Marketing Measurement Today

Marketing Mix Model Masochist

2011-05-24T17:19:00.001-04:00

I’ll be honest — I’ve gone back and forth over the years on the value of marketing mix models, all the time seeking to understand where, when, and how they add the most value to marketing managers looking for insight into more effective and efficient marketing.

I think I’ve seen all the warts:

Models that just skim the surface of tactical optimization by looking only at media and ignore the category dynamics and uncontrollable factors, thereby overstating the impact of marketing in very suspicious ways.
Models that look backwards perfectly but are of little value if one is making decisions about what to do next.
Models that regularly seem to reward short-term demand-generation tactics because they can “read” those more cleanly than longer-term brand equity value.
Models with high “base” compositions which explain only a small portion of the change in volume or profit from one period to the next.
Models that understate the value of marketing by failing to account for the interaction effects, particularly those in the new digital and social media realm.

I’ve also heard some sophisticated marketers who have long used these tools question their predictive value, particularly in complex competitive ecosystems with lots of channel influences and/or short innovation cycles. I’ve heard many voices I respect in both business and academia say that MMM is “mature” (as in “aged”, “long in the tooth”, or “declining in value or relevance”).

So you’d think that I’d have given up by now and moved on to something more innovative that might address some of these issues… artificial intelligence; agent-based modeling; systems dynamics, etc. Nope. Call me a MMMM (Marketing Mix Model Masochist) if you will, but all this criticism has actually led me down the path of embracing them more than ever. Principally for one simple reason… they are effective ways of helping managers understanding what has happened and what might happen looking forward.

For whatever reason, MMM is a concept that most marketing and finance managers can actually grasp. It is neither too simplistic to adequately explain their understanding of the universe they operate in, nor too complex to be embraced and acted upon. They’re sort of the Goldilocks solution… just right.

Sure, there may be other techniques that could answer any specific question more comprehensively, but at what cost to transparency and credibility? Managers (at least the human ones) need to 1. understand and 2. believe the analysis they get in order to operationalize it. The core mathematical simplicity of MMM gives it an advantage in both those respects.

But I’m pretty sure that MMM is “mature” only in the sense that it is a settled science which keeps getting better with age. In fact, using lifecycle terms, I’d categorize MMM as more in an “adolescent” stage. New methods and techniques have emerged to help better decompose the base effects, isolate long-term brand impacts, explain the direct and indirect effects of various elements of the tactical spectrum, and improve the forward-looking capability of the models.

When combined with some appropriate adoption training and alignment within the management team, today’s marketing mix models actually:

Provide more operational guidance, aligning increases or decreases in marketing spending with channel management and supply chain considerations;
Link to tradeoff analyses on a market segment or brand equity level; and
Help establish spending strategies as market conditions change.

Improved automated functionality is also allowing marketers to react more quickly to results based on their needs by, refreshing the models frequently and putting broad “what if” simulation at the hands of the marketing planner.

Ever the skeptic though, I still see some need for improvement. Specifically, MMM cannot be effective unless the modelers:

Ensure that the organization as a whole understands the assumptions and limitations of the marketing mix model;
Realize that laying the acceptance groundwork around those assumptions is as important and challenging as building the algorithms or collecting the data;
Remain aware of changes in the competitive environment and how they affect business results; and
Understand that the model will, inevitably, fail; expect it and plan for it.

Finally, I think it’s critically important that marketers NOT stop at marketing mix models. Risk is magnified by over-reliance on a single tool. Today’s marketing measurement toolkit needs to be much broader. Deep understanding of brand drivers, customer behavior and value require input from tools and techniques outside the mix model, as well as in.

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Pat LaPointe is Executive Vice President at MarketShare, and Managing Editor of MarketingNPV Journal, the most widely read journal of marketing measurement, available online FREE at www.MarketingNPV.com.

The Rock in the Pond

2011-04-26T17:14:00.001-04:00

Given the power and potential of social media as a marketing tool, there is considerable interest in understanding how it interacts with traditional media as part of a broader mix.

There is a considerable amount of work going on in this area across a broad spectrum of social miners and digital pathway attribution seekers. But sometimes you can be too close to something to see it clearly. If you’re looking for the social media interaction from within the realm of the digital world, you may see “patterns” in the data that seem to establish relationships, but are in reality collinear with other larger forces taking place both within the beyond the total marketing mix (not to mention exhibiting dangerously “drunk thinking”).

To really understand how social and traditional media work together, I’ve been examining many econometric models from across multiple industries where there was a substantial investment in traditional media (e.g. TV, print, direct mail, etc.). Some of these models studied brands or companies where there was no material social media activity. Others had added a substantial social media element to the mix of variables. In all cases, a broad spectrum of “uncontrollable” variables (e.g. macro and micro economic factors, competitive marketing activities, category consumption trends, distribution changes, etc.) were added to the models to further refine the understanding of the impact of the marketing tactics alone and in concert. A few observations seem to be arising:

Traditional media can often be the “rock in the pond of social media”. When the message delivered by traditional media is either very good or unfortunately very bad, the media message reverberates throughout the social spectrum like shock waves through a still pond hit by a rock.
This “ripple effect” can add substantially to the overall impact of the traditional media and boost the financial payback significantly.
Modelers regularly miss this insight if their methods are set to read the impact of the social media alone, or are looking only at the online tactical elements.
Missing this causes many marketers to UNDER-ESTIMATE THE REAL VALUE OF THE TRADITIONAL MEDIA and over-estimate the digital elements. In some cases by as much as 20% to 40%.

The simple fact is that if there was NO stimulus from the traditional media (or if the impact was beneath some observable threshold), there would be no material reverberation in the social media space. Not that you couldn’t cause some social buzz without traditional media, but doing so usually requires some combination of A) catching creative lightning in a bottle and going viral; B) discounting to abnormally heavy levels; C) “borrowing interest” in forms like celebrity endorsement, customer loyalty programs, etc.; or D) experiencing something unfortunately negative which everyone seems to take notice of. In any case, those social-only strategies tend to be either unexpectedly expensive or very rare (one in a million perhaps?).

Using traditional media is still the most RELIABLE way to get a message out quickly and uniformly. And by investing in effective copy engineering processes (at the proven intersection of customer insights and relevant creative disruption), you can toss your rock confidently into the pond of social media and expect to see waves of profitable opportunity arrive on your shore.

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Pat LaPointe is Executive Vice President at MarketShare, and Managing Editor of MarketingNPV Journal, the most widely read journal of marketing measurement, available online FREE at www.MarketingNPV.com.

Where Are You on the Digital Ladder of Insight?

2011-03-29T10:42:00.001-04:00

I’ve been working on updating the “Ladder of Insight” I published several years ago to reflect some observations on levels of measurement sophistication with respect to digital/social attribution. From what I see in the marketplace, companies seem to be at one of four levels in their pursuit of better insights…

Level 1 – Monitoring chat boards; counting Tweets and followers; measuring owned-media activity (site visits, sourcing pages, etc.); using last-click attribution. Seeing a very limited view of digital activity and hoping to correlate outcomes with observed behaviors.

Level 2 – Above plus tracking sentiment for self and competitors; monitoring Google query volume for a few dozen key terms; using syndicated research to dissect online information searching and buying pathways; “allocated attribution” methods based on views/touches across digital exposures based on samples of cookie and clickstream data.

Level 3 – Above plus integrated view of digital and traditional tactics in a common analytical attribution model that establishes direct and indirect effects of digital, and social (both online and offline WOM) within the context of ALL marketing/selling tactics.

Level 4 – Above plus comprehensive online pathway monitoring based on full digital data sets from own site, referring sites, and ad placement servers. Accurate digital attribution derived when sampling is no longer required.

As you move up in levels, you gain more accurate perspective and find more ways to improve the effectiveness of marketing spend - which is increasingly measured in terms of both dollars and man-hours. But more importantly, you gain competitive advantages to exploit your insights and you get refreshed insights faster.

But before concluding that this is the path to marketing excellence, it’s worth remembering a few decades-old ground rules of marketing that seem to be even more important in the digital era:

Innovation brings buying attention to your product/service offering. Manufacturing or borrowing interest (celebrities, discounting, etc.) are expensive and short-lived ways of drawing attention to yourself. If there’s nothing substantive for people to talk about, all the social media effort in the world won’t amount to much more than a digitally collective yawn.
Online chatter about your category/brand is usually just a fraction of total chatter. Don’t underestimate the impact of offline WOM, particularly for lower-interest categories where consumers aren’t likely to want to tweet or blog.
Given the increasingly fragmented battle for consumer attention, sound segmentation is more than ever the key to getting relevant value propositions in front of the right customers. Just because you produced a “killer” online video doesn’t mean millions will want to view it.

If you have thoughts or ideas on how to improve on this ladder, please share…

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Pat LaPointe is Executive Vice President at MarketShare, and Managing Editor of MarketingNPV Journal, the most widely read journal of marketing measurement, available online FREE at www.MarketingNPV.com.

Drunk Thinking

2011-03-15T08:49:00.001-04:00

A policeman finds a drunk crawling around on the street one night, frantically searching for something at the base of a lamp post. He approaches cautiously and inquires as to the man’s strange behavior.

“I lost my watch”, says the drunk.

“Here, under this streetlight?” asks the policeman.

“No, over by that building 50 yards that way” he points.

“So why are you looking over here?” the policeman asks quizzically.

“Because this is where the light is. I can’t see anything in the dark over there.”

Drunk logic.

The same sort of logic underlying the methods many are taking to understand the impact of their social and digital marketing efforts. Looking for answers where the data is. Sometimes because this is the ONLY data we think we may have (although in practice most companies have much broader access to reasonable data than they think they have). More often, the scope of analysis is restricted to just our own area of personal responsibility. The thinking seems to be that we should just analyze the things we are responsible for so as not to get stuck in the endless politics of the rest of the organization.

I realize that it is pretty difficult to do attribution analysis without data. And of course one of the many wonderful aspects of digital marketing tactics is, well, they produce tons of data. So why shouldn’t we look for answers in the digital arena? We can use test/learn experiments; pre-post analysis; and multivariate testing to optimize our digital impact. All of which can provide great insights.

But if the questions relate to the impact of the digital/social tactics on OVERALL results, then we need to analyze the digital elements in concert with the rest of the marketing mix. If we’re only looking at the digital data to understand digital marketing impact, we are ignoring the interplay between the digital and non-digital elements of the mix and drawing conclusions that are unlikely to represent reality. Worse, we may be drawing conclusions that will reinforce inefficiencies or bad habits. And in the process, we actually REINFORCE the political obstacles that exist between groups within the organization. We present OUR analysis; they present THEIRS; and the cycle of gridlock continues.

If you’re responsible for digital/social marketing within a broader marketing organization, you may stand to gain MORE resources when you analyze the digital contributions in the broader context of other offline tactics. The investment in time or money you make in gathering the offline tactical data and including it in your analysis framework may be repaid many times over in the form of more budget dollars, more influence, and more autonomy. On the flip side, NOT making the effort is likely to either limit the magnitude or impact of your analysis OR, worse yet, diminish your credibility in the eyes of the key decision-makers.

No one wants to be the drunk under the lamp post when the police come by.

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Pat LaPointe is Executive Vice President at MarketShare, and Managing Editor of MarketingNPV Journal, the most widely read journal of marketing measurement, available online FREE at www.MarketingNPV.com.

A Simple Formula for Success

2011-02-15T12:05:00.003-05:00

A reporter recently asked me what I’d learned across several hundred marketing measurement projects in the past 10 years. Rather than spew out the usual rash of BS, I asked if I could call her back with a thoughtful answer. Here’s what I came up with:
For those of you not into algebra, the meaning is simple:

Success is the sum of all your experience finding insights, transforming them into action, and trying to create more value than the resources you consume in the process. And then all this is raised to the power of perception.

It’s not all too difficult to find new insights in the search for improved marketing effectiveness and efficiency. There is still quite a bit of wasteful spending going on, and the dynamic marketplace tends to ensure the continuation of that opportunity. The hard part though is translating those insight opportunities into actions that companies (read: people) can actually implement. Tricky.

And if that wasn’t difficult enough, we’re all often challenged to do it with toothpicks, a roll-on anti-perspirant, and a pack of bubble gum. Who am I, MacGyver? Seriously, you’re going to spend all that money on advertising and trade shows and then want to measure it for .000000000005% of total spend? Not gonna happen. But if we’re smart, we can demonstrate the potential returns associated with effective measurement, and build the data streams over time that break the cycle of insanity. Ironic though that companies building competitive advantage on deployment of strategic resources so often see performance measurement and continuous improvement as an expense. Fortunately, done well, the value of measurement always exceeds cost.

And finally, the power of perception. The quality of our measurement matters little compared to the perception of the quality. We can inspire an organization to action with bad measurement if we package it well enough. Obviously, that’s not our goal. But the inverse trips up more measurement projects than I can begin to remember – even GREAT measurement technique is worthless unless we get people bought into the process long BEFORE the numbers hit the charts. There is NO report pretty enough and there are NO facts compelling enough to move a seasoned executive off their experientially-derived position IF they don’t WANT to be moved. Our job in measurement is to lay the groundwork for them to be willing to move. Otherwise, we’re teaching pigs to sing - which just wastes our time and tends to annoy the pigs.

So taken together, this experience can be described in this simple formula. Plug in your numbers and see how well positioned you are to succeed.
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Pat LaPointe is Managing Editor at MarketingNPV – specialists in measuring the payback on marketing investments, and publishers of MarketingNPV Journal.

Measuring Corporate Reputation Without Putting your Head on the Chopping Block

2011-02-01T16:10:00.002-05:00

Like brand equity, corporate reputation is an intangible asset that has some very tangible ramifications. It has the power to affect every aspect of the business, including enhancing or destroying shareholder value. But when it comes to tracking and measuring the value of investments we make in enhancing reputation, it seems surveys of investor and analyst attitudes are all that makes it onto our Marketing Dashboard (since many have found promising their CEO that stock prices will rise in response to a proposed investment in corporate reputation to be a career-limiting move).

So how do you measure the payback on the next investment you might make in seeking to enhance that reputation? Start by developing clear ideas of who you’re trying to influence and what you’re specifically trying to accomplish before you begin.

Here’s an example…

Retail investments giant Company A invests $2 million in a public relations campaign in a mid-sized market centered around a donation to revitalize youth sports facilities, receiving in return naming rights on a prominent little league complex. Its rationale for making this gesture is to enhance the image of the company as a community minded, local organization, and to associate its brand with the youth and vitality of sports.

Company A measures the effectiveness of its investment in terms of the change in attitudes amongst the local customer, prospect, employee, agent, legislator, and vendor constituent groups. It develops elaborate surveys and measures the pre-post differential in the affected market versus nearby control markets where there are no such sponsorships. It also measures the number and nature of media “hits” received in the local press and calculates the value of that exposure if it were paid at rate card for each media.

So when all these indicators respond positively, Company A tells the CEO that “The campaign was a huge success! The attitudinal shifts are through the roof. And we generated over $2.5 million in free media exposure, giving us an ROI of 25% on the media value alone!”

Competitor Company B makes a similar investment in a different market, but does so against the stated goals of

increasing the number of “power agents” (those doing more than $10 million annually in sales) from 38 to 54;
improving employee retention in their local call centers from 70% to 85%; and
getting a local ballot initiative on the legislative calendar to create greater flexibility for the introduction of new products.

Company B’s strategy is to achieve the objectives above by influencing the agents to carry more of its products, giving employees more reasons to feel pride in their association with the company, and providing legislators with a basis for supporting legislation that some may consider controversial.

Company B measures shifts in key brand attributes amongst the key audiences. And it measures the amount and nature of media coverage it receives in the local press. But the firm also measures the number of agent-to-power-agent migrations, employee retention rates, and the week-by-week progress of its target legislation. So when it comes time to report back to the Board on the campaign effectiveness, they can report that:

The firm increased the number of Power Agents to 57, which has a forecasted net present value of $1.4 million;
Employee retention fell slightly short of the 85% goal at 82%, but the expected savings in recruiting and re-training are still worth $1.8 million NPV based on employee tenure and productivity; and
The ballot initiative is in the right committee of the state assembly and a straw poll of legislators suggests a 65% likelihood of passage within the next six months, which would translate into a probability adjusted $4.2 million in incremental net profits from new-product sales.

Bottom line: the managers in Company B can report to shareholders that not only have they improved the attitudes among key audiences, but the investment they made in enhancing the company’s reputation has achieved short-term payback of $3.2 million, for an ROI of 60%, plus the prospect of a longer-term payback of an additional $4.2 million. And that’s before the value of any incremental media exposure is taken into account – which the sophisticated investors know is not really worth the rate-card value of the exposure, unless the company had intentionally planned to forego other advertising or communications expenses in achieving it.

So what did Company B do differently than Company A? It set expectations for the investment it was making in more financial, tangible terms, and then developed the framework for measurement in terms of the expected economic behaviors it intended to create. Sure, it included the attitudinal shift surveys to diagnose the effectiveness and consistency of its message. It just didn’t stop there.

The learnings: push past attitudes to measure the real value of corporate reputation in terms that CEOs can understand.
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Pat LaPointe is Managing Partner at MarketingNPV – specialists in measuring the payback on marketing investments, and publishers of MarketingNPV Journal.

Why Does Marketing Have to be so Damn Hard?

2011-01-19T15:58:00.002-05:00

Fact: Failure rates in marketing are astronomically high. Only a small fraction of new marketing initiatives succeed in achieving their intended objectives. If marketing were a baseball player, it would NEVER have made the major leagues. If marketing were a horse, you’d need 10:1 odds at least (and even then you’d be best served to box your bet across win, place, and show). If marketing were a bridge, you’d certainly not want to drive across it on a windy day.

Why? Why is it so damn hard to make marketing work consistently and reliably?

You might argue that the challenge lies in the very dynamic markets we operate in. Shifting sands are the rule, not the exception. No sooner do you get your feet under you than your knowledge is antiquated by the latest disruptive force.

Could be that marketers are in a constant state of experimentation, always in search of the magic combination of message and tactics that “move the needle”.

Or perhaps it’s the absence of good “raw materials”. Maybe we’re just reflecting the frequency with which we are given uninspired products with no news value and no clear differentiation.

But lately I’ve been thinking that it’s because of two key factors:

Marketing involves integrating the left and right brains – something that very few people are capable of. It requires an ability to think conceptually and unencumbered by the present realities, yet to evaluate critically in a rigorous way. Without the former, we fail to innovate; without the latter, we fail to focus. Moreover, it takes more than one person in an executive committee who can actually do this two-brain thing to notice and approve a good idea when one hits the table. Odds of there being a quorum of such people in any one boardroom are long indeed, given that executive committees normally include strong left-brainers from finance, IT, and manufacturing/operations. No judgment here, just an observation.
Marketers tend to be more right brain than left. They enjoy concepts and creativity and innovation and inspiration, but not the repetitive types of analysis that tend to extract true insights from the cacophony of marketplace response. Many don’t have the patience for disciplined experimentation and continuous improvement, preferring to “try new things” and make a name for themselves within their industry.

Fortunately, there are tools to help us overcome our fundamental limitations (personal or organizational) and learn from the collective experience of others. For example, in 2009 the Marketing Science Institute published a book edited by Professor Mike Hanssens of UCLA’s Anderson School called Empirical Generalizations about Marketing Impact which clearly lists 16 categories of collective learnings from hundreds of academic studies of marketing impact over the last few decades. For example, did you know that:

Gains in market share do not often lead to gains in profitability in either short- or long-run.
Changes in pricing have approximately 26 TIMES the impact on sales as changes in advertising spend levels.
Changes in sales budgets have more than 3 TIMES the impact on sales compared to changes in ad spending.
If advertising doesn’t work in the short term, it will NOT work in the long term with more exposure.

