Credit: C.J. Burton for Ad Age

It’s no longer just the bright shiny object of marketing: Digital is fast becoming finance’s silver bullet. Marketer after marketer has been telling Wall Street that while they may be cutting, or at least controlling, the growth of ad spending overall, they are still getting the same or even more bang for their buck, thanks to the miracle drug of digital media.

Mattel, Darden Restaurants, Heineken, Clorox, Big Lots and Burlington Stores have all talked about hiking digital spending on recent investor calls. But it’s consumer packaged goods executives, once viewed as laggards of the digital revolution, that have jumped on this bandwagon particularly hard. Unilever, Procter & Gamble Co. and Kraft Foods Group have in recent quarters said digital accounts for 20% to 35% of their total media or marketing outlays.

That puts some of them beyond the global average of 24% of media budgets now going to digital estimated by ZenithOptimedia — effectively making them canaries in the coal mine of digital-media effectiveness.

And there are signs the air isn’t all clear: Some of the companies talking the most about increasing digital investments are simultaneously posting slower or disappointing sales results. Given all the myriad factors that influence sales, it’s impossible to draw a straight line between digital spending and results. Still, it raises questions about whether more digital spending is really delivering more for the money and whether marketers, still pressing to increase the share of funds they spend on digital, may already be spending too much.

Unknown return
P&G and Unilever, the world’s two biggest ad spenders, came in a bit below analysts forecasts for revenue last quarter even as they talked about spending more of their media dollars on digital for the sake of efficiency and effectiveness. P&G cut ad spending as a share of sales by 0.7 percentage points — most of that coming from non-media costs, while Unilever maintained ad spending but trimmed agency and production costs.

Kraft sales rose just 0.9% in the third quarter, a time when Chief Financial Officer Teri List-Stoll said in an October call that digital had reached 35% “of total spend,” up from 25% a year earlier.

Mattel Chief Financial Officer Kevin Farr, while not citing a share of spending, said Jan. 30 the company hiked its share of budget coming from digital and had “good success” there, though the overall marketing effort “didn’t generate the lift we expected.”

Not every marketer heaping more money on digital had lackluster top-line results. Darden beat analyst forecasts with sales from continuing operations up 4.9% in its fiscal second quarter, as interim CEO Eugene Lee told investors on a conference call that it had boosted digital spending to 25% of its ad budget.

There are many factors at play. Companies were facing such headwinds as a strong dollar and slowing developing markets too strong for any kind of marketing — digital or analog — to overcome, said Deutsche Bank analyst William Schmitz. Results have also been weighed down by a frugal U.S. consumer, which is beyond the control of the media mix, said Edward Jones & Co. analyst Jack Russo.

Regardless, investors and analysts appear to like hearing that marketers, particularly CPG companies once viewed as heavily dependent on traditional media, are moving more money into digital.

“Investors typically love to hear these companies are using Facebook, Twitter and Google,” said Bernstein Research analyst Ali Dibadj. “The problem is no one can tell you what the return on that is.”

Certainly the companies themselves believe it’s working. “We continue to drive marketing productivity through an optimized mix driven by new more-efficient digital media,” said P&G CFO Jon Moeller on a recent earnings call. He said more than 30% of the company’s “working media” is now digital, citing its “proprietary systems to target digital media,” which includes an in-house programmatic-buying system.

Ms. List-Stoll noted in December that among Kraft’s most productive marketing efforts has been its all-digital campaign behind Oscar Mayer.

In a December investor seminar where he said Unilever’s global media spending has hit 20% digital overall and more than 30% in the U.S., Chief Financial Officer Jean-Marc Huet didn’t say it was more effective than traditional media. But he did say it permits faster learning.

“There’s still a wide range of returns on individual digital activities,” Mr. Huet said. “The latest analytics enable us to learn from mistakes, adapt [and] improve our margins and campaigns much more quickly than is possible with traditional media.”

All the talk of efficiency — even from marketers’ financial overseers — has bolstered the conventional wisdom that digital is much cheaper than traditional media. After all, there’s a vast supply of inventory, often free in the form of social-media sharing. But deeper analysis shows digital is neither as cheap nor as free as it’s often cracked up to be.

CPM comparisons
Digital display space is indeed relatively inexpensive, with estimates over the past year collected by eMarketerranging from under $1 for inventory acquired through real-time bidding on exchanges (per VivaKi) to over $10 for premium inventory. But while a growing use of programmatic buying is helping advertisers control costs, application of viewability standards is shrinking the supply of inventory advertisers are willing to pay for. Google estimates that 56% of online ads are never actually viewed by people, which pressures prices the other way.

Meanwhile, online video, which many advertisers are using to replace or supplement TV, particularly with harder-to-reach younger viewers, isn’t cheap. It can even be considerably more expensive than TV.

A study last year by media benchmarking firm SQAD found the average CPM of in-stream online video ads in 2013 was $23.13, 38% higher than the average for cable TV time in the age 18-to-49 demographic. That was still way cheaper, however, than the $44.11 average for the 18-to-49 demo on network prime time.

Even assuming those were all unique viewers — not a reasonable assumption — that translates to a CPM of $58.73 for views. However, based on a total of 844 million “paid impressions,” which also includes people who watched the ads for less than 30 seconds on YouTube, the CPM is only $16.58.
Given the reported $4.5 million cost of an ad on the big game and NBC’s 114.4 million audience, per Nielsen, the CPM for a Super Bowl buy was $39.34 — 34% lower than views on YouTube by the Strike estimates. Based on overall impressions, a Super Bowl ad still costs more than double what it costs to get eyeballs on YouTube, according to the Strike study.

“What was initially attractive [to marketers] was the combination of consumers moving to digital and that the impressions were priced right,” said Rex Briggs, CEO of analytics firm Marketing Evolution. “But as digital video has been particularly bid up because there’s more demand than supply, a marketer needs to know when to say when.”

Estimates by eMarketer still peg the digital share of CPG budgets at only 8.4% for 2014, and Mr. Briggs said it’s hard for him to believe many CPG companies are really now putting as much as 35% of their money into digital. But if they are, it may be too much.

His database tracks the impact of various campaigns against such metrics as brand awareness or purchase intent based on consumer surveys and how much brands are spending on media. He uses it to optimize allocations, so brands don’t spend too much on any one medium.

Based on food-industry results for past campaigns totaling $100 million in spending, Marketing Evolution recommends a mix of 35% digital for a $15 million campaign but only 21% for a $30 million campaign that seeks to build brand awareness. If the objective is purchase intent, it recommends 28% digital for the $15 million campaign and 20% for a $30 million push.

Mr. Briggs cautioned that the numbers vary by industry, objective and further spending levels. But as a general rule he finds digital efforts hit diminishing returns faster than traditional campaigns.