Good financial advisers start by asking clients about their investment horizons, growth expectations, and appetite for risk.
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Marketing investments should start with similar questions. Answering them helps align the goals of marketers with those of the company as a whole, essential if marketing is to be reconnected to broader business objectives. If, for example, a company needs growth in contiguous businesses to meet its overall objectives, marketing must help more people accept the brand and expand its relevance to a broader set of products. IBM has shown the way by extending its brand through a consistent association with "e-business.
To address the increasingly acute problem of how to optimize a number of investments, each with different time horizons and measures of success, across brands and media channels, it's also vital to distinguish between "maintenance" and "growth" objectives for different segments and media channels.
By maintenance, we mean the minimum spending required for a competitive presence in the marketplace. Competitive spending levels, S-curve analyses, and purchase cycles help determine appropriate levels of maintenance expenditure. By growth, we mean investments to increase a brand's market share, to drive incremental consumption, or to attract new users to a category. Although differentiating between these two types of investments can be tricky, the discipline involved in attempting to do so typically promotes a valuable internal dialogue that helps CMOs impose economic discipline.
Over time, savvy marketers get better at categorizing investments, identifying the right maintenance levels for different categories, and allocating growth dollars to the products where they will yield the highest returns. For CEOs, the key to economic leverage is allocating capital to the businesses generating the highest returns. For marketers, economic leverage comes from aligning messages and spending with a brand's most compelling elements. In this way, marketers more precisely target their message to the consumers and vehicles providing the biggest and fastest payoff, an essential task as media channels and segments proliferate.
Finding and exploiting economic leverage helps marketers know how much it is worth to increase brand awareness as compared with brand loyalty and which segments are most profitable and most responsive to marketing programs at which stages of the consumer decision funnel.
Boosting returns on marketing investment
The heart of this activity is the identification of brand drivers: the critical factors that influence a brand's image and consumer loyalty and that, if improved, increase revenues and profits. In an image-driven business, such as beer targeted at young men, the brand driver could be, "This brand is irreverent" or "I like to drink this brand when I am with friends. Most marketers understand their brands' drivers, but few of them use these drivers rigorously enough to manage multimedia programs, nor do they assess the influence of particular drivers on specific customer segments at various points across the consumer decision funnel.
Fortunately, proven analytic techniques, such as structured equation or pathway modeling, can help marketers assess the historical outcome of specific programs to enhance brand drivers over time. Nora A. Aufreiter, David Elzinga, and Jonathan W. In fact, brand drivers can be an integrated metric for determining whether a brand's media and message are effective and in line with the company's strategy. A marketer that relied heavily on sports sponsorships, for example, faced a big increase in the cost of its contracts during the s.
The company had to choose between massive increases in its spending or the risky step of streamlining its sponsorship portfolio. Using the pathways approach, the company identified the sponsorships that best communicated its core brand drivers.
6 Reasons Why Investment In Analytics Is Essential
This knowledge focused its dollars on owning and exploiting a specific set of sponsorships and helped it maintain near-double-digit growth. It's difficult to boost returns in financial markets without assuming additional risk. But for most businesses, selectively reducing risk is one of the critical elements of improving the return on investments; a savvy strategist, for example, minimizes risk by staging them. Marketers, whose risks were smaller when the media environment was more stable, must now use similar tactics to keep risks in line.
Even in a fragmenting world, marketers must push to ensure that they spend 75 to 80 percent of their money on proven messages such as advertising copy qualified in research that are placed in proven media vehicles and supported by proven dollar levels at or just above the threshold levels needed to influence customers.
In these proven programs, marketers should seek to regain the testing and validation discipline that many of them once had. The remaining 20 to 25 percent of spending should finance well-structured experiments. One of the best ways to diagnose a marketing organization's ROI discipline is to assess the extent and quality of the media and messaging tests in progress at any given time. Some will be simple, such as testing higher levels of expenditure or new media for a proven message, reducing the frequency of mailings to see if response rates change, and testing a new advertising message in a particular region.
Others, such as a simultaneous test of a new message and new media for a growing segment of profitable customers, are bigger departures from the routine. Marketers who skimp on experimentation, however, may be overtaken by changing media patterns or forced to assume large risks by rolling the dice on unproven programs when markets shift.
