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Explaining magazines’ high return on investment

More and more studies are showing magazines delivering high returns on investment (ROI) for advertisers, often higher than any other medium. Yes, that’s good news for publishers, but is it also a sign of advertisers under-investing in the medium, asks Guy Consterdine, FIPP Insight consultant.

Why such high relative ROI for magazines?

The evidence that magazines are an effective advertising medium is well established (my Proof of Performance report for FIPP is full of such information), but there are also other, less recognised, factors explaining why magazines yield such high relative ROI compared with other media. All media are subject to diminishing marginal returns, and frequently there is under-investment in magazines.

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Diminishing returns

In general, as more ad expenditure pours into a given medium, the sales generated by the last tranche of money becomes less than the sales generated by the same amount of money spent earlier. Eventually the situation is reached where spending yet more money in the medium produces little effect or even no effect at all.

By that stage, it would have been better to have spent the last amounts of money in a different medium which was still producing good returns for additional expenditure.

Under-investment in magazines

The position often arises where advertising budget has been heavily spent in television and online, with little left over for other media including magazines. Yet campaign analyses are increasingly finding that television (in particular) has reached a relatively flat section of its diminishing returns curve, while magazines with their low level of expenditure are still on the steeply rising part of their curve. 

What this means is that if the last portion of the budget allocated to television was spent in magazines instead, greater net sales would be generated. The relatively small loss of sales from TV advertising due to the switching of that money would be much more than offset by the extra sales generated by that money being spent in magazines.

In other words, there was under-investment in magazines.

Increasing evidence from around the world

This is not just theory. There is increasing proof from post-campaign evaluations, conducted in ever more sophisticated ways. 

The most recent example to come to my attention is from Australia. Magazine Publishers of Australia launched last month an analysis by Nielsen titled Econometric Modelling Study: 3 FMCG Campaigns. It examined real advertising campaigns for three brands, taking account of the ad expenditure in each medium and the incremental product sales attributed to each medium. On aggregate, magazines yielded the highest ROI of all media used (TV, online, online video, outdoor). In these campaigns, magazines were shown to have contributed 10 per cent of the incremental sales contrasting with 66 per cent by TV. 

Nielsen calculated the rate of diminishing returns for each medium, and then modelled true contribution by each medium. They found that magazines' contribution to incremental sales was 23 per cent (and only 56 per cent by TV). This implies that the campaigns had under-invested in magazines to a significant extent.

An earlier example, and partly an inspiration for the Australians, was the Magonomics study by PPA in the UK. This was a ground-breaking study in several ways. Among others, it worked with media agency Mindshare who found that, aggregating results across 77 fmcg campaigns that the agency’s group had run, magazines had the highest ROI of the seven media used (including TV). In a separate analysis which modelled optimum allocations between media, it was shown that sales would have increased measurably if magazines had been given a higher share of expenditure. It went on to calculate that the money allocated to magazines needed at least to double before magazine ROI fell to the same level as TV ROI – due to magazines moving along its diminishing return curve to a point where it became more shallow.

Instructively, the Nielsen modelling in Australia came up with an analysis which implied giving magazines more than double its actual share of budget which neatly fulfilled the ‘at least double’ rule suggested in the UK.

Clearly, under-investment occurs in both hemispheres.

Here are a few further studies, among many, proving magazine efficiency in advertising campaigns:

It is worth adding that in all these studies it was crucial that the right input data was fed into the models, and I am thinking particularly of readership accumulation data. It is essential that the data allocates the ad exposures delivered by magazines through time in a realistic way, week by week, otherwise the pattern-matching of the models will not be able to match the weekly sales figures with the right weekly ad exposure figures.

I conclude with comments from three of the studies mentioned:

  • “Do not overspend on one medium; a well-balanced media mix puts all media to work to the maximum of their potential.”
  • “Print deserves a bigger role in the media mix. Whether the objective is sales or branding, a good print ad with sufficient exposure will lead to an uplift in ROI.”
  • “Shifting small magazine budgets towards more thorough cross-media has a strong impact on campaigns’ efficiency”.

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