These are but a few of the gems you find in this book, which you can order at www.MSI.org. Or, if you prefer, check out Mike Hanssens’ recent webcast on this topic to be really astounded by all the things that you SHOULD have known about marketing but likely didn’t (or didn’t have the proof).

When we get marketing “right”, we make it really HARD for OTHERS to immitate. That’s why the big marketing victories are so transformative for companies (and careers). If we got just a little better at standing on the knowledge shoulders of our marketing forefathers (and mothers), we might actually get it “right” more often, and make it harder for THEM to catch up with us.
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Pat LaPointe is Managing Partner at MarketingNPV – specialists in measuring the payback on marketing investments, and publishers of MarketingNPV Journal.

Predictions for Social Media Metrics: 2011

2011-01-04T11:59:00.002-05:00

Never hesitant to jump on the New Year prognostication bandwagon, here are a few predictions for some significant new elements and important evolutions in social media metrics in 2011:

Rapid maturation. Social media measurement will mature rapidly now that there is real money being spent by marketers in the social realm. Professional measurement tools and techniques have gained critical mass in the space to help keep the focus on measuring the business value of social media in terms of either individual behavior shifts or community support. For a terrific overview, see Jim Sterne’s latest book entitled “Social Media Metrics” (or better yet, this webcast overview).
Government Drives Better Tracking. Social media tracking (e.g. seeing how and where messages spread) will improve significantly, mostly due to government regulation. Many of us work in industries that are regulated. These regulations require that our marketing messages come with appropriate disclosures about financial interests, side effects, performance guarantees, etc. The necessity of properly making and tracking disclosures has, till recently, held back many of our character-limited social media efforts. New companies like CMP.LY (www.CMP.LY) are taking the headache out of disclosure management and providing powerful tracking capabilities at the same time.
Online and offline will merge. By year-end, social media will no longer be equated with just online marketing tactics. TV, print, and outdoor campaigns will increasingly be measured in terms of their ability to get people engaged in behavioral interaction (e.g. talking to others about a brand), and more fully integrated with the online elements. Online behavior tracking will more fully merge with offline survey research techniques to better identify and measure the value of specific types of engagement. Offline budgets will continue to be much larger in most cases, but the “Old Spice” success story has penetrated the consciousness of marketers to the tipping point where the business and financial benefits of full integration are too big to be ignored.
Predictive value is emerging. The holy grail of social media is the “so what” – what will all the “buzz” do for sales and profits? Several big leaps have been made recently in terms of quantitatively tying social media engagement (giving AND receiving) to actual purchase behaviors and “norms” are beginning to emerge in key industries. In fact, the number and quality of such “norms” are increasing so rapidly that predictive validity is building. We can tell, in some industries, how early social media activity can predict overall campaign effectiveness, which in turn can predict customer/prospect buying behaviors. So if A=B and B=C, then we will increasingly learn to use A=C as a trusted metric for measuring the “so what”, and the pace of that learning will accelerate dramatically.

Generationally, it’s been difficult for many of the “over 40” set to wrap their brains around the implications of social media (possibly more from stress-induced eye strain than from lack of interest). But watching the college and teenage consumers of tomorrow NOT watch television (except sports and streaming movies) or read any printed periodicals, it’s clear that the media world HAS evolved. Only now is it becoming clear that the metrics are finally beginning to catch up.
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Pat LaPointe is Managing Partner at MarketingNPV – specialists in measuring the payback on marketing investments, and publishers of MarketingNPV Journal.

Elves Dashboard; Santa Suffers

2010-12-14T17:24:00.002-05:00

Dateline: North Pole

Santa slipped into a PowerPoint-induced coma today halfway through the annual Elfin Performance Dashboard presentation. “I guess we had a few too many metrics”, said Lenny, Chief Analytical Elf.

According to eyewitnesses, Santa’s head began bobbing on approximately slide 46, and by the time the Elves reached slide 101 his eyes had rolled back into his head and his breathing became very slow and rhythmic. Mrs. Claus was heard to wonder aloud if it had anything to do with the copious quantities of beef ingested by her husband over the past few weeks in an effort to fill-out his oversized red suit. However, the Elves had prepared for such possibilities by stocking the room with coffee, RedBull, and lots of M&M’s.

“This year, we just had so much more data” said Lenny. “Our new CBM (child-behavior-manager) application gave us much better information on who had been naughty and who had been nice. Combined with the state-of-the-art production management system and our world class routing software, we wanted Santa to see just how efficient we’d been this year in the hopes that he would fund our plant expansion in 2011.”

Dashboard experts were called in to analyze the structure and concluded that there were just too many metrics. Comprehensiveness went way up, but relevance declined exponentially.

“Next year we’ll have it slimmed down to just the most relevant facts” said Lenny. “And we’ll try to make it a bit more forward-looking so Santa can plan better to deliver more peace and happiness throughout the world.”

Here’s to a holiday that’s:

Simply
Filled with
Happiness
And Joy.

Send THIS to Your CFO (Anonymously)

2010-11-30T09:50:00.004-05:00

Attention, all finance executives seeking to understand the ROI on marketing investments…

Over the years I’ve learned that if I come home to find something in the house broken or missing, I’m much more likely to get the truth if I ask my kids “does anyone know anything about ” than if I ask “who broke this?” or “who took my ?” The later approach immediately sends everyone into damage control mode, while the former gives them a bit more latitude to respond in a responsible way. They sense somehow that I am more interested in addressing the problem than finding someone to blame for it. Even the kids who know they never touched the object of my immediate interest learn from my approach and become more proactive in disclosing their borrowing or breaking events in the future.

There are similarities where finance and marketing interact. Finance is often perceived to have parental-like authority in its control of the budget and its audit/oversight responsibility. So it is an unfortunate truth that too often the journey towards better insight into marketing payback gets derailed right at the start when finance asks what they believe to be a logical and simple question, but which marketing interprets in the form of a challenge – e.g.

“Is our marketing generating any value for shareholders?” or
“How do we know that marketing is working?”

These questions have the immediate and profound effect of putting marketing into “justification” mode and encouraging them to respond defensively. And since marketers are pretty creative and articulate people, they usually answer with a long stream of ad-hoc evidence, anecdotes, and metaphors which individually may not be so convincing, but in the aggregate create enough uncertainty within the executive committee to neutralize the question and deflect the discussion. The result is a stalemate; where the inherent subtleties of marketing are explained with superior powers of persuasion to cast doubt on the wisdom of cutting marketing spend.

Of course this doesn’t help the organization get any smarter. In fact, it actually has a significant “insight opportunity cost” since all the resources that could have been directed towards the pursuit of true insight get diverted to “proving” that marketing works.

Successful marketing measurement, like many other challenging tasks within the company, is a function of effectively deploying constrained resources on a few key focal points rather than fracturing the effort in a broad search for the “preponderance of evidence”. Imagine the payback insight you seek is trapped inside a large wooden log, and splitting the log open is the only way to extract it. You can split the log with a sharpened axe striking the right point in a single blow (two at most), or you can endlessly pound it with a sledge hammer until it (or you) slowly turn to dust. Which approach would you prefer?

The CFO is much more likely to get the answers they’re seeking by approaching the dialogue on marketing payback from an angle that generates productive engagement rather than defensive deflection. Doing so requires three specific attitudinal changes in how most CFOs would normally pursue the answers:

Acknowledge that good marketing always creates shareholder value. If necessary, suspend your disbelief and be willing to concede that if we did things better, we would see a beneficial result. Use questions intended to discover:
• “What can we achieve with good marketing?”
• “How well is our current marketing performing?” and
• “How can we improve the payback we’re getting?”
Embrace uncertainty – especially in the early stages of measurement when the unknowns will outnumber the knowns. Be patient with ambiguity and willing to accept “I don’t know…” as an answer from marketing in the near term, provided it is followed in short order by “…but here is what we can do to find out.” Premature demands for precision will backfire in the form of higher weighting of the more measurable marketing elements such as web site traffic and direct response programs – even if those aren’t the real drivers of your success in the marketplace.
Exercise patience. The questions you’re asking will take some time to fully answer. Expect to see some progress made soon, and then more made in measured increments, but don’t assume that applying time pressure will speed the discovery. More likely, impatience will be met with passive-aggressive resistance which will surface many more complex obstacles than you or the rest of the finance team have the time or ability to conquer.

There are other more targeted questions you can ask of marketing to put the measurement effort on the right track. But if the spirit of your inquiry is interpreted as a quest for insight rather than an attack on the marketing organization, you’ll get much closer to the answers you’re seeking, and get there much faster.

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Pat LaPointe is Managing Partner at MarketingNPV – specialty advisors on measuring and improving the payback on marketing investments, and publishers of MarketingNPV Journal available online free at www.MarketingNPV.com.

SOV is DOA

2010-11-17T09:59:00.002-05:00

One of the most popular measures of relative marketing effectiveness continues to be monitoring share-of-voice (SOV) – a metric based on your total marketing/advertising spend as a percentage of the total spend in your category. Some even go a step further and look at an index of SOV to SOM (share of market). The argument for doing so is that if your SOV is less than your SOM, you are at risk of losing share. Presumably, the converse is then also true – that if your SOV is greater than SOM, you should expect to gain share.

For example, if your measured ad spend was $20MM in a category where total measured spend was $200MM, your SOV would be 10%. If your market share was 13%, you might argue that you are underspending on an SOV/SOM basis, and that more funding was required to maintain share. You may be right, but not for the reasons you cite. And even more importantly, more marketing credibility has been squandered on this simple argument than perhaps any other single metric over the past 20 years.

CEOs and CFOs see right through the SOV argument and regularly tear it to shreds in budget meetings. They tend to outright reject the premise that SOV drives SOM absent any clear data to the contrary.

If you understand the mindset of the CEO and CFO, you know they are very able to envision scenarios where spending even less money on marketing than our competitors could be beneficial if A) the existing core value proposition is better than the competitors’ and customers know it; B) the money would be better spent improving the core value proposition than investing in efforts to “sell” the current inadequate version; or C) the shareholders would benefit more by dropping the savings to the bottom line. Although not often stated, these intuitive expectations are almost always fueled by concerns about the relative effectiveness of the current marketing/advertising investments to begin with.

In this environment, the marketer who enters the meeting with an argument to raise spending levels to achieve some SOV target is actually heard to be saying “Johnny has more money so I want more”. And as soon as that impression is created, you might as well polish your resume because your influence over the marketing budget is now far smaller than even your most conservative hopes.

Nevertheless, relative spend pressure in the marketplace can and often is shown to have an impact on how market share migrates. So how do you bridge this gap credibly?

First, understand the difference between SOV and “Effective SOV” (ESOV). ESOV begins with relative spend, but then adjusts it up or down based on relative strength of your core value proposition and/or message execution. Taking our earlier example, if your spend was $20MM in a $200MM spend category, you would index your 10% SOV by looking at the relative stength of your ad copy execution. If copy testing told you your message was at parity with your competitors, your ESOV would equal SOV at 10%. But if your copy was 30% stronger or weaker than competitors, your ESOV could be 7% (10%*(1-.3)) or 13% (10%*(1+.3)). In other words, you may in fact need to spend more money to maintain an effective level of marketing pressure – even more than you originally believed. Alternatively, you may be benefitting from a strong message and providing an effectiveness dividend to shareholders by requiring less ad spend due to your very stong message.

Calculating ESOV by using ad effectiveness is good, but using relative strength of your value proposition, (the perceptions of the appeal of your product/service vs. your competitor’s before taking ad execution into account), is even more encapsulating of the impact of marketing spend.

CEOs and CFOs see ESOV as a legitimate analyis of relative strengths and weaknesses. Consequently, using ESOV doesn’t cost you any credibility points. But it doesn’t unilaterally gain you any unless you are simultaneously able to explain the impact of ESOV on profitable share shifting. It’s one thing to know what your ESOV is as a starting point, but quite a bit more impressive if you know how a projected change in ESOV would translate into incremental revenue and margin flows.

There are several ways to determine the incremental impact of ESOV on financial outcomes. The first is with classic marketing mix models, which can help you better understand the historical relationship. If the category dynamics are relatively stable, this might be sufficient to project the outcomes into the future.

If you either cannot implement mix models OR are in a very dynamic category where the past is not a good predictor of the future, then you can use a combination of analytical and choice-options research techniques studying both your own and your competitor’s advertising to better understand the relative behavioral impact of each.

Neither method is perfect. But by triangulating on estimates of the relationship between ESOV and share, then consistently measuring it periodically to refine your understanding, you ensure that the next budget meeting will be a much more intelligent and fact-based discussion where both you and your recommendations come out alive and healthy.
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Pat LaPointe is Managing Partner at MarketingNPV – specialty advisors on measuring and improving the payback on marketing investments, and publishers of MarketingNPV Journal available online free at www.MarketingNPV.com.

Tapping Into the Wisdom of Clouds

2010-11-02T12:40:00.001-04:00

Prediction markets have been around for quite a while now. The Iowa Electronic Marketplace is world renown for accurately forecasting the outcomes of US elections often many months prior to election day. Sports betting sites in the UK and elsewhere move billions of dollars of wagers on the basis of the collective expertise of those betting on outcomes.

More recently, companies like Consensus Point, Crowdcast, and InTrade (among others) have brought the tools and technologies to the boardroom that allow managers to tap into global pools of “experts” to attempt to predict the future.

Hollywood movie studios have made “prediction markets” a key component of their forecasting efforts in deciding how much money to spend on advertising campaigns. (Interestingly, movies rated very high or very low receive relatively little advertising as WOM is expected to play its role at both ends of that spectrum; only movies in the middle-range receive significant ad spend).
Retailers use prediction markets to make decisions on which products to carry in inventory, as well as how to promote and price them.
Technology firms use them to decide which new platforms to bet on.
Pharma industry leaders use them to determine pricing strategies years in advance based on competitive pipelines and regulatory approval processes.
And B2B industrial companies use them to model the impacts of changes in sales force size, structure, and compensation.

Perfect? No. Helpful and insightful? Definitely, in several ways.

First, by identifying possibilities not previously within the imagination of your own executive team, and by considering factors which any small group of managers might overlook, they provide a more thorough and comprehensive assessment of uncertain outcomes.

Second, even if prediction markets cannot provide an exact answer (which they rarely can – being better at offering directional probabilities than precise forecasts), they can significantly reduce the uncertainty surrounding what a given market segment might respond to, or how a group of competitors might react to a significant change by one. This makes them good tools for setting performance targets and expectations in the absence of historical perspective.

Third, with the help of cloud computing and social networks, prediction markets are declining in cost to the point that they are often much faster-to-feedback and far less expensive than traditional survey-based research, while offering far greater flexibility to have respondents explore “what-if” scenarios.

Like any tool, they can be dangerous in the hands of amateurs. Garbage-in, garbage-out is a primary risk. So is being too confident in the absolute numbers, when the directional insights are often the most valid level of granularity.

Nevertheless progressive marketing measurers are using prediction markets to help them better understand and act on the insights they’re deriving from their mix models, their web analytics platforms, and their customer satisfaction and referral studies.

There is a whole lot more to learn about prediction markets before you jump into using them. But in general, you can benefit from using them to answer questions you might be struggling to answer with your current data streams if/when:

You have a suitable pool of “experts” to engage in your marketplace. These experts could be associates, customers, prospects, or industry monitors. The exact number required differs by purpose. Sometimes you can get pretty reliable data from as few as 20 participants; other uses would require hundreds (or thousands) of participants.
You can define your questions in terms of “what would happen if…”
You can engage expert participants by offering something of true value in exchange for their effort and energy. Offering monetary rewards, special recognition, unique access, or other benefits of great interest will help ensure a more vibrant and active prediction market that explores new ground.

Finally, two quick learnings about how to get the most from your prediction markets (based on experience)

Include some “noise” traders who inject provocative suggestions or wagers to ensure you draw reactions (supportive or contrarian) from the smarter traders with better insight.
Run your markets as shorter-term events, and not continuous commitments over extended periods. Request only short-bursts of participants’ time; provide feedback quickly; and progress continually towards a defined end-point.

There’s a great deal of un-tapped insight potential in the clouds. Creative approaches are generating terrific new insights into marketing effectiveness and efficiency at increasingly faster rates. And the subset of “difficult to answer” questions is getting smaller and smaller every day.
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Pat LaPointe is Managing Partner at MarketingNPV – specialty advisors on measuring and improving the payback on marketing investments, and publishers of MarketingNPV Journal available online free at www.MarketingNPV.com.

Metrics for Your "Special Purpose"

2010-10-20T09:54:00.002-04:00

Question: What do Steve Martin (actor) and the ANA’s Masters of Marketing have in common? Read on for the answer.

I’m just back from the ANA Masters of Marketing conference this past week in Orlando.

Celebrating their 100th anniversary, the ANA once again did a superb job of bringing together 1600 members of the marketing community to hear 20 or so CMOs share their stories of success. Most were entertaining. Some were very informative – particularly when ANA CEO Bob Liodice would ask them questions about how they were measuring their success. On the whole it was clear that we (the metrics-loving community at large) have made some substantial progress in this regard as most of the CMOs were able to answer intelligently about what they were measuring and how it related back to business decisions.

But not since Steve Martin starred in “The Jerk” have I heard as much talk about “finding a special purpose”. The unofficial theme of the event seems to have been marketers talking about re-discovering their company’s true purpose in serving customers and enhancing their lives. Some have done elaborate research on their brands to find their “special purpose”. Others went back to the founders or the archives to refresh their institutional memories.

While I applaud the drive for more meaningful connections with customers and prospects, I think this trend poses a risk to lead us astray unless we apply a few carefully chosen metrics in pursuit of purpose.

First, we need to ensure that our purpose is RELEVANT. Those we seek to attract must find our purpose to be consistent with their view of how they want to live their lives, and see the link as to how we can help them do so.

Second, it needs to be MATERIAL. Even if relevant, our purpose may fail to inspire any change in behavior unless it eliminates a significant pain or provides a measurable gain. Most people will live with some degree of pain or inconvenience (tangible or otherwise) until the effort involved in resolving it is clearly less than the expected gain.

Third, our purpose needs to be DISTINCTIVE. It must be seen as somehow uniquely ours to fill. If the needs we are targeting at the core of our purpose can be filled interchangeably by any of our competitors (or other companies even in other industries), then we don’t have a true purpose, we have a slogan. An ad campaign. Some t-shirts. Pursuing a shallow-built purpose has historically been a terrific way to spend lots of money (and executive credibility) without actually achieving any value for shareholders. Hard, tangible value in the form of revenue, profitability, share, customer loyalty, referral networks, channel power, etc.

I wonder just how many companies could find a clear “purpose” that meets all those criteria?

More likely, companies have some ingredients of value proposition to offer that would rise to those standards IF they could better execute against them consistently enough to be recognized in the marketplace.

Chances are that you won’t FIND your purpose by looking through reams of research data. However, if you think you have some clues as to what it MIGHT be, you should be thinking about using various modified conjoint/choice-options types of work to validate it on the dimensions above, and in direct comparisons to WHAT ELSE you might do instead. At least then you would have some more specific sense of the value of achieving your purpose.

Once found, there may be a big role for broad-based advertising to help spark recognition of the match between the needs of the market and the abilities of the firm, as well as to inspire thousands of employees around the world towards a common goal. But as we contemplate using paid, owned, and earned media to get the message of our purpose out, let’s first ensure that we have more than a clever advertising idea to base our hopes (and those of our customers) on.

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Pat LaPointe is Managing Partner at MarketingNPV – specialty advisors on measuring and improving the payback on marketing investments, and publishers of MarketingNPV Journal available online free at www.MarketingNPV.com.

