thing to disappear is innovation. The client gets lower quality work and worse results, and the agency risks losing the client as a result.

Jones’ suggestion for resolving this challenge comes from a report out of McKinsey’s Marketing Strategy group. The McKinsey report advocates that advertisers put 75-80% of their budget into proven media vehicles, but invest the remaining 20-25% into “well structured experiments”. Advertisers who fight this and continue spending 100% of their budget on traditional methods will rapidly find themselves surpassed by competitors who adopt the model that McKinsey is putting forward.

When it comes to digital, it would be crazy for us to suggest clients put 100% of their budget into innovation. What we ask is for you to keep putting 80% of your budget into things that are proven to work, but spend the remaining 20% on measurable innovation (“new stuff”).

When you start thinking about marketing as an investment rather than as “spend”, you can start to approach the situation with a true investment mindset. Sensible risk management can replace fear. Successful investors don’t blindly avoid risk – they focus on understanding and managing risk.

How does this work in practise? One of our longest standing clients, Honda Australia, lead the way in innovative digital investment in their industry. When we first talked with them about creating the world’s first iPhone based car showroom, it seemed like a somewhat risky proposition.

Looking past the risk and considering the potential returns from the investment, we were given the go ahead to create the application.
Since launching, the Honda iShowroom has been downloaded over 20,000 times, and has consistently been one of the top rated business applications on the iTunes Australia store. Furthermore, the cost of reaching customers through this channel was significantly lower than the cost of reaching those customers through other more traditional channels.

The outcome: we have learnt that mobile marketing can be a very effective way of reaching Honda’s customers. We can now recommend moving this kind of activity into their 80% mainstream budget.

Alex Campbell is a strategy and planning consultant at digital agency, DTDigital.