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The recent success of upstart brands such as Red Bull in building consumer awareness through trade promotions, sponsorships, and word of mouth demonstrates the power of alternative approaches. Yet fruitful as they can be, shifting the bulk of an established marketing plan to them is probably too risky. The idea that to boost returns on investments it is necessary to measure them carefully might appear simplistic, but this approach can be a major departure for some companies that take a narrow view of their spending or of how to measure success.
Although marketers formerly could evaluate just the dollars in their marketing budgets, it's now vital to consider all of the marketing plan's expenditures, including, at a minimum, all sponsorships, major media, and sales collateral. Many companies should also integrate sales promotion activity and particularly for retailers, banks, and consumer telecom companies store-level spending. The act of recording total expenditures and of ensuring that marketers direct the right messages to the right consumers can make a big difference.
For example, when a leading European mobile services provider realized that it had unintentionally been focusing too much on its existing customers, this understanding led to changes in the budget process. Making expenditures transparent is a necessary but insufficient step. While all marketers track their progress, few measure it end to end by following the trail all the way from the effect of spending on a brand's drivers to the influence of those drivers on consumer loyalty and the influence of loyalty on revenues and margins and, finally, to the question of whether any increase in profits justifies the spending.
Only with an end-to-end view can marketers understand not only the current returns on marketing programs but also, and equally important, why they did or didn't work, information needed to improve future returns. Most CMOs are prepared right now to begin pulling the levers that will improve their returns Exhibit 3. They should start by integrating the existing research and data sets such as test results, segmentations, consumer decision funnels, and spending analyses that often lie in their file cabinets.
Then they can make this information the basis of a unified approach to boosting ROI through these steps. Build transparency by identifying and including in marketing plans all of the critical buckets of consumer communications spending, even if they are not in the marketing function's domain. Align spending on an "apples-to-apples" basis across brands andcountries by adopting simple, universal metrics that distinguish betweenmaintenance and growth investments and between investments in proven and experimental vehicles.
Isolate the most important drivers across brands and track the drivers' impact across segments and media channels.
tips for the sophisticated marketer how to get a big payoff with a small investment Manual
As marketers dive into the issue of ROI, they also will recognize opportunities for selective investments in new tools, capabilities, and relationships. Exciting developments lie on the horizon. New technologies are beginning to track and link the detailed elements of the consumer's exposure to media with actual purchasing behavior.
New modeling approaches are creating more integrated "what-if" simulators by combining econometric tools with an analysis of brand drivers revealed by consumer research. Third parties such as ad agencies, research providers, and media companies, which must also struggle with a changing environment, may be willing to collaborate in new ways. Beyond tools and techniques, marketers need to change the mind-sets and behavior derived from the golden age.
The requisite transformation represents a major challenge for most marketing organizations, agencies, and media partners. One company, for instance, had to make a bundle of changes to its processes, culture, and people to reinforce and embed ROI thinking in its day-to-day marketing approach. Some changes were symbolic, such as using a hard-nosed analysis of returns to dump a "sacred-cow" sponsorship the CEO favored. Others involved formal training for marketers about the goals they should target and the tools and processes they should use.
The company's business-planning processes, performance assessments, and team structures needed to change as well. Unless an organization's mind-set and behavior evolve, efforts to improve marketing's ROI won't succeed. Marketers aiming for strong returns should start seeing themselves as investment managers for their marketing budgets. That may be more difficult and time consuming than relying solely on old rules of thumb or new analytic approaches, but it is the only answer in today's marketing environment.
Boosting returns on marketing investment. By David C. Court, Jonathan W. Gordon, and Jesko Perrey. Sidebar Beware the quantitative cure-all. Today, that kind of data siloing is a recipe for disaster.
The ability to capitalize on data insights and analytics can make or break a company. And big data, artificial intelligence, and predictive analytics have every organization scrambling for an advantage—or fearing disruption. While all successful enterprises capitalize on data and analytics to some degree, new research from Forbes Insights and Cisco shows how pervasive modern analytics strategies have become within nearly all business initiatives. To reap the rewards of data-driven business initiatives, enterprises must make targeted investments in traditional and emerging analytics tools, as well as in underlying IT infrastructures to support them.
But how can the beneficiaries of analytics convince senior managers to invest in these areas? The payoff for successful analytics is clear and quantifiable. Becoming a data-driven enterprise delivers benefits across customer-facing and internal operations — and even the bottom line.
Related Tips For The Sophisticated Marketer: How To Get A Big Payoff With A Small Investment
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