Overcoming the Short-Term Bias in Marketing Measurement

2010-10-05T11:52:00.002-04:00

At best, marketing measurement tends to slant towards short-term payback at the expense of longer-term brand and customer development. But when you add heavy doses of highly measurable online tactics to more quantitatively-elusive offline approaches, the slant can become an outright bias. Unchecked, this can seriously impair the marketer’s ability to make smart decisions beyond the next quarter or two. This is particularly acute with respect to fully integrated programs designed not just for lead generation, but for brand and customer development.

This pressure for short-term payback exists in part because finance cannot afford to “trust” the marketer more than one or two periods into the future, and in part because the marketer cannot “prove” that the immediate impact understates the true value derived. Rising above the stalemate requires some new thinking in how marketers plan, execute, and measure their programs, not to mention the way they communicate their expectations and findings to finance.

So how do we stimulate that new thinking? One way is to employ a Brand Value Chain.

The Brand Value Chain (adapted from Kevin Keller of Dartmouth and Don Lehmann of Columbia) helps clarify and document, for all to see, the anticipated relationship between elements of an integrated marketing program and financial value created through stronger brand equity.

In the simplest version of the Value Chain, an integrated campaign leads to some evolution in brand image, which in turn leads to some change in “equity”, which then translates into financial value.

The best way to understand the Brand Value Chain is to begin with the end in mind. Specifically, what sort of financial value is the integrated campaign supposed to lead to? Is it intended to increase the incidence of purchase? To decrease price sensitivity? To open new distribution channels through superior category leverage? To project more powerful negotiating position to vendors and suppliers? Or some combination of the above?

The Brand Value Chain tests your ability to clarify your expectations logically and to define the specific dimensions upon which brand “equity” must evolve to achieve them. How are you expecting the thoughts, beliefs, attitudes, associations, and permissions people ascribe to the brand to change or grow? What do you believe precedes seeing the desired economic behavior?

Finally, the “image” results are the early indicators (e.g. salient awareness, attribute- or characteristic-specific awareness, or more accurate awareness of the brand’s points-of-parity and/or points-of-difference) of progress. While important, they are a necessary but insufficient condition for a profitable outcome. Acknowledging this works to establish the necessity of time to translate imagery into equity into financial gain.

Once you have the Brand Value Chain constructed in a way that reflects your hypotheses about the way things work, you can identify which links in the chain you are able to test/read/validate and which you cannot. This brings focus to the information gaps and raises the question of tradeoffs between the cost and value of further insight for all to assess. If finance is so keen to have precise insight into the financial outcomes of brand advertising, they should be willing to invest in the research, testing, and experiments that would have to go into properly tracking the flow of results through the value chain. Otherwise, they will have to accept informed assumptions and estimating processes which find the balance between cost and benefit.

The Brand Value Chain has one significant flaw as it appears here. It follows the now widely discredited “hierarchy of effects” theory, which prescribed that awareness leads to conscious consideration which in turn precedes behavior. This linear model has been found to have only limited validity in the real world. However, the Value Chain does provide a great starting point for you to map out how you think your category dynamics operate so you can construct one in a format that is most relevant to your business.

Measuring the impact of integrated marketing over the long run is possible with the application of the right tools and processes. Research, experimental design, factor analysis, and continuous feedback mechanisms all play a role in reducing the unknowns down to comfortable risk levels. It just takes some clarity and precision in defining expectations for marketing’s payback by building financial bridges from short- to long-term value creation.

Pat LaPointe is Managing Partner at MarketingNPV – specialty advisors on measuring and improving the payback on marketing investments, and publishers of MarketingNPV Journal available online free at www.MarketingNPV.com.

5 Things You Can Do TODAY to Improve Your Measurement Foundation

2010-09-21T15:55:00.002-04:00

While the economy may be improving, CFOs will be cautious not to spend too far in advance of strong demand. This will continue to fan the flames under the question of the expected payback on marketing investments, and expose cracks in your measurement foundation.

So now more than ever before it’s critically important to improve your ability to measure and improve your marketing ROI, and your credibility in explaining it. But most marketers can’t spread their resources too thin, so what will really make the most difference to elevate your measurement game?

Here are a few suggestions…

First, get the metrics right. Many marketers are still wrestling with a panoply of things that could be measured, instead of those which should be measured. They have too many metrics concentrated in the business outcomes (e.g. “revenue”) or in the marketing activities (e.g. “web pages implemented”), and not enough in the middle-ground explaining the progression of the engagement and ultimately buying process. Measuring your social media activities down to the millimeter doesn’t matter at all if you don’t have a clue about the financial return of your brand advertising.

The “right” metrics are the ones that A) give you the insights to answer the question “what do I do next?”; B) are calibrated to move up or down as your spend patterns change so you can learn what moves the needle; and C) elicit head-nodding from the CFO for their credibility and validity. They should account for the impact of the vast majority of your marketing spend activity, and always be pushing to link closer and closer to the ability to determine financial value created.

Second, experiment liberally. If you’re not spending at least 10% of your total budget experimenting, your knowledge foundation is crumbling. Deliberate, focused experimentation is the most credible and effective way to test unknowns about strategy, tactical execution, or resource allocation mix, and do so in a “live” environment where all the boogey man variables can and do impact the results. It creates a disciplined approach to continuous learning and improvement that cannot be achieved through research alone.

Third, standardize business case requirements. Each and every proposed initiative above some spending threshold should come with a business case using a common template that forces the proposer to specifically articulate their assumptions about how this investment will ultimately help improve shareholder value in some financial context. This not only helps the quality of the plans submitted, but also permits some portfolio management of options when the resources aren’t quite sufficient to cover all requests.

In the beginning, these business cases will be full of holes. But in time, validated assumptions will fill the holes and become a repository of institutional knowledge for reasonable expectations. Then you’ll be able to approve or reject ideas faster, and with less haggling with finance. Not to mention the insight you’ll gain into where you need to shore-up your key assumptions.

Fourth, stop searching for “proof” and look for insight. When marketing measurement emanates from a defensive posture, it tends to solve small problems in sequence so as to win one argument at a time. This energy consumed by “fighting” these battles tends to blind CMOs from pursuit of the broader understanding of the real drivers of business success.

A better approach is to work with finance, sales, SBU’s and other key stakeholders to lay out the series of key questions you would like to be able to answer, ranked in order of priority. Once you’ve finalized the list, you now have the framework against which to plan your assault on ignorance in a way that engages the whole organization on the path, and sets you on a foundation of credibility.

Fifth, practice transparency. Make every assumption plain for all to see and criticize. Label educated guesses as such. Invite anyone to challenge your knowledge and engage them in a discussion of the practical limits on what might be known at what cost in what timeframe. Present expectations in terms of probabilities and ranges where certainty is lacking, and allow the informed opinions of others to factor into setting those ranges so they begin to have some ownership of the uncertainty “problem” themselves and are thereby more supportive of you spending money to solve it.

Finally, remember that in measurement “no pain, no gain” is very real. It takes focus, effort, and resources to improve your knowledge. These five components will help you lay the right measurement foundation to build on.

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Pat LaPointe is Managing Partner at MarketingNPV – specialty advisors on measuring and improving the payback on marketing investments, and publishers of MarketingNPV Journal available online free at www.MarketingNPV.com.

Measurement Problems? Check Your Credibility Chain.

2010-09-07T11:18:00.002-04:00

Which of the following is the biggest obstacle to better measurement of the payback on marketing investments?

A) Lack of data
B) Low measurement skills
C) Drowning in a thousand metrics
D) Low credibility in the eyes of key stakeholders

While data and skills are critically important components of measurement success, there is no single obstacle more formidable than lack of credibility. Data, after all, can be estimated within reason. Skills can be “rented” while they are being developed. But credibility either exists or it doesn’t. And if it doesn’t, the road back can be long and winding.

Credibility is so crucial since so much of marketing measurement involves making assumptions. Assumptions about the impacts of tactics on prospects; assumptions about the interaction effects between tactics; assumptions about the effects of macroeconomic forces; etc. For every assumption, there is an element of credibility in both the assumption and the assumer. In other words, there are dozens or even hundreds of places where cracks can form in the credibility of any measurement framework.

Managing the credibility of any measurement effort can be broken down into four elements, each of which are necessary to preserve the “credibility chain”.

First, measurement efforts must be seen to be aligned to the needs of the business. Key questions being answered need to be clearly linked to the success of the business in both the current and future perspectives. In addition, those key questions need to be seen as worthy of the resources being allocated to pursuing answers, and “material” to the decisions the business will face.

Once aligned, the measurement effort needs to be seen as comprehensive. Every relevant dimension must be explored fully to leave no stone unturned in search of insight. If there are 100 stones which need to be uncovered and you only explore 99, you get no credit. Rather, you figuratively get hit in the head with the 100th stone by those who feel you may have conveniently ignored it for fear it contained secrets that would undermine your arguments.

But even being comprehensive isn’t sufficient… you need to also be seen as objective in your assessment of what you find under each rock - identifying both the supporting and refuting evidence observed. Yet objectivity is difficult for marketers who tend to see the world through rose-colored glasses, hoping that things we try will work in the marketplace. That’s a natural psychological mechanism in a profession where small failures happen every day on the path to learning. It just needs to be counter-balanced by a concerted effort to question those optimistic tendencies, if for no other reason than to demonstrate that your primary concern is truth, not “proof”.

And finally, when that aligned, comprehensive, objective assessment gets translated into recommendations for how money should be spent, accountability is the perceived result. And people who are seen to be accountable are usually entrusted with more resources and responsibilities.

When you line each of these components up, the end result is credibility in measurement.

If your key stakeholders are questioning the credibility of your measurement efforts, chances are your credibility chain is broken somewhere. Take a look back to see if you have clear alignment on what questions you are answering and how they are prioritized. Ask yourself if there are any other “rocks” that could be turned over. Test your observations with others to see if they are seen as objective. And then check to ensure your recommendations are directly linked to the insights you’ve gained in the process.

It clearly takes more effort to build and preserve a credibility chain than it does to throw ad-hoc metrics and data at your key stakeholders. But it almost always is an investment that leads to longer, more successful tenure in senior marketing roles.

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Pat LaPointe is Managing Partner at MarketingNPV – specialty advisors on measuring and improving the payback on marketing investments, and publishers of MarketingNPV Journal available online free at www.MarketingNPV.com.

Achieving Simplicity in Measurement

2010-08-24T10:20:00.012-04:00

So often I hear that a given approach to measuring the payback on marketing is “too complex”. It often gets voiced as. “This is too complex for our executives to understand. Can’t we just make it simple?”

The answer is YES. We can make it simpler. To do so, we need to start by recognizing that there are several types of “complexity” that need to be managed:

Over time, I’ve come to learn a few things that help in trying to manage these complexities:

Simplicity is the destination, not the starting point. If the answers were simple, you would have found them already. The challenge is to sift through the complexity to identify the real insights - e.g., discovering brand drivers, identifying customer segments, etc. The path towards marketing measurement excellence requires working through complexity to arrive at the core set of appropriate measures, processes and frameworks.

Complexity in measurement is a reflection of complexity in the business. The measurement plan just reflects the nature of the business, and should be on-par with the complexity management already deals with daily. The goal of the measurement plan is to establish a more structured framework for systematically eliminating complexity over time by isolating the most meaningful areas of focus. If you knew those already, you wouldn’t need to search for them through your metrics.

Complexity is only a problem when introduced to the BROAD organization. The totality of the measurement plan and activity will be contained within a small group of people who already manage the current complexity. It is the responsibility of this core group to communicate comprehensiveness without adding any un-necessary complexity. Roll-out to the broader workforce will be the gradual and likely limited by function.

Simplicity, if not thoughtfully pursued, can inhibit competitive differentiation. If the real competitive insights were are as obvious as picking up shells on the beach, everyone would have them. Try not to limit yourself to picking up the same shells as your competitors. Complexity is often a necessary part of meaningful innovation.

Specific to each type of complexity, there are some clear resolution strategies…

In the end, the goal of enhanced marketing measurement is to guide the organization to take bigger, smarter risks to achieve competitive advantage. Identifying and analyzing those risks is always complex. Your measurement approach needs to be based upon the processes, skills, and tools designed to make it SIMPLER in the future than it is today.
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Pat LaPointe is Managing Partner at MarketingNPV – specialty advisors on measuring and improving the payback on marketing investments, and publishers of MarketingNPV Journal available online free at http://www.marketingnpv.com/.

Dashboards - Huge Value or Big Expense?

2010-08-10T09:36:00.002-04:00

I’m hearing more and more “dashboard bashing” these days. Seems that many have tried to implement them, and then drawn the conclusion that the view isn’t worth the climb. I’ve even been inside companies where you cannot even say “dashboard” in front of senior executives for fear of them throwing you out of the room. Likewise, I’ve been inside companies and heard things like “Dashboards are easy. We have hundreds of them.”

Having “written the book” on marketing dashboards several years ago, I think I own part of this problem. And I confess that there are far fewer comprehensive dashboards in use within Global 1000 marketing organizations than I thought there would be by now. In short, it seems it was a good idea in concept, but it just hasn’t “stuck” within most companies. Why?

Well for starters, dashboard design and implementation tends to get delegated down the hierarchy and get treated like campaign management or marketing automation tools. It’s a bit paradoxical, but if a CMO wants an insight-generating dashboard that saves them time, they need to put more time into nurturing its birth and evolution. EVERY successful dashboard implementation I’ve seen (and yes there are a few) shares a common foundation of senior management attention and high expectations. Without that, they are born of a thousand compromises and arrive neutered of their value.

Second, they are set up to fail by unrealistic expectations with regard to resources required. Sure the software to run dashboards is getting much cheaper all the time, but the effort to gather, align, and interpret data is significant. Not to mention the time required to train the staff how to USE the dashboard to THINK differently about the business than they did before. After all, if your dashboard doesn’t offer the prospect of causing people to think differently, why do it when you can just continue to rely on the existing mélange of reports flying around the building?

Third, there is pressure to execute in Excel in the belief that it will be easier and less expensive. In reality, the limitations it imposes undermine the potential to grab people’s imagination and draw them into interacting with data in new ways. The users can’t sense anything different from the reports they currently get. In short, penny wise and pound foolish.

And finally, start with metrics which CAN be measured today (the pragmatist approach) instead of envisioning the spectrum of things which SHOULD be measured (the visionary approach), and force some amount of new learning exploration right from the start. Without this stretch exercise, many dashboards are started with no prospect of new information, and therefore no compelling reason for anyone to take the time to learn to use them.

So to sum up what we’ve learned, I’d say if you're looking for great insight without expense, stay away from dashboards. You'll be disappointed. But don't burn your bridges behind you. After you've searched far and wide for true insight-generating solutions that meet the "good" and "cheap" criteria, you may just arrive back at the reality that insight is derived through dedicated effort over time. And while the current generation of dashboard software options is slick and inexpensive, they won’t perform the most important transformations for you – the process, skill, and culture ones.

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Pat LaPointe is Managing Partner at MarketingNPV – specialty advisors on measuring and improving the payback on marketing investments, and publishers of MarketingNPV Journal available online free at www.MarketingNPV.com.

Catching Lightning in a Bottle

2010-08-03T09:32:00.002-04:00

What do these great marketing breakthroughs have in common?

• MasterCard “priceless”
• Energizer bunny
• “Got Milk?”
• Absolut ________

All were truly “breakthrough ideas”. All were “viral” ad campaigns before there was such a term. But they all were much more than ad campaigns – they were positioning strategies that effectively cemented their brands into the top echelon of their respective categories. They were marketing platforms that have lasted for many years and evolved to adapt effectively in dynamic environments.

Yet of all the marketing jargon that’s penetrated our brains, I think the concept of the “breakthrough idea” may be one of the most dangerous.

Would we all love to have one? Sure. When one comes along, can it revolutionize our business? Absolutely. So what’s the problem? Shouldn’t we all aspire to the same success?

Statistically speaking, most marketing organizations have a better chance of hitting the lottery than they do creating a breakthrough idea that’s more than just a short-lived ad campaign. Declines in both research budgets and internal competencies are primary causes. But internal politics and dynamic competitive environments play a role too. All of which is exacerbated by shorter timelines to produce demonstrable results.

Having spent the better part of the last 10 years crawling inside many Fortune 500 companies to help them measure marketing effectiveness, I have recently come to the (much overdue) conclusion that most measurement problems stem from the core evils of parity value propositions and absence of effective positioning. We’ve somehow managed to shift almost all our efforts from strategic insight development (which we’ve outsourced to consultants and research companies, and then put them on very tight budgetary leashes) to tactical execution in the mistaken belief that the only viable strategy for success in a two-year evaluation window is to catch lightning in a bottle in the form of a positively viral ad campaign. In other words, most unintentionally place themselves in a position where they are relying upon lightning to strike in a specific place during a short window of time.

True, most of the breakthroughs above were born in moments of pure inspiration on either the client or agency side. But those moments were carefully “engineered” to come about through insightful research and market study. They were successful outcomes of a diligent “R&D” process.

As you look ahead to your 2011 budget, how much have you allocated to “R&D”? Not surprisingly, even companies with multi-billion dollar R&D budgets for engineering and product development will likely have just a small fraction of their overall marketing budget dedicated to generating market/customer insights. Far more money will be allocated to unstructured and uncontrolled experimentation with communication tactics in support of messages which are neither “breakthrough” nor effective strategic positioning. Many will invest heavily in analytics to optimize the media mix of campaigns to get the biggest return for the tactical budget, yet will go to sleep at night wondering if they’re actually saying the right things to the right people to inspire the right behaviors.

Increasing the probability of success in marketing almost always comes down to executing against a process of hypothesize, test, learn, refine, repeat. Along the way, you can employ a few metrics to gauge your progress at improving. For example:

Relative Value Proposition Strength – a measure of the degree to which your core value proposition (unbundled from ad execution) is preferred by the target audience relative to the options they see themselves having. Tracking this on a regular basis helps diagnose the extent to which your core offering is driving/depressing results versus your execution of it.
Positioning Relevance – a measure of the degree to which your key positioning points resonate on relevance and materiality scales compared to other positioning strategies the customers/prospects are exposed to from competitors.
Message effectiveness – a measure of the degree to which your message execution is delivering the right message in a compelling and differentiated manner.

Finding out where you score high or low on these metrics will direct and focus your efforts at improvement. It may also help enlighten others around the company as to the need to invest more in developing stronger value propositions through product/service innovation.

Implementing a few structured steps like these can go a long way towards informing your understanding of where and when lightning is more likely to strike, so you can put your bottles in the right places.

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Pat LaPointe is Managing Partner at MarketingNPV – specialty advisors on measuring and improving the payback on marketing investments, and publishers of MarketingNPV Journal available online free at www.MarketingNPV.com.

Twitter Metrics? Why Bother?

2010-06-22T10:46:00.002-04:00

There sure is lots of buzz these days about how to measure Twitter. One recent question submitted was typical… “How do we measure the value of the tweets we’re producing every day?”

Wrong question.

The right question is “SHOULD we measure the value of the tweets we’re producing every day?”

For the vast majority of companies out there, I think not.

It seems to me that Twitter is a productivity tool. You use it to efficiently communicate messages to people who have indicated a desire to hear them. In doing so, you also benefit from their willingness to re-tweet along to others they may know with similar interests.

As such, the inherent value proposition of Twitter is to REPLACE higher cost avenues of reaching interested parties with LOWER cost avenues. Consequently, the financial value of using Twitter for business is the cost savings of reaching the same people more efficiently and/or the now-affordable opportunity of communicating deeper into the universe of current and prospective customers. All of which is, to a reasonable degree, measurable.

So why am I skeptical about measuring tweets?

