What is channel risk?
The Profit Ability 2 report from Thinkbox explains that every media channel has a different level of variation around its average ROI, which will depend on factors such as the range of formats available and the ability to get creative right. Channels like Linear TV and Print, for example, have low variation and so represent a lower risk investment. Channels such as Paid Social and Cinema, on the other hand, have higher variation and can therefore be regarded as a higher risk investment. While less predictable channels can yield a higher ROI than more predictable ones when they work well, they can also deliver a well-below-average return if they don’t.
What it means
Advertisers facing these trade-offs can run multiple optimal media mix scenarios, the report suggests: Thinkbox’s own Media Mix Navigator allows the choice of different levels of risk when assessing potential ROI.
For example, a scenario for a finance brand moving budget out of Linear TV and Broadcaster VOD into Generic PPC and Paid Social saw average full-term profit ROI increase from £2.10 to £2.30 – a 10% incremental revenue from the same budget.
But the confidence interval widened at the same time, from 31% to 55%, increasing both the potential upside (increasing the possible maximum ROI from £2.70 to £3.50) and downside (decreasing the minimum ROI from £1.40 to £1.00).
Why it matters
By better understanding the impact of the various trade-offs in choosing media channels, advertisers can make informed decisions on what’s best for the business.
Source: warc.com
