Which 50% of Your Marketing Dollars Are Working?

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by: Jennifer Rice

Well, after a year-long blogging hiatus, I’ve decided to jump back in. I’m thinking that the easiest way to do so is to start with a draft of a white paper on Marketing Effectiveness that was put on hold… might as well publish it here. And there’s no time like the present to write about marketing effectiveness, as the looming recession is fueling a lot of questions like: Increase vs. decrease spending?

Shift spending into measurable media like Internet? Start price promotions? Yet more important than the questions asked by marketers are the questions asked by their CEOs and CFOs on budget justification and accountability. If marketers don’t have good answers at their fingertips about marketing budget ROI, decisions will likely be made for them. Unfortunately most marketers would be hard-pressed to provide solid data to show exactly how smart and effective their spending actually is.

We can think about marketing effectiveness as the continuous improvement of the marketing process. That means:

  • understanding the impact of marketing investments on your business,
  • assessing independence and interdependence of all types of marketing spend including traditional measured media to emerging media, and
  • evaluating the ROI of spend relative to other marketing levers – not only including promotion but also price, product/service and channel/distribution.

Boosting effectiveness of marketing spend can enable CMOs and senior marketers to make the right decisions of how to allocate their budget in a strategic way in order to yield optimal results.

Start with Strategy
The traditional approach to strategy involves four steps: planning, creative development, marketing execution, and measurement. A marketing plan is most effective when it identifies exactly what business objective you’re trying to achieve (new customers, increased share of wallet among existing customers, referrals, etc.) and also what is motivating and driving that behavior among your customers. Customer insight should inform all elements of your marketing plan including positioning, pricing, distribution channels, media selection and marketing offers. Your plan then guides creative concepts and execution, and analytics measure the effectiveness of your original plan.

Test, Test, Test and Learn

Sure, most marketers worth their salt would agree to this process. Yet if you stop there, you’ve missed the secret to spending smarter; the key is leveraging those insights into a test-and-learn improvement process that re-informs strategy and creative development… not just repeatedly, but also in parallel. It’s all about incorporating analytics as a critical component of your marketing strategy to rapidly learn and adjust, not just as a measurement tool tacked on to the very end of the process.

When analytics become the driver of your marketing effectiveness strategy, what once was a rather linear, time-consuming process becomes a dynamic engine of marketing insights. In this  approach, the strategy process starts with identifying what you want to measure, such as the effectiveness of:

  • Different levels of spending within each marketing vehicle
  • Different timing within each marketing vehicle like dayparts or flighting. (For example, replacing a typical broadcast flight with longer flights at lower GRPs for certain “spontaneous purchase” industries like fast food may generate more bang for the same buck.)
  • The same media in different geographies
  • Different creative executions
  • Different product/service focus
  • Bundled product offers
  • Varying price offerings (although this gets tricky with the transparency of internet)
  • Different customer segment priorities
  • Different methods of purchase such as Internet vs. channel partners vs. retail
  • And so on…

By setting clear measurement objectives, you can then set priorities based on your budget and develop an in-market experimentation plan using test versus control markets. You’ll likely not be able to test all of these different options at once, so you’ll need to decide what’s most important. You may end up doing a series of test-and-learns over several years if necessary.

Ok, so this is a pretty complicated process for most businesses. CMOs of larger companies with larger budgets at stake should definitely be thinking about how to optimize those budgets, who can handle a process like this internally and externally (ie. you won’t get your media firm to explore decreasing your media spend), what metrics you should be measuring, and so on.   But at the end of the process you’ll know exactly which 50% of your marketing dollars are working and be able to justify maintaining – -or increasing — your budgets to a CFO who’s looking for results.

Original Post: http://brand.blogs.com/mantra/2008/09/which-50-of-you.html