First off, there are no platform costs for tweeting. No software to buy. No hardware to install. Just use any web-enabled keyboard and you’re off. Everything you need to get started is free. If you’re not adding staff, and/or you’re not keeping staff to tweet when they would otherwise be expendable, then you have NO incremental cost. If this is your situation (and for most of you I suspect it is), then why bother measuring something that comes at no cost? Save your marketing measurement energy (and that of your management team) for bigger, more expensive issues with more meaningful marketing metrics.

But if you add or divert headcount (staff or contractor) to tweeting in a way that adds to cost, you should be prepared to forecast and measure the impact.

Your Twitter business case for adding additional headcount (aka “Chief Tweeting Officer”) is based on the premise that more/better tweeting will drive measurable impact on the business in some way. So you would compare the incremental headcount cost of the tweeters with the expected incremental impact on the business in terms of:

A) Incremental customer acquisition;
B) Incremental customer retention ;
C) Incremental share-of-customer;
D) Incremental margin per customer or transaction;
E) Improvements in staff or channel partner performance;
F) Accelerated transactional value; or
G) Early indication of problems and the resulting benefit of acting quickly to fix them.

Each of these could be determined through a series of inexpensive experiments intended to prove/disprove the hypothesis that tweeting will somehow result in economically attractive behavior. Some might happen as a direct result of the tweeting. Others may be indirect results in association with combinations of additional marketing tactics (e.g. paid search or display advertising). Define your hypotheses clearly and succinctly, then monitor tweet consumption…

Anyone rolling their eyes yet?

Bottom line is that tweeting, like all social media activities, are engagement tools. We use them to try to engage current/prospective customers in further dialogue of investigation of the solutions we can offer them. So from a measurement perspective, that suggests we focus on what specific types of behavioral engagement we are trying to drive, and what economic impacts we anticipate as a result. Measure changes in those two elements and you’re well on your way to success.

There are always ways to measure marketing effectiveness. Everything in marketing can be measured. But the first and most important question to ask is “what would I do differently if I knew the answer to the question I’m asking?” Only then can you decide how to PRAGMATICALLY balance measurement with action.

My friend Scott Deaver, EVP at Avis car rental is fond of saying “don’t bother if you can’t weigh it on a truck scale.” I think that applies very often to twittering away time measuring Twitter.

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Pat LaPointe is Managing Partner at MarketingNPV – specialty advisors on measuring payback on marketing investments, and publishers of MarketingNPV Journal available online free at www.MarketingNPV.com.

How to Get the Budget You Need

2010-06-08T11:03:00.002-04:00

As 2011 planning season approaches, here are a few things you can do to increase the probability that you’ll get the resources you need for marketing to help drive the business goals. Before you go in with your request, work your way down this checklist:

1. Ensure that you are aligned to the proper goals and objectives.
Your recommendations need to be linked back to specific ways they will help achieve company goals – revenue, profit, customer value, market share, etc. The more specifically you can demonstrate these links, the more likely your recommendations will be taken seriously. Don’t focus on the intermediary steps like awareness or brand preference. Keep the emphasis on the business outcomes you intend to influence.

2. Make sure you’ve squeezed every drop from the current spend patterns.
These days, zero-based budgeting is price-of-entry. Before you can ask for more, you need to show how you have “de-funded” things you previously did that either A) didn’t work; B) weren’t aligned to evolving company goals; or C) seem less important now than other initiatives. By offering up some of your own cuts to partially fund your recommendations, you demonstrate a strong sense of managing a portfolio of investments, and a willingness to make hard choices with company money.

3. Have a plan for how you will prioritize the new marketing funds strategically, not just tactically.
If you get another $1, where will you put it? Before you answer in terms describing programs or tactics, think about segments, geographies, channels, product groups, etc. Knowing where the best strategic leverage points are is far more important than tactical mix. You can always evolve the mix of tactics. But the best tactics applied against the wrong strategic needs won’t produce any results.

4. Identify the points of leverage you can exploit.
Results accrue when you place resources behind places of competitive leverage. Knowing where your leverage points are helps ensure you are spending where it will produce noticeable outcomes. Common leverage points are relative value proposition strength, channel dominance, message effectiveness, and customer switchability. There are others too. But spending without leverage is just playing into the hands of the competitive environment. Without leverage, you have no reasonable expectation of changing anything.

5. Demonstrate an understanding of how the business environment has changed.
Even if you have clear leverage opportunities, the business environment is powerful enough to neutralize just about any unilateral effort a given company might make. Sudden swings in the macro-economic spectrum or the regulatory environment could have you spending into an impenetrable headwind and dramatically reduce the expected impact of your investments. Identify the issues that could create the strongest headwind (or tailwind) for you - interest rates, employment rates, housing starts, currency fluxuations – and prepare an assessment of how they might impact your proposed results.

6. Proactively assess the risk of your plans.
As marketers, we plan like matadors, but have the track record of the bull. We spend so much time conceptualizing our plans, but comparatively little imagining what might go wrong. Which is unfortunate, given that something almost always does go wrong. So run your plan by your company’s “Debbie downer” – the skeptical one who always sees the worst in everything. Let her tell you what might derail your plans, and then develop a plan to manage your risks accordingly. Being proactive about identifying and managing risks demonstrates your ability to dispassionately assess options and pursue realistic opportunities for success with your eyes wide open.

7. Propose “good” benchmarks and targets for your intended outcomes.
Every recommendation should come with expected performance outcomes. Even if you present a range of possible results, you’ll need something to demonstrate the baseline of performance you are starting from, and the yardstick by which you will measure success. This creates the perception of accountability, which appeals to the deeply human desire to trust in someone else where our own personal expertise leaves off.

These 7 pre-test elements will prepare you for every question that might arise in connection with your proposals. And while competing investments might ultimately attract the resources you were fighting for, this process ensures your reputation as a capable manager will grow even if your budget doesn’t.

Ten Specific Ways Brand Investments Pay Back

2010-05-25T09:33:00.002-04:00

One of the most frequent questions I get about measuring marketing is: “How do we measure the impact of our investments in brand development on the bottom line?”

If you’re really looking for an answer, here goes:

There are ten basic ways a stronger brand creates financial value.

It can attract more customers, either directly or through stronger WOM.
It can encourage customers to spend more with you, making them more receptive to other solutions you can offer, or just more likely to give you first shot at meeting their needs.
It can influence the mix of products/services customers buy from you, since buyers normally hold strong brands in some degree of esteem and respect the “advice” of the brand.
It can reduce the customer’s price sensitivity, allowing you to earn more margin from every dollar they spend with you.
It can help you keep customers active longer, or at the very least act as a “safety net” to give you time or opportunity to fix problems that arise along the way.
It can help you accelerate the customer’s buying process, reducing the probability that something happens to close the wallet before the spending happens.
It can help you attract and retain better talent at lower recruiting and retention costs as people want to be associated with attractive brands.
It can reduce operating expenses by influencing supplier concessions from companies who want to be associated with top-tier brand partners.
It can attract more/better channel partners.
And if that’s not enough for your CFO, tell them how stronger brands can actually help lower your organization’s cost-of-capital borrowing costs due to the lower risks of lending to a company with strong brands (all other things being equal). It’s not unlike how studies have consistently shown that taller people make more money than equally qualified people of average or lower height.

Most of the time, the business case for branding investments can be made in some combination of these ten elements. Of course, you’ll need some data (or at least some well structured assumptions) to make the case credibly. But it can be done with even just a little data.

You’ll also need some idea of just when you expect to see these effects begin to occur, and what the early indicators of progress might be (e.g. shift in perceptions, web site engagement, etc.). Setting up your marketing metrics to monitor these milestones becomes more crucial to the cause as your timeframe for payback gets longer.

Now if you’re NOT really looking for an answer, but just want to muddy the waters on marketing measurement to sufficiently to frustrate the people asking the question in the hopes they’ll go away, you can do that too (for a while). Just start rambling about how EVERYTHING is branding or related to the brand, and consequently NOTHING is measurable. This can work… for a little while. But eventually the other managers find ways to marginalize you so your budget winds up getting cut. So I’d only recommend this as a stalling strategy while you’re secretly negotiating for your next job.

For the rest of us, the case for brand investment gets clearer all the time. The tools are improving and the body of knowledge is growing fast.

In that vein, I’m sure I’ve missed something in my list above, so please feel free to remind me.

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Pat LaPointe is Managing Partner at MarketingNPV – specialty advisors on measuring payback on marketing investments, and publishers of MarketingNPV Journal available online free at www.MarketingNPV.com.

Newsflash: Biz Media Again Fooled by Bogus Research

2010-05-10T12:54:00.002-04:00

I continue to see a number of highly intelligent business editors covering the marketing industry get fooled into running stories based on PR polls disguised as research. And when that happens, everyone in the marketing community gets hurt.

New research is exciting and relevant to marketers. It leads to new thinking and ideas. And it makes good copy. As an example, one major trade publication recently ran a story about a survey of “Chief Marketing Officers” and marketing measurement with the headline “Survey Finds Marketing Contributes to the Bottom Line.” This undoubtedly made it into countless PowerPoint presentations in budget meetings.

But scratch beneath the surface and this “survey” was comprised of 423 “business executives and marketing professionals” who may have come from any industry, or be in companies ranging from $billion marketing budgets to $10k budgets, or may be CEOs or entry-level managers. In other words, unlike its title indicates, the sample is reflective of no particular group, aside from those willing to be surveyed.

Even more dangerously, the story went on to state that 39% of the respondents agreed the marketing is doing a good job of contributing to the financial condition of the business, up from 19% last year. Presumably this was referring to better use of marketing metrics to better measure marketing. But were these the same people surveyed last year? Were they selected to match the profile of people surveyed last year, so their responses would be scientifically valid? No. They were just this year’s batch of willing respondents, bearing little resemblance to last year’s group, thereby making any sort of trend analysis invalid.

Unfortunately, this is neither uncommon nor harmless. Marketing struggles every day to earn trust and credibility with finance, operations, sales, and other functions that have a more skeptical and discerning eye when it comes to research. But if the marketing media suggests it’s OK to accept PR polls as research, it indirectly encourages marketers to include some of these “findings” in rationalizing their recommendations to others.

In fairness to my hard-working friends in the media, most editors and staff writers (let alone marketers themselves) have not had the benefit of training in how to tell a bogus survey from a truly reliable one. They’re very busy trying to produce more content to feed both online and offline vehicles with smaller payroll and more pressure to get readers. So perhaps I can offer a few simple tips to separate the fluff from the real stuff:

Before you even read a survey’s findings, ask to see a copy of the survey questionnaire and check out the profile of the respondent group so you know how to interpret what you’re being told. Get a clear sense of “who” is supposedly doing/thinking “what” and inquire as to how the respondents were incented. Then ask yourself if a reasonable person would really put the effort into answering completely and honestly.
Check the similarity or differences of the survey respondents. If the vast majority of them share similar traits (e.g. company size, industry group, annual budget), then it’s fair to extrapolate the findings to the larger group they represent. But if no single characteristic (other than being in “marketing”) ties them together, they represent no-one – regardless of the number of respondents. You’ll need to separate the responses by sub-group like larger marketers versus smaller ones, or B2B vs. B2C. In general, you’ll need at least 100+ respondents in any sub-segment to make it a valid result.
Check to see if the sample has been consistent year-over-year. If it has, you can safely say that something has or hasn’t changed from one year to the next. But if the sample profile is substantially different year-to-year, comparisons aren’t valid due to differences in the perspectives or expertise of those responding.
Ask about the margin of error. Just because 56% of some group say they feel/believe/do something, doesn’t mean they actually do. EVERY survey comes with a margin of error. Most of the PR-driven polls in the marketing community use inexpensive data collection techniques which offer no ability to validate what people say and no mechanisms to keep respondents honest. Consequently, 56% may actually mean somewhere between 45% and 65% - which may change the interpretation of the findings. Ask the survey sponsor about margin of error. If they aren’t sure, don’t publish the numbers.

And if all that is too difficult, call me and I’ll give you an unbiased assessment for free.

It’s difficult to produce a survey that provides real insight and meaningful information. That’s why real research costs real money. And while there’s nothing wrong with polls being used to gather perspective from broadly defined populations, or PR folks using these for PR purposes – confusing PR for real research slowly poisons the well for all of us in the marketing community.

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Pat LaPointe is Managing Partner at MarketingNPV – specialty advisors on marketing metrics, ROI, and resource allocation, and publishers of MarketingNPV Journal available online free at www.MarketingNPV.com

Measurement's Exponential Curve

2010-04-27T15:43:00.001-04:00

I attended the Global Retail Marketing Association’s annual leadership conference recently and had the opportunity to interact with a few terrific speakers including Ray Kurzweil – renown futurist in all matters technology. Ray bombarded us with scientifically- and econometrically-based forecasts for where health, computing, and social technologies were headed.

Kurzweil has a pretty good track record in predicting these things (as evidenced by his success as an angel investor) based on a simple concept – that evolution in technology is not linear, but exponential. He cited examples of how this has been true across the technology spectrum time and time again, but also across the spectrum of life in general. By plotting the advent of major advances in life sciences, one can quickly see how the pace of innovation is accelerating. In fact, the average lifespan of a child born today will be well into their upper 80’s, and that lifespan is accelerating. (Do the math, and if those of us in middle age can just wait long enough, we may live forever.)

As I listened, it occurred to me how appropriate this concept was in the arena of marketing measurement too. While marketers have been seeking to improve the effectiveness and efficiency of their efforts almost since marketing was born as a functional discipline in the early 20th century, the pace of discontinuous innovation is accelerating. And when I speak about discontinuous innovation, I’m not referring to the introduction of internet-based research tools, but fundamental changes in the way we are learning to understand marketing’s impact on the consumer/customer.

For example, traditional survey-based research techniques are proving to be far less predictive of human behavior than bio-metric scanning methods that monitor brainwaves, heart rate, respiration changes, or skin temperature. Today, advertisers can expose their creative messages to prospective customers and read the immediate response in involuntary biometric systems which overcome the social and cultural biases that tend to filter logical survey responses.

Another example… many companies are dis-adopting regression-based marketing mix models in favor of artificial intelligence techniques and agent-based models which focus on replicating thought processes in the full context of competitive dynamics, instead of just looking for statistical relationships. True, these higher-intelligence techniques have been around for 30+ years and not yet found significant penetration in marketing applications, but the PACE of adoption is now increasing noticeably and innovation is driving relevance and applicability more quickly than ever.

All of this has me thinking these days that market research may be operating towards the end of its current lifecycle. The tools, methods, and techniques we use today will not persist more than another 10 to 20 years. We will learn to move past recording and clustering rational thought, and past our voyeuristic tendencies to predict future behavior based on past actions. And in the process, we will learn to reconcile what people say, think, and do with the powerfully innate drivers buried deep in our biological wiring – like in this example.

Inevitably, we will see many instances of borderline unethical manipulation which will slow this adoption curve a bit, but the amount of money and time being invested in these new areas of learning is far too great to be stalled by commercial mis-steps along the way.

So when you drag your finger across your touch-screen interface a few years from now, the underlying systems will capture not just what and where you touched, but your heart rate and body temperature at the time (along with possibly the size of your pupils). This information will feed logic-driven systems which will immediately adapt the type of images, sounds, and smells to your innate preferences to stimulate your interest far beyond anything we’ve achieved as marketers so far.

And just think about the impact this will all have on which metrics we adopt to measure performance…
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Pat LaPointe is Managing Partner at MarketingNPV – specialty advisors on marketing metrics, ROI, and resource allocation, and publishers of MarketingNPV Journal available online free at www.MarketingNPV.com.

Memo from the CFO: The Best Response

2010-04-15T11:02:00.003-04:00

Two weeks ago I posted a disguised version of an actual email from the CFO of a Global 1000 company to the CMO of that company, congratulating the CMO on doing a good job of improving marketing efficiency, but then raising questions about the effectiveness of that marketing. I invited readers of Metrics Insider to comment on how they would respond if they were the CMO.

Some of the responses were, not surprisingly, promotional messages for proprietary marketing measurement research or analytical methodologies being positioned as silver bullets to solve the problem. While I’m sure some of these solutions would be helpful to some degree, it’s naïve for ANY executive to pin their hopes of understanding marketing payback on any single tool, method, or metric. Many have tried this approach, but very few have succeeded as the “tool in lieu of disciplined evolution” tends to answer the immediate questions, but loses luster as dynamics (both external and internal) evolve. Besides, CFOs tend to be immediately suspicious of any tool packaged in hyperbole like “all you really need is…”

A few responses were pretty hostile. They came in the form of marketers berating the CFO (aka the “bean-counting techno-wonk”) for asking such questions in a way that implied the CMO should have had a much better handle on marketing effectiveness. (for a more humorous approach along these lines, see what Chris Koch wrote). In truth, there was no malice in the questions posed. Just a bit of naiveté on behalf of the CFO with respect to the subtleties of marketing. Sometimes, that lack of understanding manifests itself in poorly-chosen words. But rarely does that mean the issuer of the words is “anti-marketing”. They are just playing one of the many roles they are paid to play… the role of risk management. If the CFO is to adequately assess the corporate risks (including the risk of wasteful spending), they must have the confidence to challenge the evidence put forward in support of EVERY material investment. If you ask the head of IT, you’ll likely find that they too have felt the heat of the CFOs microscope from time-to-time.

So if your first reaction was anger, get past it. Don’t let your own insecurities about marketing measurement negatively taint your assessment of logical questions that inquisitive but un-informed executives may ask.

I think, all things being equal, the best response would be:

To: Amy Ivers – CFO

From: Susan James – CMO

RE: Congratulations on your recent recognition for marketing efficiency

Amy –

Thanks for your note on measuring marketing effectiveness. You raise many good points that I too have been thinking about for some time. There are a number of ways we can approach answering these questions, but I’d need your help since some would inevitably require us to get comfortable with partial data sets, while others may necessitate a temporary step backwards in efficiency to enable some further testing. Together, we might be able to come up with an approach that John and the others on the executive committee find credible. But it might be a bit more involved than emails can adequately address.

I share your passion for better insight into marketing effectiveness. If you’d like to suggest a few possible dates/times, I’d enjoy getting together to bring you up to speed on what we’ve been able to do so far, where our current knowledge gaps are, and what we’re doing to try to close those gaps. I’d appreciate your critical assessment of what we’re doing, and any suggestions you may have for making us better.

Thanks for your input.

Susan.

In a nutshell, the best strategy in this type of situation is:

Disarm and diffuse. Take the emotion out of it, even if the history frustration runs deep.
Focus on defining the questions to be answered. Don’t jump into evidence-presentment mode until you have agreed on what reasonable questions are. You’ll be shooting at a moving target.
Prioritize the questions. Don’t assume they’re all equally important, or you’ll fracture your answering resources into ineffectively small parts.
Decompose the questions into small pieces. Define the sub-components and assess what the company knows and what it doesn’t know with respect to each of the small pieces. Trying to boil the ocean is another sure way to accomplish nothing.
Admit your knowledge limits. Be clear to label your assertions conservatively as facts, observations, and opinions derived from experience.
Have a continuous improvement plan. Show your plan to improve the company’s marketing effectiveness in stages and manage the expectation that it might take time to tackle all the pieces to the roadmap absent a significant boost in resources.

I realize that many of you are caught in situations where the CFO’s questions may in fact be emanating from some apparent malice. In those cases, use honest questions to understand how much they actually know (as distinct from what they think they know). Their path to self-realization is only as fast as your skillful approach to engaging them to be part of the solution instead of just the identifier of the problem.

Using this approach, even the thorniest marketing/finance relationships can be improved by at least 50% (and I have the statistics to back it up).

