Financing always comes at a price, however. Does financing a media budget thereby increase marketing costs? No, the opposite is true – marketing becomes more efficient, says Foppa founding partner and CEO Antti Kaihlanen.
Financiers always want a return on their investment, typically in the form of some kind of interest or revenue factor. Naturally, this also means that there are costs for the recipient of the financing. For growth companies, financing usually means increasing budgets, and thus larger volume discounts and other benefits.
When financing increases media budgets, the benefits can be very significant. Budget financing is more efficient than other approaches for various reasons, such as:
- The quality of advertising improves
- Volume discounts increase
- Reach improves through cross-channel advertising
The quality of advertising improves, which increases market share
Good ideas can often be obtained cheaply, but in general the more one invests in the design, creativity and production of advertising content, the greater its yield. According to one study, for example, award-winning campaigns in advertising competitions are 11 times more likely to generate market share growth than non-award-winning campaigns. (Source: Les Binet and Peter Field, The Link Between Creativity and Effectiveness, Thinkbox/IPA).
Volume discounts increase, and so contact price decreases
Many growth companies begin their advertising journey with performance-based digital marketing and social media advertising, which can test different messages and target groups even on very small budgets. In addition, for companies that do business online, digital channels are naturally highly activating – that is, they produce fast sales results.
Cost-effectiveness becomes difficult as scale increases, because contact prices typically rise when only one media group is used in advertising – especially one where the media price is based on auctioning principles. For this reason, the efficiency gains generated by media volume discounts alone can be very significant and can easily cover the annual interest rate even for larger financing.
In conventional mass media (TV, radio, print, outdoor advertising) the situation is the opposite: the higher the expenditure, the larger the media discounts. Below is a concrete example of the change in contact price that one of our clients received as their budgets increased:
- Budget level EUR 200,000: contact price 100 (index)
- Budget level EUR 1,000,000: contact price 64 (index)
The efficiency gains generated by media volume discounts alone can be very significant, and can easily cover the annual interest rate of even larger funding.
Cross-channel advertising increases > reach increase, net reach costs decrease, ad recall improve
Larger media budgets make it possible to use more media groups. This has numerous benefits.
First, media reach increases. When more people are reached, especially those who were not reached before, customer acquisition becomes more efficient and market penetration increases. Research has shown that increasing market penetration is the most effective way to drive market share growth (Source: Les Binet and Peter Field, Eff Week 2016, “ Marketing in the Digital Age ”).
Second, it is possible to achieve a certain net reach level with more media groups more cheaply than with just one or a few. The simple reason for this is that most of the use of each media is generated by heavy users, and adding a budget to a particular medium typically only increases frequency, not reach.
Using several media also improves attention values. This is partly due to the increase in net reach, but is also due to the fact that different media play their own roles and have their own moments in the customer’s lives and purchase paths, which helps the message get through more effectively.
Only the generous can be demanding
In short, it is clear that the efficiency benefits of financing (increasing budgets) far outweigh its costs.
So, do you want to have your budget financed?