Thanks for your comments.
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Pat LaPointe is Managing Partner at MarketingNPV – specialty advisors on marketing metrics, ROI, and resource allocation, and publishers of MarketingNPV Journal available online free at www.MarketingNPV.com.

Memo from CFO: Ad Metrics Not Good Enough

2010-03-30T14:00:00.002-04:00

Following is a sanitized version of an actual email from a CFO to a CMO in a global 1000 company…

TO: Susan James – Chief Marketing Officer

FROM: Amy Ivers – Chief Financial Officer

RE: Congratulations on your recent recognition for marketing efficiency

Susan –

Congratulations on being ranked in the top ten of Media Weeks’ most recent list of “most efficient media buying organizations.” It is a reflection of your ongoing commitment to getting the most out of every expense dollar, and well-earned recognition.

But I can’t help but wonder, what are we getting for all that efficiency?

Sure, we seem to be purchasing GRP’s and click-thru’s at a lower cost than most other companies, but what value is a GRP to us? How do we know that GRPs have any value at all for us, separate from what others are willing to pay for them? How much more/less would we sell if we purchased several hundred more/less GRPs?

And why can’t we connect GRPs to click-thrus? Don’t get me wrong, I love the direct relationship we can see of how click-thrus translate into sales dollars. And I understand that when we advertise broadly, our click-thrus increase. But what exactly is the relationship between these? Would our click-thru rate double if we purchased twice as much advertising offline?

Also, I’m confused about online advertising and all the money we spend on both “online display” and “paid search”. I realize that we are generally able to get exposure for less by spending online versus offline, but I really don’t understand how much more and what value we get for that piece either.

In short, I think we need to look beyond these efficiency metrics and find a way to compare all these options on the basis of effectiveness. We need a way to reasonably relate our expenses to the actual impact they have on the business, not just on the reach and frequency we create amongst prospective customers. Until we can do this, I’m not comfortable supporting further purchases of advertising exposure either online or offline.

It seems to me that, if we put some of our best minds on the challenge, we could create a series of test markets using different levels of advertising exposure (including none) in different markets which might actually give us some better sense of the payback on our marketing expenditures. Certainly I understand that just measuring the short-term impact may be a bit short-sighted, but it seems to me that we should be able (at the very least) to determine where we get NO lift in sales in the short term, and safely conclude that we are unlikely to get the payback we seek in the longer term either.

Clearly I’m not an expert on this topic. But my experience tells me that we are not approaching our marketing programs with enough emphasis on learning how to increase the payback, and are at best just getting better at spending less to achieve the same results. While this benefit is helpful, it isn’t enough to propel us to our growth goals and, I believe, presents an increasing risk to our continued profitability over time as markets get more competitive.

I’d be delighted to spend some time discussing this with you further, but we need a new way of looking at this problem to find solutions. It’s time we stop spending money without a clear idea of what result we’re getting. We owe it to each other as shareholders to make the best use of our available resources.

I’ll look forward to your reply.

Thank you.

So how would you respond? I’ll post the most creative/effective responses in two weeks.
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Pat LaPointe is Managing Partner at MarketingNPV – specialty advisors on marketing metrics, ROI, and resource allocation, and publishers of MarketingNPV Journal available online free at www.MarketingNPV.com.

What 300 Years of Science Teaches Us About WOM Metrics

2010-03-17T09:47:00.002-04:00

In the early 18th century, scientists were fascinated with questions about the age of the earth. Geometry and experimentation had already provided clues into the size of the planet, and to the mass. But no one had yet figured out how old it was.

A few enterprising geologists began experimenting with ocean salinity. They measured the level of salt in the oceans as a benchmark, and then measured it every few months thereafter, believing that it might then be possible to work backwards to figure out how long it took to get to the present salinity level. Unfortunately, what they found was that the ocean salinity level fluctuates. So that approach didn’t work.

In the 19th century, another group of geologists working the problem hypothesized that if the earth was once in fact a ball of molten lava, then it must have cooled to its current temperature over time. So they designed some experiments to heat various spheres to proportionate temperatures and then measure the rate of cooling. From this, they imagined, they could tell how long it took the earth to cool to its present temperature. Again, interesting approach, but it led to estimates that were in the range of 75,000 thousands of years. Skeptics argued that a quick look at the countryside around them provided evidence that those estimates couldn’t possibly be correct. But the theory persisted for nearly 100 years!

Then in the early part of the 20th century, astronomers devised a new approach in estimating the age of the earth through radio spectroscopy – they studied the speed with which the stars were moving away from earth (by measuring shifts in light wave spectrum) and found there was a fairly uniform rate of speed. This allowed them to estimate that the earth was somewhere between 700 million and 1.2 billion years old. This seemed more plausible.

Not until 1956, shortly after the discovery of atomic half-lives, did physicists actually come up with the answer that we have today. When they studied various metals found in nature, they could measure the level of radiation in lead that had cooled from uranium, and then calculate backwards how long it had taken for radiation to achieve its present level. The estimated therefore that the earth was 4 to 5 billion years old.

Finally, in 1959, geologists discovered the Canyon Diablo meteorite and the physicists realized that the earth must be older than the meteorite that hit it (seems logical). So they took radiological readings from the meteorite and dated it at 4.53 – 4.58 billion years old.

Thus we presently believe our planet’s age is somewhere in this range. It took the collective learnings of geologists, astronomers, and physicists (and a few chemists along the way) and over 250 years to crack the code. Thousands of man-years of experimentation traced some smart and some not-so-smart theories, but we got to an answer that seems like a sound estimate based on all available data.

Why torture you with the science lecture? Because there are so many parallels to where we are today with marketing measurement. We’ve only really been studying it for about 50 years now, and only intensely so for the past 30 years. We have many theories of how it works, and a great many people collecting evidence to test those theories. Researchers, statisticians, ethnographers, and academics of all types are developing and testing theories.

Still, at best, we are somewhere between cooling spheres and radio spectroscopy in our understanding of things. We’re making best guesses based on our available science, and working hard to close the gaps and not get blinded by the easy answers.

I was reminded of this recently when I reviewed some of the excellent research done by Keller Fay Group in their TalkTrack® research which interviews thousands of people each week to find out what they’re talking about, and how that word-of-mouth (WOM) impacts brands. They have pretty clearly shown that only about 10% of total WOM activity occurs online. Further, they have established that in MOST categories (not all, but most), the online chatter is NOT representative of what is happening offline, at kitchen tables and office water coolers.

Yet many of the “marketing scientists” are still confusing measurability and large data sets of online chatter for accurate information. It’s a conclusion of convenience for many marketers. And one that is likely to be misleading and potentially career-threatening.

History is full of examples of how scientists were seduced by lots of data and wound up wandering down the wrong path for decades. Let’s be cautious that we’re not just playing with cooling spheres here. Scientific progress has always been built on triangulation of multiple methods. And while accelerating discoveries happen all the time though hard work, silver bullets are best left to the dreamers.

For the rest of us, it’s back to the grindstone, testing our best hypotheses every day.
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Pat LaPointe is Managing Partner at MarketingNPV – specialty advisors on marketing metrics, ROI, and resource allocation, and publishers of MarketingNPV Journal available online free at www.MarketingNPV.com.

Prescription for Premature Delegation

2010-03-04T11:24:00.001-05:00

When responsibility for selecting critical marketing metrics gets delegated by the CMO to one of his or her direct reports (or even an indirect report once- or twice-removed), it sets off a series of unfortunate events reminiscent of Lemony Snicket in the boardroom.

First of all, the fundamental orientation for the process starts off on an "inside/out" track. Middle managers tend (emphasize tend) to have a propensity to view the role of marketing with a bias favoring their personal domain of expertise or responsibility. It's just natural. Sure you can counterbalance by naming a team of managers who will supposedly neutralize each others' biases, but the result is often a recommendation derived primarily through compromise amongst peers whose first consideration is often a need to maintain good working relationships. Worse yet, it may exacerbate the extent to which the measurement challenge is viewed as an internal marketing project, and not a cross-organizational one.

Second, delegating elevates the chances that the proposed metrics will be heavily weighted towards things that can more likely be accomplished (and measured) within the autonomy scope of the “delegatee”. Intermediary metrics like awareness or leads generated are accorded greater weight because of the degree of control the recommender perceives they (or the marketing department) have over the outcome. The danger here is of course that these may be the very same "marketing-babble" concepts that frustrate the other members of the executive committee today and undermine the perception that marketing really is adding value.

Third, when marketing measurement is delegated, reality is often a casualty. The more people who review the metrics before they are presented to the CMO, the greater the likelihood they will arrive "polished" in some more-or-less altruistic manner to slightly favor all of the good things that are going on, even if the underlying message is a disturbing one. Again, human nature.

The right role for the CMO in the process is to champion the need for an insightful, objective measurement framework, and then to engage their executive committee peers in framing and reviewing the evolution of it. Measurement of marketing begins with an understanding of the specific role of marketing within the organization. That's a big task for most CMOs to clarify, never mind hard-working folks who might not have the benefit of the broader perspective. And only someone with that vision can ruthlessly screen the proposed metrics to ensure they are focused on the key questions facing the business and not just reflecting the present perspectives or operating capabilities.

Finally, the CMO needs to be the lead agent of change, visibly and consistently reinforcing the need for rapid iteration towards the most insightful measures of effectiveness and efficiency, and promoting continuous improvement. In other words, they need to take a personal stake in the measurement framework and tie themselves visibly to it so others will more willingly accept the challenge.

There are some very competent, productive people working for the CMO who would love to take this kind of a project on and uncover all the areas for improvement. People who can do a terrific job of building insightful, objective measurement capabilities. But the CMO who delegates too much responsibility for directing measurement risks undermining both the insight and organizational value of the outcome -- not to mention the credibility of the approach in the eyes of the key stakeholders.
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Pat LaPointe is Managing Partner at MarketingNPV – specialty advisors on marketing metrics, ROI, and resource allocation, and publishers of MarketingNPV Journal available online free at www.MarketingNPV.com.

Lose the Marketing Love Handles Without Lifting a Finger

2010-02-16T16:42:00.001-05:00

I got an email the other day from a marketing technology company trumpeting their software’s ability to help me “improve marketing ROI without lifting a finger.” Wow. Incredible. Can’t be true, can it?

I asked for a demonstration copy to see if I could realize the incredible benefit, but no luck. They wouldn’t send me one. So to test the validity of the claim, I went to the center of all things factual – the internet - to see what else I could do without lifting a finger. The options are amazing. I can:

Lose 20 pounds
Find a high-paying new job
Earn a college degree
Write a book (someone else will do it for me)
Drive more traffic to my website
Be healthier
Look better
Attract more members of the opposite sex
And, my personal favorite, grow more hair.

I feel stupid. I’ve been spending so much time at the gym, writing my own books, taking my own college exams, choosing my own food carefully, and fretting over my hair. I could have spent all that time goofing off and gotten better results.

And I’m really pissed off about the effort I’ve wasted on measuring and improving marketing ROI. For seven years now, I’ve been working on improving marketing ROI all day every day; working with hundreds of marketing, finance, and sales managers in dozens of companies; overcoming obstacles of technical, structural, cultural, and political dimensions; making slow and steady progress.

NOW I discover that, had I just purchased the right software, I could have achieved much more with virtually NO effort. If my clients ever find out, I’m screwed.

On the whole, I think this magic ROI elixir software is really a good thing. It will:

Reinforce CMOs’ desire to believe that they can and should delegate ROI efforts even further down the org chart. Afterall, they have many more important things to worry about.
Give marketing managers something more tangible to point to when asked “what are you doing to improve the return on our marketing investment?” Of course, we’ve bought some software to fix that.
Postpone the question another year while the software winds its way through the procurement process and then gets passed around the IT department – all the while allowing the marketers to keep doing things the way they have been doing them.
Befuddle the finance department and get them off marketing’s back. You know how those finance guys love data. They’ll gladly wait awhile if they think there’s some data coming.

So forget all that phooey about aligning on metrics, implementing smart experiments, and methodically improving analytics. Don’t waste time on smarter marketing research. Just cut that shrink wrap on the software box, hit “install”, and off you go.

Then wait for the Easter Bunny to deliver your bonus check.

Hyperbole is a dangerous tool in the hands of marketers – particularly when it comes to measuring marketing ROI. It undermines our credibility with the more serious financial types who often are key influencers on how much we get in the way of resources and what we can do with it. It reinforces their perceptions of marketers as wild-eyed optimists willing to try anything new to deflect the gravity of the questions being asked. Besides, if there WERE a magic marketing ROI software, do you really think your progressively-minded organization would be amongst the very first to find it?

Bad news. There is still no substitute for diligent, disciplined work when it comes to measuring the payback on marketing. Technology enables, but vision and persistence win every time. Show me a company with the will to work at it, and I’ll show you the company that will get clear insights into their ROI long before the software buyers ever realize they’ve been misled.

Measuring and improving ROI is much more like going to the gym every day; watching what you eat; taking classes to earn a degree; and (take it from one who’s done it) writing a book yourself. Persistent, methodical effort is rewarded with great benefits.

So let’s get after those spending love handles and the marketing muffin top.
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Pat LaPointe is Managing Partner at MarketingNPV – specialty advisors on marketing metrics, ROI, and resource allocation, and publishers of MarketingNPV Journal available online free at www.MarketingNPV.com.

2010-02-02T10:58:00.004-05:00

My friend and business partner, Dave Reibstein of Wharton, writes an advice column called Ask Dave where former students write in with questions on marketing metrics and he offers some sage advice. This recent correspondence caught my attention for its relevance and timeliness for all of you with new fiscal years beginning soon…

Dear Dave –

I’m a finance manager at a large industrial manufacturer. I often sit in the meetings where marketing comes in and shows us how low our marketing spend is compared to our competitors, and then asks for more money.

Maybe I’m wrong, but I don’t see that matching competitor spend is a path to success, is it? How should I coach our marketing team about what a better analysis would look like and what information they should bring to the table?

Sincerely –
Geoff D. in Chicago

Dear Geoff —

The right amount of spend is indeed a relative thing. Our product appeal, our pricing, our packaging, and just about every aspect of our value proposition are only important RELATIVE to the alternatives the customer has. Likewise, our spending is also, in part, only effective RELATIVE to what others are spending. But there are huge risks tied to making that relative spend the center of any strategy, as we are often following moves that deserved no response.

For example:

A while back there was a “holey war” between laundry iron manufacturers. One first put holes on the bottom of their iron allowing for steaming of the linens as they were being ironed. The competitor responded by adding more holes to their own model. Then the race was on to see who could add more and more holes until the number of holes was well beyond what the customer cared about.

Pepsi chased Coke into the low carb soft drink market (half the calories and half the carbs of normal colas). Hundreds of millions were spent before anyone realized that consumers that cared about their carb intake wanted ZERO carbs and calories, not half.

P&G chased after Kimberly Clark in the introduction of moistened toilet tissue. Both were greeted with failure in this market.

In each case, it was easier to approve the budgets for these programs once it was learned that competition was going to be moving there too. Fear of falling behind is a powerful motivator. The aversion to loss is much greater than the attraction of gain (see Prospect Theory). Marketing managers who use competitive spending as a primary justification for their own spending are (most often unknowingly) playing to this loss-aversion instinct.

But when we measure success on a relative basis (e.g. “share of voice” or “market share”), our behavior is only intended to keep up with competition. Also, the notion that we shouldn’t spend on something until we witness competition doing so implies that competition knows more about the right action than we do, which is very often not true. So, it results in the unwise being led by the same. Even worse it results in never taking the steps to actually get ahead of the competition.

The proven path to success is careful analysis of what makes a difference. Rigorous testing of historical data, or experimentation with spending levels to see what really does work will allow for taking progressive acts without having to wait for competition to move ahead. Smarter companies seem to gauge success on the absolutely impact marketing has on the financial goals of the firm.

It all comes down to what your mother always told you… “have a mind of your own”.

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Pat LaPointe is Managing Partner at MarketingNPV – specialty advisors on measuring payback on marketing investments, and publishers of MarketingNPV Journal available online free at www.MarketingNPV.com.

The Cost of NOT Branding

2010-01-19T16:18:00.002-05:00

It’s a simple formula: recession requires more tactical spending. This year’s budget = + online spend + social activity + lead generation campaigns – brand investment.

When the dollars get tight, spend shifts to more tangible, less expensive marketing programs with the promise of shorter-term returns (or at least lower costs). Not that there’s anything wrong with saving a few bucks wherever you can get the job done more efficiently. But when saving money becomes the goal instead of a guideline, something big always suffers… usually the brand.

While this is an important problem within the B2C community, it is absolutely URGENT within the B2B community. B2B marketers in large numbers have seen their marketing resources cut back dramatically for anything that isn’t expected to generate significant near-term flows of qualified sales leads. Why? Because absent good metrics to connect brand or longer-term asset development to actual financial value, these things were seen as strategic luxuries that could be postponed.

If I were a CFO looking for strategies to free up cash, I might have reached the same conclusion. Unless my marketing team could explain to me the cost of NOT investing in brand.

Here’s an example… A B2B enterprise technology player (Company X) dropped all marketing programs except those that A) specifically promoted product advantages or B) generated suitable numbers of qualified leads to offset the cost. After a few months, leads were on target, but the sales closing cycle was creeping up. What was originally a 6 to 9 month cycle was becoming 9 to 12 months. Further analysis and research amongst prospects and customers showed that indeed some of this delay was being caused by the general economic uncertainty and the need for buyers to rationalize their purchases internally with more people. But fully 45 days of this extended cycle (estimated by sales managers) was happening because the ultimate decision-makers weren’t sufficiently familiar with the strength of Company X’s product/service offering. (They thought Company X made small consumer electronics, and were not a serious player in enterprise tech.) So the sales team had to make repeated visits and presentations just to work their way into the game to compete on feature/function/price/value.

In this case, the question of the cost of NOT branding could be measured by the increased cost of direct sales associated with NOT branding. Specifically, if Company X measures the sales cost/dollar of contribution margin amongst accounts with strong brand consideration versus those with little-to-no brand perceptions, they should expect to see at least a 50% difference (nine months of effort vs. six), half of which would be attributable to low levels of brand consideration. Multiply that by the percentage of prospects in the addressable market with low levels of brand perception, and you can quickly derive a rough approximation of the cost of NOT branding, expressed either in terms of additional sales headcount required to compensate for lack of branding, or in terms of sales opportunity cost to compensate for an underdeveloped brand. Either way, an imminently measurable problem that would better illuminate the business case for investing in brand development.

There are many other ways to measure the cost of NOT branding, including relative margin realized and strategic segment penetration, amongst others. The right approach for you will depend upon your organizations key business goals.

Now I’m NOT advocating branding as a solution in every circumstance. Nor am I a proponent of the idea that marketing should generally be spending more money versus less. But as a tireless advocate for marketing effectiveness and efficiency, I think we too often fail to examine the business case for NOT doing something as a means of pushing past cultural and political obstacles in our management teams. Remember, there are always two options… DO something, and NOT do something. Each are definitive choices requiring their own payback analysis.

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Pat LaPointe is Managing Partner at MarketingNPV – specialty advisors on measuring payback on marketing investments, and publishers of MarketingNPV Journal available online free at www.MarketingNPV.com.

Forecast for 2010: Better Forecasting

2010-01-05T12:56:00.001-05:00

Yogi Berra said, “It’s tough to make predictions, especially about the future.” Yet the turn of the year (and the decade) makes forecasting an irresistible temptation. But what if forecasting is part of your job, not just a hobby? How do make sure your forecasts are smart, relevant, and even (dare I say) accurate?

While advanced mathematics and enormous computational power have improved forecasting potential significantly, few would argue that forecasting is an exact science. That’s because at its core, forecasting is still mostly a human dynamic where accuracy is dependent upon…

asking the right people the right questions;
their willingness to answer truthfully and completely;
the ability to separate the meaningful elements from the noise; and,
the openness of the forecaster to suggestions of process improvement.

That last point is key: process improvement.

Consistently good forecasting isn’t a mathematical exercise performed at regular intervals (e.g., quarterly) as much as it’s an on-going process of gathering and evaluating dozens or hundreds of points of information into a decision framework. Then, when called upon, this decision framework can output the best forward-looking view grounded in the insights of the contributors. While software can facilitate process structure by prompting for specific fields of information to be included, it cannot make judgments on the quality of the information being input. Garbage in; garbage out.

As marketers, our job is to consistently prepare forecasts that help our companies conceive, plan, test, build and ultimately sell successful products and services. Sound forecasting processes form the foundation of an “early warning” system to alert the rest of the organization to the need to rethink its market orientation. In essence, forecasting becomes the rudder that can help your company stay the course, change directions, or navigate uncharted waters with confidence. As such, marketing migrates from being a tactical player to a strategic resource for the CEO when forecasts become more accurate, timely, and reliable.

Five Keys to Better Forecasting

Here are a few things I’ve learned over the years which result in much better forecasts:

Be Specific. Define exactly what you are trying to forecast. If you say “sales”, what do you really mean? Revenue? Unit volume? Gross Margins? Net profit? The differences are substantial and might cause you to take very different approaches to forecasting. Likewise, having some sense of how far out you need to forecast (e.g. 3 months, 12, 36, etc.) and how accurate you need to be will guide you to use forecasting methods and processes better suited to your objectives.
Be Structured. Being methodical in defining all of the dimensions, variables, facts, and assumptions will pay huge dividends in several ways, including explaining your forecast to skeptics and inspiring confidence that you’ve been comprehensive and credible in your approach.
Be Quantitative – With or Without Data. Regardless of how little data you have, there are scientifically developed and proven ways of making better decisions. You may not have the raw materials for statistical regression forecasting, but you surely can use Delphi techniques or other judgmental calculus tools to transform perceptions and intuition of managers into data sets which can be more fully examined and questioned. Often, the process of quantifying the fuzzier logic uncovers great insights that were previously overlooked.
Triangulate – Use multiple forecasting methods and see how the results differ. Chances are that the “reality” is somewhere within the triangle of results. That level of accuracy may be sufficient. But even if it isn’t, the multiple-method approach highlights weaknesses in any single method which might otherwise be overlooked – and that in itself leads to more accurate forecasts.
KISS – Keep it simple, stupid. As with most things in life, simplicity is a virtue in forecasting. Einstein said that “things should be made as simple as possible, but no simpler.” In forecasting, we interpret that to mean that an accurate and reliable forecasting process should be comprehensive enough to identify the truly causal factors, but simple enough to explain to those who will need to make decisions upon it. There is no power in a forecast if those who need to trust it cannot understand or explain the logic and process behind it.

Recognizing forecasting to be a complex human decision process is the first step towards dramatically improving your batting average and improving the accuracy and reliability of the forecasts coming out of your department.

If you’re interested in learning more, here is some expanded forecasting insight, and some great sources of forecasting methods and tools.

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Pat LaPointe is managing partner at MarketingNPV – specialist advisors on marketing measurement and resource allocation, and publishers of MarketingNPV Journal available online free at www.MarketingNPV.com.

Measuring What Matters Most

2009-12-22T16:37:00.005-05:00

What is the most important thing in your marketing plan to measure?
A) Campaign response.
B) Customer satisfaction.
C) Brand value.
D) Media mix efficiency.
E) All of the above.

The fact is that there are so many things to measure, more and more marketers are getting wrapped around the axle of measurement and wasting time, energy, and money chasing insight into the wrong things. Occasionally this is the result of prioritizing metrics based on what is easy to measure in an altruistic but misguided attempt to just “start somewhere”. Sometimes, it comes from an ambitious attempt to apply rocket science mathematics to questionable data in the search for definitive answers where none exist. But most often it is the challenge of being able to even identify what the most important metrics are. So here’s a way to isolate the things that are really critical, and thereby the most critical metrics.

Let’s say your company has identified a set of 5 year goals including targets for revenue, gross profit margin, new channel development, customer retention, and employee productivity. The logical first step is to make sure the goals are articulated in a form that facilitates measurement. For example, “opening new channels” isn’t a goal. It’s a wish. “Obtaining 30% market share in the wholesale distributor channel within five years” is a clear, measurable objective.

From those objective statements, you can quantitatively measure the size of the gap between where you are today and where you need to be in year X (the exercise of quantifying the objectives will see to that). But just measuring your progress on those specific measures might only serve to leave you well informed on your trip to nowheresville. To ensure success, you need to break each objective down into its component steps or stages. Working backwards, for example, achieving a 30% share goal in a new channel by year 5 might require that we have at least a 10% share by year 4. Getting to 10% might require that we have contracts signed with key distributors by year 3, which would mean having identified the right distributors and begun building relationships by year 2. And of course you would need all your market research, pricing, packaging, and supply chain plans completed by the end of year 1 so you could discuss the market potential intelligently with your prospective distributors.

When you reverse-engineer the success trajectory on each of your goals, you will find the critical building block components. These are the critical metrics. Monitor your progress towards each of these sub-goals and you have a much greater likelihood of hitting your longer-range objectives.

Kaplan and Norton, the pair who brought you the Balanced Scorecard and Strategy Mapping, have a simple tool they call Success Mapping to help diagram this process of selecting key measures. Each goal is broken down into critical sub-goals. Each sub-goal has metrics that test your on-track performance. A sample diagram follows.

By focusing on your sub-goals, you can direct all measurement efforts to those things that really matter, and invest in measurement systems (read: people and processes, not just software) in a way that’s linked to your overall business plan, not as an afterthought.

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Pat LaPointe is managing partner at MarketingNPV – objective advisors on marketing measurement and resource allocation, and publishers of MarketingNPV Journal available online free at www.MarketingNPV.com.

Making the "Best" Business Case for Marketing Investments

2009-12-08T14:45:00.002-05:00

More than ever before, the approval of any significant marketing initiative is dependent upon a compelling business case. A business case is meant to function as a logical framework for the organization of all of the benefit and cost information about a given project or investment.

Working with this definition, one might conclude that a “good” marketing business case is one that increases the quality of decision making. Yet many of us in marketing have come to believe that a good business case is one that predicts a significantly positive ROI, IRR, and/or NPV for a given investment. Strangely, we tend to water-down any assumptions that actually seem to make the case “too good,” lest someone in finance really begin questioning our assumptions. Have you ever found yourself…

Using aggressive, moderate, and conservative labels on business case scenarios to show how even the most conservative view provides a strong potential return, and anything beyond that is gravy?
Identifying the always-low break-even point at which expenses are recaptured fully, and showing how this point occurs even below the conservative outcome scenario?
Taking a “haircut” in assumptions to show how, “even if you cut the number in half, the result is still positive.”

Every time you use one of these approaches in an effort to build credibility with finance or other operating executives, you paradoxically wind up undermining it instead. These tactics all have been shown to communicate subtle messages of inherent bias and manipulative persuasion which, intended or not, are noticeable to non-marketing reviewers – even if only on an instinctive level versus a conscious one.

In my experience, business cases get rejected most often for one of the following reasons:

Bias – senior management perceives that marketing is trying to “sell” something rather than truly understand the risk/reward of the proposed spending recommendations.
Jumping to the Numbers – showing final forecasts which contradict executive intuition before they have had a chance to reconsider the validity of those instincts.
Credibility of Assumptions – forecasts seem to ignore the effect of key variables or predict unprecedented outcomes.

Successful business-case developers recognize that there is more at stake than just getting funding approved. In reality, there are several objectives which must all be achieved with every business case:

Protecting personal credibility. Any one program or initiative may be killed for many possible reasons. But you will still need to come to work tomorrow and be effective with your executives, peers, and team members. Preserving (and strengthening) your personal credibility is therefore the paramount objective.
Enhancing the role of marketing. If you have personal credibility, you will want to use it to take smart risks to help the company achieve its objectives, and to influence matters relating to strategy, products, markets, etc. In the process, you need to be thinking about the role of the marketing function; how it can best serve the firm; and how you need to evolve it from what it is today.
Bringing attractive options to the CEO – the kind that forces him/her to make hard decisions choosing between financially appealing alternatives.

There are always two dimensions to business case quality – financial attractiveness, and credibility of assumptions. In the end, it takes more than just financial attractiveness for a successful business case. It takes:

Thoughtfulness: demonstrating keen understanding of the role marketing plays in driving business outcomes and reflecting the input of the most critical stakeholders throughout the organization.

Comprehensiveness: including all credible impacts of spending recommendations, and calculating benefits and costs at an appropriate level of granularity.

Transparency: Clearly labeling all assumptions as such and presenting them in a way that encourages healthy discussion and challenge.

There are many ways to build a successful business case. But the most important learning is to understand the context in which your proposal will be evaluated BEFORE you put the numbers on the table.

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Pat LaPointe is managing partner at MarketingNPV – objective advisors on measuring payback on marketing investments, and publishers of MarketingNPV Journal available online free at www.MarketingNPV.com.

Let's Bury John Wanamaker

2009-11-12T16:50:00.003-05:00

There were so many interesting aspects of this year’s Masters of Marketing conference. One in particular caught my attention right up-front on Friday morning…

In this, the 100th year of the ANA, there are still lots of questions surrounding which 50% of advertising is “wasted”. I find that astounding. That 100 years later we’re still having this debate.

Maybe it’s because the very nature of advertising defies certainty.

Or maybe the definition of “wasted” is too broad.

Or maybe the reality is that the actual waste factor has been reduced to significantly less than 50%, but no one famous ever said that “15% of my advertising is wasted, I just don’t know which 15%.” And it wouldn’t make for a provocative PowerPoint slide even if they did.

It’s difficult to ignore the many signs of great progress we’ve made as an industry towards better understanding the financial payback of marketing and advertising. For example:

Research techniques have improved and the frequency of application has increased to provide better perspective on how actions affect brands and demand.
We’ve not only embraced analytical models in many categories, but have moved to 2nd and even 3rd generation tools that provide great insight.
We’ve adopted multivariate testing and experimental design to test and iterate towards effective communication solutions.
We’re learning to link brand investments to cash flow and asset value creation, so CFOs and CEOs can adopt more realistic expectations for payback timeframes.

All of this is very encouraging. Most of the presenters at this year’s conference included in their remarks evidence that they have been systematically improving the return they generate on their marketing spend by use of these and other techniques. So where is the remaining gap (if indeed one exists)?

First off, it seems that we’re often still applying the techniques in more of an ad-hoc than integrated manner. In other words, we appear to be analyzing this and researching that, but not actually connecting this to that in any structured way.

Second, while some of the leading companies with resources to invest in measurement are leading the charge, the majority of firms are under-resourced (not just by lack of funds, but people and management time too) to realistically push themselves further down the insight curve. In other words, the tools and techniques have been proven, but still require a substantial effort to implement and adopt.

Third, not everyone agrees with Eric Schmidt’s proclamation that “everything is measurable”. Some reject the basic premise, while others dismiss its applicability to their own very non-Google-like environments.

So what will it take to put John Wanamaker out of our misery before the 200th anniversary of the ANA?

Training – exposing more marketing managers to more measurement techniques so they can apply their creative skills to the measurement challenge with greater confidence.
A community-wide effort to push down the cost of more advanced measurement techniques, thereby putting them within reach of more marketing departments.
An emphasis on “integrated measurement”. We’ve finally embraced the concept of “integrated marketing”. Now we have to apply the same philosophy to measurement. We need to do a better job of defining the questions we’re trying to answer up-front, and then architecting our measurement tools to answer the questions, instead of buying the tools and accepting whatever answers they offer while pleading poverty with respect to the remaining unanswered ones.
We should eat a bit of our own dog food and develop external benchmarks of progress (much like we do with consumer research today). Let’s stop asking CMOs how they think their marketing teams are doing at measuring and improving payback, and work with members of the finance and academic communities to define a more objective yardstick with which we can measure real progress.

As we embark on the next 100 years, we have the wisdom, technology, and many of the tools to finally put John Wanamaker to rest. With a little concerted effort, we can close the remaining gaps to within a practical tolerance and dramatically boost marketing’s credibility in the process.

From Time’s a Wasting – for more information visit anamagazine.net.
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Pat LaPointe is managing partner at MarketingNPV – objective advisors on measuring payback on marketing investments, and publishers of MarketingNPV Journal available online free at www.MarketingNPV.com.

"That is the Big Challenge" says Eric Schmidt

2009-11-12T12:17:00.002-05:00

I had a chance to talk briefly with Eric Schmidt, CEO of Google, at last week’s ANA conference. He’d just finished sharing his take on marketing and advertising with 1200 of us representing marketers, agencies, and supporting service providers. He said:

Google backed away from managing radio and print advertising networks due to lack of “closed loop feedback”. In other words, they couldn’t tell an advertiser IF the consumer actually saw the ad or if they acted afterward. Efforts to embed unique commercial identifiers into radio ads exist, but are still immature. And in print, it’s still not possible to tell who (specifically) is seeing which ads – at least not until someone places sensors between every two pages of my morning newspaper.

Despite this limitation, Schmidt feels that Google will soon crack the code of massive multi-variate modeling of both online and offline marketing mix influences by incorporating “management judgment” into the models where data is lacking, thereby enabling advertisers to parse out the relative contribution of every element of the marketing mix to optimize both the spend level and allocation – even taking into account countless competitive and macro-environmental variables.

That “everything is measurable” and Google has the mathematicians who can solve even the most thorny marketing measurement challenges.

That the winning marketers will be those who can rapidly iterate and learn quickly to reallocate resources and attention to what is working at a hyper-local level, taking both personalization and geographic location into account.

On all these fronts, I agree with him. I’ve actually said these very things in this blog over the past few years.

So when I caught up with him in the hallway afterward, I asked two questions:

How credible are these uber-models likely to be if they fail to account for “non-marketing” variables like operational changes effecting customer experience and/or the impact of ex-category activities on customers within a category (e.g., how purchase activity in one category may affect purchase interest in another)?
At what point do these models become so complex that they exceed the ability of most humans to understand them, leading to skepticism and doubt fueled by a deep psychological need for self-preservation?

His answers:

“If you can track it, we can incorporate it into the model and determine its relative importance under a variety of circumstances. If you can’t, we can proxy for it with managerial judgment.”
“That is the big challenge, isn’t it.”

So my takeaway from this interaction is:

Google will likely develop a “universal platform” for market mix modeling, which in many respects will be more robust than most of the other tools on the market – particularly in terms of seamless integration of online and offline elements, and web-enabled simulation tools. While it may lack some of the subtle flexibility of a custom-designed model, it will likely be “close enough” in overall accuracy given that it could be a fraction of the cost of custom, if not free. And it will likely evolve faster to incorporate emerging dynamics and variables as their scale will enable them to spot and include such things faster than any other analytics shop.
If they have a vulnerability, it may be under-estimating the human variables of the underlying questions (e.g., how much should we spend and where/how should we spend it?) and of the potential solution.

Reflecting over a glass of Cabernet several hours later, I realized that this is generally a good thing for the marketing discipline as Google will once again push us all to accelerate our adoption of mathematical pattern recognition as inputs into managerial decisions. Besides, the new human dynamics this acceleration creates will also spur new business opportunities. So everyone wins.

The 5 Questions That Kill Marketing Careers

2009-10-30T12:43:00.002-04:00

As the planning cycle renews itself, you should be aware of 5 key questions which have been known to pop up in discussion with CEOs/CFOs and short-circuit otherwise brilliant marketing careers.

What are the specific goals for our marketing spending and how should we expect to connect that spending to incremental revenue and/or margins?
What would be the short and long-term impacts on revenue and margins if we spent 20% more/less on marketing overall in the next 12 months?
Compared to relevant benchmarks (historical, competitive, and marketplace), how effective are we at transforming marketing investments into profit growth?
What are appropriate targets for improving our marketing leverage ($’s of profit per $ of marketing spend) in the next 1/3/5 year horizons, and what key initiatives are we counting on to get us there?
What are the priority questions we need to answer with respect to informing our knowledge of the payback on marketing investments and what are we doing to close those knowledge gaps?

How you answer these five questions will get you promoted, fired, or worse - marginalized.

If you tend to answer in a dizzying array of highly conceptual (e.g., brand strength rankings compared to 100 other companies) and/or excruciatingly tactical (e.g., cost per conversion on website leads) “evidence”, stop. Preponderance of evidence doesn’t win in the court of business. Credible, structured attempts to answer the underlying financial questions does.

The five questions are all answerable, even in the most data-challenged environments. Provided, of course, that you build acceptance of the need for some substantial assumptions to be made in deriving the answers – much the same way as you would in building a business case for a new plant, or deploying a new IT infrastructure project. The key is to make the assumptions explicit and clearly define the boundaries of facts, anecdotes, opinions, and guesses. Think in terms of:

Clarifying links between the company’s strategic plan and the role marketing plays in realizing it;
Connecting every tactical initiative back to one or more of the strategic thrusts in a way that makes every expenditure transparent in its intended outcome, thereby promoting accountability for results at even the most junior levels of management;
Defining the right metrics to gauge success, diagnose progress, and better forecast outcomes;
Developing a more methodical (not “robotic”) learning process in which experiments, research, and analytics are used to triangulate on the very types of elusive insights which create competitive advantage; and
Establishing a culture of continuous improvement that seeks to achieve quantifiably higher goals year after year.

As you evaluate push boldly into 2010, remember that 2011 is just around the corner. You may not have been asked these hard questions this year, but who knows who your CFO might talk to next year (me, perhaps??) that will ratchet up his/her expectations. You can prepare by using these five questions as a framework to benchmark where your marketing organization is starting from; as a guide to ensure that sufficient resources are being allocated to promote continuous learning and improvement; and as a means of monitoring the performance of your marketing organization.

_________________________

Pat LaPointe is Managing Partner at MarketingNPV – specialty advisors on measuring payback on marketing investments, and publishers of MarketingNPV Journal available online free at www.MarketingNPV.com.

2009-09-30T12:37:00.003-04:00

Memorandum
To: John Buleader
From: Barbara Researcher
Subject: How to improve our Net Promoter Scores

In response to your question of last week, I have considered several options for how we can improve our recently flagging Net Promoter scores and thereby increase that portion of our year-end bonus linked to that specific metric.

We could restrict our sample of surveyed respondents to only those who have recently purchased from us, and ignore those who either didn’t like us enough to buy from us as well as those who bought from us a while ago buy may be having second thoughts due to our poor reliability and service.
We could change our sampling approach to only solicit surveys from those who buy online since our website is so slick and efficient. This has the added benefit of reducing our research expenses so we can still afford those front-row football tickets.
We could change the way we calculate Net Promoter to take the percentage of customers who score us as 7 trough 10’s and subtract those who score us as 1’s or 2’s since we know that 3’s to 6’s are really the “marginal” middle group and thereby take some credit for producing partial satisfaction.
We can offer customers a $10 bonus coupon to allow our sales associates to “help” them complete the survey before they leave the store, thus providing both convenience and value to our customers.
We can reduce the frequency of surveying from monthly to annually so as to make it virtually impossible to link our marketing or sales actions back to increases or decreases in the scores. This will create much confusion over interpretation and causality that bonuses will have long been paid by the time anyone actually agrees on what to do next.
We can have our sales reps do the surveying themselves. This will allow us to capture notations about body language of the respondents too (side benefit: see football reference above).

Any or all of these strategies could essentially ensure success. Provided our market share doesn’t fall too fast, we’re unlikely to draw any undue attention.

Please let me know how you would like to proceed. We can also adjust any of our other metrics in similar ways.
_________________________

Pat LaPointe is Managing Partner at MarketingNPV – specialty advisors on measuring payback on marketing investments, and publishers of MarketingNPV Journal available online free at www.MarketingNPV.com.

Eat Pizza; Stay Thin - But Sacrifice Credibility

2009-09-18T10:49:00.003-04:00

There it is again.

I’m sitting in a presentation at a meeting of a group of mid-level marketers representing some of America’s biggest ad budgets. The speaker, who is representing a media source (monopoly, government owned), is telling us that spending more on marketing in a recession is a good way to improve ROI. His argument: most marketers pull back in a recession, so if you maintain or increase your spending, your message will get through to more prospective customers, more often, with less clutter. He’s citing some examples of where this was the case.

If you believe this, I have a few lots in Florida I’d like to discuss with you. Waterfront. Tons of wildlife.

I know a few people who are big fans of pizza. Given the choice, they would eat pizza for breakfast, lunch, and dinner – and probably do on occasion. Interestingly, these people tend to be thin, with very low body fat and excellent muscle tone. So, by extrapolation, I can conclude that eating pizza makes them thin. Let’s all go eat more pizza.

Anyone who has studied the question of increasing spend in a recession (and done so objectively) will tell you that the evidence supporting higher spending in recessions is weak at best. There are many anecdotes and some success stories, but not enough clear evidence to convince even a moderately smart CFO that the reward outweighs the risks.

The unfortunate fact is that the definitive study on this question has never been done. No one has ever surveyed a broad sampling of marketers in different industries and different competitive scenarios, and had some randomly increase spend while holding others in control at lower levels. There are no legitimate studies that tell us how X% of marketers that increased spend had successful outcomes. And even those that have attempted to do a meta-study of all the many narrowly-focused probes on the topic conclude that there are no general rules of thumb that hold up across industries and companies.

If you think I’m saying that spending more is NOT a good strategy, you’re missing the point. Spending more MIGHT be the perfect strategy. Or it might be the last bad choice of your career. Success during recessionary (or slow recovery) times has less to do with level of spending than it does three simple factors:

How strong is your product/service value proposition relative to your competitors or the alternatives your prospect may have? If it’s VERY strong, you might gain ground by spending more. If not, you might waste money just trying to buy share of voice in support of a solution which isn’t all that compelling.
How responsive are your prospects to marketing spend? If they are very likely to respond to marketing stimulus, maybe more spend is good. But if marketing is just one of many things that cause them to buy, you may find that it would take a disproportionate increase in spend to achieve any noticeable shift in outcomes.
How strong is your company balance sheet? Chances are, if you spend more, your competitors will try to match you to prevent losing share. It would be naïve to think you could get away with anything that would steal share without seeing some sort of blunting response. If you have the cash to withstand an escalation of a competitive war on marketing spend, go for it. But check with your CFO before you propose a strategy that might create far more risk that the company can undertake at this time.

There are a few other considerations, but these are the really important ones.
If you worry about the consequences of eating too much pizza, you’re now better equipped to challenge broad assertions about spending more. And you’re more likely to preserve your credibility for the really important issues in the future.

____________________

Pat LaPointe is Managing Partner at MarketingNPV – specialty advisors on marketing metrics and measuring marketing investments, and publishers of MarketingNPV Journal available online free at www.MarketingNPV.com.

Twittering Away Time and Money

2009-07-24T16:52:00.003-04:00

One of the most common questions I’m getting these days is “how should I measure the value of all the social marketing things we’re doing like Twitter, Linked-in, Facebook, etc.”

My answer: WHY are you doing them in the first place? If you can’t answer that, you’re wasting your time and the company’s money.

Sounds simple I know, but I’m stunned at how unclear many marketers are about their intentions/expectations/hypotheses for how social media initiatives might actually help their business. In short, if you can’t describe in two sentences or less (no semi-colons) WHAT you hope to gain through use of social media, then WHY are you doing it? Measurement isn’t the problem. If you don’t know where you’re going, any measurement approach will work.

Here’s a framework for thinking about social measurement:

Fill in the blanks: “Adding or swapping-in social media initiatives will impact ____________ by __________ extent over _____________ timeframe. And when that happens, the added value for the business will be $_____________, which will give me an ROI of ______________. This forms your hypotheses about what you might achieve, and why the rest of the business should care.
Identify all the assumptions implicit in your hypotheses and “flex” each assumption up/down by 50% to 100% to see under which circumstances your assumptions become unprofitable.
Identify the most sensitive assumption variables - those that tend to dramatically change the hypothesized payback by the greatest degree based on small changes in the assumption. These are your key uncertainties.
Enhance your understanding of the sensitive assumptions through small-scale experiments constructed across broad ranges of the sensitive variables. Plan your experiments in ways you can safely FAIL, but mostly in ways to help you understand clearly what it would take to SUCCEED – even if that turns out to be unprofitable upon further analysis. That way, you will at least know what won’t work, and change your hypotheses in #1 above accordingly.
Repeat steps 1 thru 4 until you have a model that seems to work.
In the process, the drivers of program success will become very obvious. Those become your key metrics to monitor.

In short, measuring the payback on social media requires a sound initial business case that lays out all the assumptions and uncertainties, then methodically iterates through tests to find the model(s) that work best. Plan to fail in small scale, but most importantly plan to LEARN quickly.

Measure social media like you should any other marketing investment: how did it perform versus your expectations of how it should have? If those expectations are rooted in principles of profit-generation, your measurement will be relevant and insightful.

Walking Naked Through Times Square

2009-07-14T16:28:00.004-04:00

I was sitting in a 2010 planning meeting recently listening to the marketing team describe their objectives, strategies, and thoughts on tactics they were planning to deploy. Their question to me was “how should we measure the payback on this strategy”?

My response was: “compared to what? Walking naked through Times Square?” I was being asked to evaluate a proposed strategy without any sense of what the alternatives were.

Sure, I can come up with a means of estimating and tracking the ROI on almost anything. But if that ROI comes to 142%, so what? Is there a plan that might get us to 1000% (without just cutting cost and manipulating the formula)?

As I thought back on the hundreds of planning meetings I’ve been in over the last 10 years, it occurred to me that we marketers are not so good at identifying alternative ways of achieving objectives and systematically weighing the options to ensure we’re selecting the paths that best meet the organization’s needs strategically, financially, and otherwise.

On a relative basis, we spend far too much of our time measuring the tactical/executional performance of the things we have decided to do, and far too little measuring the comparative value of things we might decide to do. Scenario planning; options analysis; decision frameworks. You get the idea.

The importance of this up-front effort isn’t just in getting to better strategies, but in building further credibility throughout the organization. Finance, sales, and operations all see marketing investments as inherently risky due to A) the size of the expenditures; and B) the uncertain nature of the returns as compared to many of the things those other functions tend to spend money on. Impressing them with our thorough exploration of the landscape of options goes a long way to demonstrating that we’re considered risk (albeit implicitly) in our recommendations, and have done all the necessary homework to arrive at a reasonable conclusion. NOT necessarily producing a 50 page deck, but rather simply stating which alternatives were considered, what the decision framework was, and how the ultimate selection was made. (This also builds trust through transparency).

From a measurement perspective, we can then consider the relative potential value of doing A versus B versus C, and in the process raise the level of confidence that we are spending the company’s money wisely. We can then turn our attention to measuring the quality of the execution of the chosen path with confidence that we’re not just randomly measuring the trees while wandering in the forest.

I’m not sure how many businesses might get a high ROI on walking naked through Times Square, but imagining that option certainly helps fuel creativity and underscores the importance of measuring strategic relevance, not just tactical performance.
Got any good stories about wandering naked?

10 New Resolutions for the 2010 Planning Process

2009-07-09T11:05:00.008-04:00

As we approach the 2010 planning season, I always like to take a few moments and reflect on the horrors of last year's planning cycle, making some commitments on how I can do it better this year:

1. I will lead this process and not get dragged behind it.

2. I recognize that many of our business fundamentals may have recently changed, so I commit to anticipating the key questions likely to define our strategy and, using research, analytics, and experiments, gather as much insight into them as I can in advance of making recommendations.

3. I will approach my budget proposal from the ground up, with every element having a business case that estimates the payback and makes my assumptions clear for all to see.

4. I will not be goaded into squabbling over petty issues by pin-headed, myopic, fraidy-pants types in other departments, regardless of how ignorant or personally offensive I find them to be.

5. The person who wrote number 4 above has just been sacked.

6. I will proactively seek input from others in finance, sales, and business units as I assemble my plan, to ensure I understand their questions and concerns and incorporate the appropriate adjustments.

7. I will clearly and specifically define what "success" looks like before I propose spending money, and plan to implement the necessary measurement process with all attendant pre/post, test/control, and with/without analytics required to isolate (within reason) the expected relative contribution of each element of my plan.

8. I will analyze the alternatives to my recommendations, so I am prepared to answer the inevitable CEO question: "Compared to what?"

9. I will be more conscious of my inherent biases relative to the power of marketing, and try not to let my passion get in the way of my judgment when constructing my plan.

10. If all else above fails, I promise to be at least 10% more foresighted and open-minded than I was last year, as measured by my boss, my peers in finance, and my administrative assistant. My spouse, however, will not be asked for an opinion.

How are you preparing for planning season? I'd like to hear what your resolutions are.

Survey: 27% of Marketers Suck

2009-05-07T13:26:00.001-04:00

A recent survey conducted by the Committee to Determine the Intelligence of Marketers (CDIM), an independent think-tank in Princeton NJ, recently found that:

· 4 out of 5 respondents feel that marketing is a “dead” profession.
· 60% reported having little if any respect for the quality of marketing programs today.
· Fully 75% of those responding would rather be poked with a sharp stick straight into the eye than be forced to work in a marketing department.

In total, the survey panel reported a mean response of 27% when asked, “on a scale of 0% to 100%, how many marketers suck?”

This has been a test of the emergency BS system. Had this been a real, scientifically-based survey, you would have been instructed where to find the nearest bridge to jump off.

Actually, it was a “real” “survey”. I found 5 teenagers in a local shopping mall loitering around the local casual restaurant chain and asked them a few questions. Seem valid?

Of course not. But this one was OBVIOUS. Every day we marketers are bamboozled by far more subtle “surveys” and “research projects” which purport to uncover significant insights into what CEOs, CFOs, CMOs, and consumers think, believe, and do. Their headlines are written to grab attention:

- 34% of marketers see budgets cut.
- 71% of consumers prefer leading brands when shopping for .
And my personal favorite:
- 38% of marketers report significant progress in measuring marketing ROI, up 4% from last year.

Who are these “marketers”? Are they representative of any specific group? Do they have anything in common except the word “marketing” on their business cards?

Inevitably such surveys blend convenience samples (e.g. those willing to respond) of people from the very biggest billion dollar plus marketers to the smallest $100k annual budgeteers. They mix those with advanced degrees and 20 years of experience in with those who were transferred into a field marketing job last week because they weren’t cutting it in sales. They commingle packaged goods marketers with those selling industrial coatings and others providing mobile dog grooming.

If you look closely, the questions are often constructed in somewhat leading ways, and the inferences drawn from the results conveniently ignore the statistical error factors which frequently wash-away any actual findings whatsoever. There is also a strong tendency to draw conclusions year-over-year when the only thing in common from one year to the next was the survey sponsor.

As marketers, we do ourselves a great dis-service whenever we grab one of these survey nuggets and imbed it into a PowerPoint presentation to “prove” something to management. If we’re not trustworthy when it comes to vetting the quality of research we cite, how can we reasonably expect others to accept our judgment on subjective matters?

So the next time you’re tempted to grab some headlines from a “survey” – even one done by a reputable organization – stop for a minute and read the fine print. Check to see if the conclusions being drawn are reasonable given the sample, the questions, and the margins of error. When in doubt, throw it out.

If we want marketing to be taken seriously as a discipline within the company, we can’t afford to let the “marketers” play on our need for convenience and simplicity when reporting “research” findings. Our credibility is at stake.And by the way, please feel free to comment and post your examples of recent “research” you’ve found curious.

The Elasticity of Sales Enablement

2009-05-01T15:14:00.003-04:00

Trendy consulting advice suggests that, since marketing ROI improvement is ultimately limited by the effectiveness of the marketing/sales handoff, “sales enablement” is crucial to success. Consequently, in the present results-NOW environment, marketers (particularly B2B and high-tech) are re-examining their processes and dedication to provide sales with the right materials, tools, and training to unleash the power of the imbedded marketing ideas.

I think I agree with this. If there’s any hesitation to offer full-throated support it’s just that it seems to me to be a bit of a penetrating glance into the obvious. OF COURSE marketing programs cannot succeed without reliably strong sales execution. But let’s not put too many eggs in that basket just yet.

The hard reality is that, in the short term, there is only so much sales enablement one can achieve. Magic sell sheets do not turn mediocre sales reps into revenue superheroes. Online demo tools don’t revolutionize categories or spark unprecedented demand. Those sorts of changes come about through:

1. Sound sales management process.
2. Comp structures aligned to incent the “right” behaviors.
3. Methodical, continuous training based on observed effective practices.
4. Regular “pruning” of the bottom 25% of performers (and a few nearer the top who neglect the means for the end).

Those in marketing measurement who are familiar with the concept of “elasticity” understand that there are limits to just how much improvement we can achieve with sales enablement in any 3, 6, or even possibly 12 month horizon. So pressed for better results NOW, sales enablement may be more of a feel-good response than an effective one.

Don’t mistake the message here. Sales enablement is always important. But unless the foundational elements above are being properly managed, marketers efforts to “enable” sales may result in some great meetings and a few positive anecdotes, but may fail to achieve improvement on any scale or sustainable basis. So allocating more resources to “sales enablement” may not provide the expected returns.

If you want to get a better handle on the “elasticity” of your sales force, try performing a deeper analysis of recent buyers versus non-buyers, being sure to sample prospect leads from both high-performing and average-performing sales reps. Get a clearer understanding of why rejecters are not buying (or stalling longer) and analyze the data until you can clearly determine the factors which make the higher-performers more effective. If you conclude that those factors are mostly innate skill, personality or motivation characteristics, then the elasticity of your sales force is likely very low. This suggests that sales management has work to do in the fundamentals arena before marketing can help much.

If however you observe that better needs discovery, stronger communications capabilities, or enhanced preparation explain most of the difference, then your sales elasticity is likely higher and you should focus more on sales enablement in the near term.

When times are tough and horizons are shorter, we all want to help as much as we can. But let’s not mistake hope for judgment when reallocating resources from marketing programs to sales enablement.

It's All Relative

2009-03-24T12:00:00.002-04:00

Brilliant strategy? Check.

Sophisticated analytics? Check.

Compelling business case? Check.

Closing that one big hole that could torpedo your career? Uhhhhhhh....... Most new marketing initiatives fail to achieve anything close to their business-case potential. Why? Unilateral analysis, or looking at the world only through your own company's eyes, as if there was no competition.

It sounds stupid, I know, yet most of us perform our analysis of the expected payback on marketing investments without even imagining how competitors might respond and what that response would likely do to our forecast results. Obviously, if we do something that gets traction in the market, they will respond to prevent a loss of share in volume or margin. But how do you factor that into a business case?

Scenario planning helps. Always "flex" your business case under at least three possible scenarios: A) competitors don't react; B) competitors react, but not immediately; C) competitors react immediately. Then work with a group of informed people from your sales, marketing, and finance groups to assess the probability of each of the three possibilities, and weight your business case outcomes accordingly.

If you want to be even more thorough, try adding other dimensions of "magnitude" of competitive response (low/proportionate/high) and "effectiveness" of the response (low/parity/high) relative to your own efforts. You then evaluate eight to 12 possible scenarios and see more clearly the exact circumstances under which your proposed program or initiative has the best and worst probable paybacks. Then if you decide to proceed, you can set in place listening posts to get early warnings of your competitor's reactions and hopefully stay one step ahead.

In the meantime, your CFO will be highly impressed with your comprehensive business case acumen. Check

Adam & Eve Beware: Another Apple in the Garden of Accountability

2009-03-12T17:16:00.005-04:00

I saw an article in Ad Age today headline: Banks That Spend the Most on TV Ads Performed the Best. It referred to "A new report from financial-services research firm Aite Group, which examined ad-spending trends and return on advertising performance of 32 of the largest 50 U.S. retail banks from 2006 through 2008, found that top 25% highest-performing banks are those with TV-heavy buys.". The data was provided by TNS.

Great news for TV sales reps. Likewise for TV production companies. But a sucker's bet for bank marketing executives who would rip out that page of Ad Age and run into their CFO's office to defend a recommendation to spend more on TV.

First, this "study" didn't isolate the non-media marketing variables which may have affected the outcome. Little things like customer service quality, direct marketing spending programs, message effectiveness, word-of-mouth, etc. Bet they didn't count the number of toasters given away either.

Nor does it appear to have accounted for other characteristics of the banks themselves which may have driven performance higher. Price perhaps. Or interest rates charged/paid. Or branch location demographics. Or in-branch cross-sell incentives. Or other things which would never show up in syndicated spend data.

So what can a bank marketing executive take away from this study? Nothing. They just measured what was easy to measure and didn't answer ANY of the open questions surrounding the payback on marketing investments beyond a reasonable doubt. Worse, it is the apple and marketers are Eve. It beckons with faint promises to fulfill the desire to believe that it may offer "evidence" of the beneficial impact of marketing.

If you value your credibility, don't circulate stuff like this within your marketing organization, and don't EVER use it in discussions with a savvy financial executive. When you see a headline like this, just pass it along to your trustworthy, naturally-skeptical research professional and ask them to find the flaws.

Stuff like this isn't research. It's PR. One bite of this apple will cost you your reputation - perhaps permanently.

We'll keep working on raising the standards in the media on what passes for good content.

DMA Jumps the Shark

2009-03-11T10:07:00.002-04:00

In true Hollywood fashion, the DMA announced their headliners for this year's DMA Days conference. The keynote speaker will be... drumroll please.... Ivanka Trump - that skilled expert in direct marketing and ROI.

Is it possible that the DMA is losing sight of its role and mission? In this current environment where attracting paying registrants to conferences is so difficult, they seem to have err'd on the side of flash and glitz rather than meaningful substance and advancement of the trade.

It's hard to deny that Ivanka will put more butts in seats than the most compelling direct response case study. And perhaps more butts in seats for Ivanka actually will lead to more exposure of members to substantive content. But it's a sad day when such a long-valued industry organization can't find enough compelling content that they resort to the equivalent of Fonzie jumping the shark to draw "spectators". Maybe next year they can get Chris Angel to come make their relevance re-appear.

How do You Know if it's Time to Spend MORE?

2009-03-10T13:52:00.002-04:00

In times like these, budgeting and resource allocation decisions tend to get made fast and furious, with little time for clear thinking. Unfortunately, it’s exactly these times when some real discipline is required to both make smart decisions and build credibility with the rest of the senior management team. So if you’re thinking about recommending that your firm should be spending MORE on marketing right now, STOP.

If you’re thinking “let’s spend more now to gain share”…

Good luck. Headline-grabbing stories of marketing heroes who have taken this approach tend to emphasize the few who have succeeded and gloss over the vast majority who have simply squandered more by throwing money into an economic hurricane. The fact is that there’s not much empirical data to prove the merits of this strategy beyond a reasonable doubt. Many “studies” have been done, but none have derived their conclusions from projectable samples which account for the primary risk factors, nor have any led to any high-probability “formula” for succeeding with this strategy. The margin of error between success and failure tends to be very narrow. It’s a roll of the dice against pretty long odds.

If you’re thinking “we’ve got to keep up our spend to maintain our share of voice”…

Be careful. Matching competitive levels of spend (or making decisions on the basis of “share of voice”) is most often seen by CEOs and CFOs as foolish logic. How do you know the competitor isn’t making an irrational decision? What do you know about the effectiveness of your spending versus theirs? How much ground would you lose if they outspent you by a substantial amount? If you don’t have specific answers to these questions, relying on anecdotal evidence won’t help. It may get you the spend levels you’re requesting in the near term, but if it doesn’t work out, the memory of your recommendations will undermine your credibility for years to come.

When times get tough, buyers re-evaluate the value propositions of what they buy. They make tradeoffs on the basis of what is or isn’t “necessary” any more. Shouting louder (or in more places) is unlikely to break through newly-erected austerity walls.

To make a sound case for spending more, tune into what the CEO is looking for… leverage. They want to find places to squeeze more profitability out of the business. To help, focus your thinking around:

the relative strength of your value proposition, channel power, and response efficiencies versus your competitors.
your assumptions about customer profitability and prospect switchability as buyers cut back.
your price elasticity to find out where the traditional patterns may collapse or where opportunities may emerge.
the relevance, clarity, and distinctiveness of your message strategy, and your ability to defend it from copycat claims.

And make sure to check with finance to see if the company’s balance sheet is strong enough to handle higher levels of risk exposure during revenue-stressed periods. If it’s not, the whole question of spending more is moot.

If your comparative strengths seem to offer an opportunity, then increasing spend may just be a smart idea. But even so you have to anticipate that competitors aren’t just going to let you walk away with their customers or their revenues. And that may just leave you both with higher costs in times of lower sales. In technical parlance, this is known as a “career-limiting outcome”.

Another VP Marketing lost his job today...

2009-03-06T09:51:00.002-05:00

... for the wrong reasons.

He was (is) strategically brilliant and a fountain of ideas. His insight into his customers was formidable. His managerial capabilities were strong. His relationships with sales management were excellent. And the CEO really liked him. In fact, the CEO really supported the launch of the new ad campaign a few months back that substantially increased the company's spend.

But now, several months past the campaign's initial wave, there is no credible evidence or consensus that it had any positive effect on sales, profits, customer value, or any other meaningful dimension. And the fact that unaided brand awareness was up X% was little comfort.

So this particular VP of Marketing was let go, and marketing is now reporting to the EVP of Sales.

I spoke to the CEO who told me "I relied on (the VP Marketing) to make smart decisions about where and how we spent our marketing resources. In the end, it wasn't the lack of positive results that bothered me about that campaign as much as it was our inability to really learn anything important about why it didn't work and what we should do next. So I felt I needed to place my bets somewhere I get better transparency and feedback... sales. It may be short-sighted, but we need to demonstrate learning and improvement every day, or we're just spinning our wheels."

In better times, the VP may have gotten another chance to iterate to the magic marketing formula. But in the current environment, you only get one chance. To learn, that is, and to build confidence and credibility even when your efforts fail to achieve the desired outcome. Which, in marketing, happens quite often.

Better Ways To Do More With Less

2009-02-25T15:07:00.002-05:00

Crawling around inside a few dozen large marketing and finance organizations these past months I’ve seen some evidence of five patterns of “do more with less” which seem to work best.

First, the “best” clearly define what “doing more with less” really means. The most common metric appears to be “marketing contribution efficiency” – an increase in the ratio of net marketing contribution per marketing dollar spent. That’s seems appropriate when budgets are falling (recognizing the need to monitor it over time as it can be manipulated in the near term).

Second, when they cut, they do it strategically. Face it, most of us didn’t take Budget Cutting 101 in B-school. After eliminating travel and consultants and other easy stuff, bad decisions creep in under mounting political pressure. More about this in last week’s post.

Third, they watch the risk factors. CFOs want to cut marketing spend to increase the likelihood of (aka decrease risks against) making short-term profit goals. Yet when marketers try to do more with less, risk exposure rises in ways never imagined – especially if it wasn’t clear which elements of the marketing mix were working before the cuts. It’s the “risk paradox”. If you want to make sure your “less” really has a chance of doing “more”, manage the new risks that have silently crept into the plans.

Fourth, they avoid the ostrich effect. Just because there’s enormous pressure on today, the best don’t ignore the fact that tomorrow is right around the corner in the form of 2010 plan. And when looking ahead, the only thing certain is that historical norms are no longer a reasonable guide. So the best are anticipating the key questions for 2010 plan, and working on getting some answers now. They’re committed to leading the process, not getting dragged behind it.

Finally, the best push their marketing business case competency further, faster. The marketing skeptics and cynics have more political clout now. Un-tested assumptions, like ostriches, will not fly. Better business case discipline is the new currency of credibility.

We all have basically the same tools at our disposal to do more with less. The “best” seem to be able to apply their imagination most effectively in the use of those tools. I’m the world’s biggest proponent of the importance of creative inspiration and instinct, but the lesson here I think is to start the conversation these days with “what do we mean by ‘effective’?”

Think ahead while cutting back

2009-02-12T15:16:00.003-05:00

Setting aside for the moment that no company can succeed by cutting expenses alone, let’s dwell on the practical necessity of today’s world: cut, cut, and cut some more.

Yes, we all should have been smart enough to build sufficiently robust measurement capabilities BEFORE the dramatic assault on our budgets began. Yes, we should have put some water in that bucket BEFORE the fire consumed so much of the house that marketing built.

But we didn’t. So what do we do now that we’re caught in the downward cutting spiral? Where do we turn once all the “fat” has long since been excised and all that’s left is muscle and bone?

First, get your head out of the emotional sand. You’ve lost the battle over the power of marketing to drive the business in the near term. But don’t let your fog of disappointment cost you the war. Suck it up and look ahead. And don’t take it so personally.

Second, define the objectives for making smart cuts.

1. Achieve the target reductions the CEO is asking for (most people stop right here).

2. Clarify the mid- to long-term strategy for competing successfully.

3. Conduct a thorough and unbiased analysis of the options.

4. Provide a comprehensive assessment of the near- and long-term implications of the cutting alternatives.

5. Preserve your credibility. Live to fight again another day.

If you’re not thinking about all 5, you’re likely suffering a very slow death by 1000 cuts yourself.

Third, frame your cutting analysis on the basis of strategic dimensions of competitiveness, NOT on the basis of what’s easiest to cut (e.g. travel and outside contractors), and for heaven’s sake do NOT cut proportionately across the board (which strengthens the hidden weaknesses in your plan while weakening the strengths). Think about the relative value/importance of customer segments; product groups; channels; or even geographic regions. Consider the marginal returns of a dollar spent in each one. Cut ruthlessly from the bottom of the importance rankings.

Fourth, engage people in finance, sales, or SBUs in your thought process. You have nothing to gain by being an island now.

Fifth, get comfortable with making educated guesses on expected impacts. You’re beyond the point where data-driven analysis is likely to help. Think about using monte carlo simulation and other probabilistic assessment methods to make intelligent guesses now (and loop back to “fourth” above).

Finally, present your findings with passion, but not bias. The time for “I believe…” is past. The mantra of the moment is “having run many options by the good people in finance and sales, we all feel that the smartest course of action is…”

And by the way, NOW is exactly the time to begin building that measurement capability you really wish you had over the past few months.If you need more help, start here.

This Economy Brought to You by the Wrong Metrics

2009-02-06T18:35:00.002-05:00

How did we get in the global economic shape we’re in?

You and I bought stocks and mutual funds (and you might have bought hedge funds). We expected above-average returns from those investment managers.

The investment managers make money by selling more shares in their funds. To do that, they needed to show higher-than-average returns. They had only a secondary interest in the long-term health of the companies they were buying (despite statements to the contrary in their prospectus). The really just needed to show strong returns NOW to compete with other funds. That made their focus short-term even if they wouldn’t admit it.

Since CEOs need demand for their company stock to keep the price high (and keep the board happy), they obliged these fund investors by pushing to meet short-term earnings growth to increase the rationale for a higher P/E multiple. As a result, their decision process became somewhat perverted towards hitting every quarterly target they promised to Wall St. and the fund managers.

This perversion drove managers working for the CEOs onto a slippery slope of buying and selling things that had substantially higher risk profiles than they were used to, and many hidden risks that have only recently come to light. Altruistically in most cases, but not all.

The CEO was OK with this as A) it was driving earnings growth; and B) they were “trusting” their expert managers and consultants (who were also paid handsomely for making recommendations to participate in such behaviors).

The fund managers were OK keeping a blind eye to this, as long as the returns for their fund were above average.

You and I were happy as long as our investment portfolios were rising in value.

In short, we all got too focused on the WRONG metric of short-term growth in stock prices. It’s the same thing that happened in the dot-bomb era, only with a different rationale. Only this time, we managed to ensnare millions of homeowners in the process, destabilizing their confidence in spending. This, in turn, destabilized the climate for corporate investments, and increased layoffs. Thus the viscous cycle we’re in now.

I raise this as an example of how seriously wrong things can go if we’re not focused on the right metrics.

The answer isn’t higher levels of government oversight and regulation. It’s higher levels of transparency in companies reporting what they’re doing to hit earnings targets, combined with a closer monitoring of their productivity in generating organic growth. And it’s paying more attention to the leading indicator metrics of consumer behavior – security, liquidity, and confidence.

Just like many of our businesses, it often takes a knock upside the head for us to realize that we slowly lost focus on the right metrics.

Death of the Influentials?

2009-01-29T10:50:00.001-05:00

In the flat world of web communication networks, is the old marketing strategy of seeking out influential opinion-leaders really dead?

Some digital digerati (like Guy Kawasaki) suggest that in today’s world of blogging and tweeting, mass reach is the name of the game. Guy’s argument is that the internet and social media have eliminated or substantially reduced any semblance of information dissemination hierarchy. As such, if you extend your reach as far as possible through as many network nodes as possible, you will reach more prospective customers and thereby optimize your results. In this view, focusing on reaching “influentials” who might effectively distribute your message to an audience of more likely buyers is a waste of time. Just blog away and let anyone and everyone carry the message.

On the other side of the issue are people like Ed Keller of Keller Fay, who literally wrote the book on the influentials. Ed’s research into both online and offline WOM suggests that A) online WOM is still only a small fraction of offline WOM volume in most categories, and that nothing is more effective at driving behavior than the objective recommendation of a known, credible source. This would suggest that pursuing sheer volume of reviews and opinions flying around the websphere may be a potentially distracting pursuit to the marketer seeking highly effective leverage of their limited resources.

I see some parallels in marketing history here to how first network television and then direct mail each boomed on the strength of message delivery efficiency, and then busted under the declining marginal returns as clutter and CPMs rose and response rates declined. Each respectively then fractured further (network TV to cable TV; direct mail into database marketing) in search of targeting efficiencies. The idea of targeting “influentials” was born out of a desire to focus the increasingly constrained marketing team resources on the points of greatest leverage in the market.

Granted, there are substantial differences in the evolution of web communications, not the least of which is the no/low cost of pushing out messages. But it strikes me that the real cost of communicating with a flat world is the time and energy it takes to respond to all the feedback you get, much of which is irrelevant (owing to the reverse-application of the flat world theory back on you). This is just one of the dimensions of measuring WOM effectively.

So I suspect that the futurists forecasting the death of the influential-centric strategy are just that, futurists (and, somewhat paradoxically, influentials themselves). If you’re selling Coke or Crest or something else that practically anyone in the world (including emerging economies) would buy, maybe the flat world model works. But until we have appropriate technology for effectively and efficiently sifting/sorting and managing the feedback from the flat world, most marketers would probably be better off concentrating their efforts on reaching the right “nodes of influence” within the websphere.

Presumably that’s what you and I are both doing right this very moment.

Taking Full Credit When Harvesting Brands

2009-01-27T20:59:00.000-05:00

I’ve spent the past few days at the AMA’s MPlanet conference, listening to every speaker make some form of the following statement:

Now more than ever before, we need to build and nurture our brand assets.

Presumably this is intended to mean that in these times of great economic challenge, we cannot afford to let our brand standards slip, our brand equities become cloudy, or our brand experience decay.

Fair enough. But does that mean that we should be spending money to build these brand assets, even in the face of substantial cutbacks elsewhere? Or just be cautious not to cut things that would cause an undue decline in brand strength?

This had me wondering … under what conditions would we expect to be able to “harvest” some of the investment we’ve been making? How bad would things have to get before we expected the brand to “pay us back”? At what point would a CMO stand up and advocate “harvesting brand value”?

Sure, I understand that you should always be working on building your brand, and that done right, it is always paying you back. The flow is bi-directional and fluid. But it’s also transparent, and that’s the problem.

Assets, in a financial context, are a way of storing cash value for later use. You invest in stocks as assets, with the expectation that they will appreciate and return more cash to you later. Likewise, you invest in assets like manufacturing equipment, software, or other “tools” required to produce goods or services to sell. Brands could be said to play a similar role. Yet property, plant, and equipment are depreciated over time to reflect the decline of their useful life. Stocks and bonds are liquid assets for which there are markets to quickly buy and sell them, thus establishing their value.

Brands, on the other hand, aren’t depreciated. They can become “impaired” (accounting term meaning they are worth less than you paid for them, thereby triggering a write-down), but only if you purchased them from someone else. So if we marketers are going to rationalize some of our cash spending in good times by talking about “investing” in brand “assets”, at some point we are expected by the financial types to demonstrate how that asset value is being realized back into cash. I call it, “harvesting”.

So under what circumstances would you consider harvesting some of that brand equity?

Well, for starters, if you need to raise prices without adding any incremental costs associated with new features, benefits, or other value visible to the customer. In that case, you are relying on your brand asset to carry you past the danger of customer defection. To the degree that you averted attrition related to unilateral price increases (not matched by competitors immediately), you can legitimately claim that your brand “saved” you money. This is measurable.

Likewise, when a competitor announces a new product/feature/benefit that you cannot match, thereby taking an advantage in perceived value, you rely on your customers’ relationship with your brand to carry you through until you can once again restore your value proposition to its rightful state. This too is measurable.

And finally, when some aspect of your customer experience is deficient – a poor interaction with a call center agent, an inaccurate statement, or maybe a data privacy mishap – you rely on the strength of the overall brand relationship to carry you through. The value of this too is measurable.

So in this economy, while your budget is getting cut again and again, be sure to take the necessary steps to earn credit for how you’re now “spending” some of that “asset” value you built up over time. Done correctly, it will underscore what a good steward of company resources you are, and how far-sighted you’ve been all these years.

Just be careful not to overspend that brand asset account along the way (also measurable).

Yes We Can - The Marketing Renaissance Moment

2009-01-17T11:11:00.004-05:00

It strikes me that the spirit of "Yes We Can" is very applicable to marketing at this particular point in time when many have recently suffered significant cuts in marketing budgets owing to their lack of ability to demonstrate the financial value derived from those investments.

Yes We Can apply more discipline to how we measure the payback on marketing investments without increasing the workload proportionately.

Yes We Can embrace this discipline without harming the creative energy so critical to marketing success.

Yes We Can measure those "softer" elements like branding, customer experience, innovation, and word-of-mouth, and link them to impacts on company cashflows.

Yes We Can overcome gaps in data and find ways to build reasonable approximations which even the CFO will embrace.

Yes We Can align the entire company on a single set of marketing metrics and all use the same yardsticks to measure success.

Yes We Can forecast the impact of changes in spending amount or allocation in ways that will inspire confidence instead of criticism.

Yes We Can anticipate the challenges ahead with reasonable certainty and act now to prepare ourselves to meet them head-on. And most importantly,

Yes We Can restore credibility and confidence in marketing as a means of driving profitable growth in our companies, regardless of industry, sector, corporate politics, culture, structure, or market dynamics.

The present economic environment offers a unique opportunity to re-invent the role of marketing in the organization, and to re-establish the critical links between our marketing efforts and the bottom-line shareholder value they create.

Believe it. If you're not doing it, your competitors likely are. There are no more good excuses. There is only "Yes We Can".

Gaining More Than "Experience" from Measurement

2009-01-12T18:57:00.005-05:00

I recently did some in-depth interviews with CMOs from 6 multi-billion dollar companies which revealed these key measurement challenges and obstacles still looming large in 2009:

Lack of clarity - not having a specific definition of what they're trying to measure, and getting lost in the ambiguity of the process. HINT: define and prioritize the key questions you're trying to answer BEFORE you set out to measure them. Read this.
Inability to measure the "brand" impact - having great difficulty getting funding for branding activities/initiatives due to absence of any hard financial evidence of how brand drives value. Here are a few ideas. NOTE: solve this one now, or what's left of your branding budget may well disappear in the tough year ahead.
No or bad data - this is not a reason, it's an excuse. There are dozens of ways to overcome short-term data gaps IF you realize that doing so is a people/politics challenge and not a technical one.
Low credibility in the board room - the chickens have come home to roost. In the good times, we should have been working on building your knowledgebase of how marketing drives shareholder value. Now, all we can do is move funds from the more intangible activities to the more quantifiable. That's not a strategy. That's an outcome. How to NOT lose the battle next time around.

If you're still struggling to get an insightful and credible measurement program off the ground (or to see it reach a higher level of value), look here to see what your symptoms are, and then find the prescribed cure.

On the bright side, out of this economic crisis marketers are sure to gain some valuable experience ("experience" is what you get when you don't get what you want). As a community, we will learn from it and do better next time. At least, those of us who are actively working hard to get better will.

Research Priorities Are All Wrong

2009-01-06T15:04:00.004-05:00

I got an email today from the Marketing Research Association spelling out the "top 6 issues for protecting the profession". Included were:

Increasing difficulty of reaching consumers via cell phones
Consumer fears of behavior tracking
Stage and federal government interest in shady incentive practices used to entice medical professionals
Unpopularity of "robocalls" and automated dialing
Public backlash to "push-polls"
Data security and breach protocols

Wrong.

While each of these dynamics is a threat to the future of the research industry, the bigger threat is the increasing irrelevance of research to senior management. More and more companies have outsourced their strategic marketing research functions to suppliers. The suppliers have been consolidating, often being acquired by bigger agency or marketing services holding companies. Not surprisingly, there is a serious degradation of objectivity that occurs in the process. And the more junior marketers now left client-side to direct the research program within their companies are not generally as politically senior/influential as one needs to be to push through the right research agenda - especially in times of immense cost-cutting pressure. (see Rebuilding Trust in Research as a Measurement Tool)

Sure, there are many executional threats facing the research industry today. But unless the way research is conceived in an appropriate strategic/financial context and prioritized for the value it potentially holds, the methodological threats will be but cubes floating in an ocean of icebergs.

It's time the research profession re-rises to the occasion. I hope they do.

Fools Rush In - Searching for Magic ROI

2008-12-26T12:32:00.001-05:00

If the current economy is encouraging you to think about shifting resources from traditional media to digital alternatives in search of cost effectiveness and overall efficiency, beware: nearly EVERYONE ELSE HAS THE SAME IDEA.

Implication: you will be moving into an increasingly cluttered marketplace, where broad reach options will continue to lose effectiveness and highly-targeted delivery will come at a higher price as demand outstrips the supply of good inventory and good people to execute. Consumers too will become increasingly savvy with respect to their digital media usage patterns, and harder to “impress” with incrementally new ideas or executions.

I know I’ll get lots of letters about this post “educating” me on the infinite scalability of the digital media, and reminding me that true creativity is likewise boundless. I’m sure many of you have research that shows how the returns to digital marketing programs just keep growing as the audience of users grows across more and more platforms. Fair enough. But the laws of marketing physics suggest that more marketers and marketing dollars will rush in to the arena than proven executional avenues can accommodate in the short term. And most of them will NOT bring breakthrough new creativity with them. That will create lots of failure and un-delivered expectations, which in turn may slow adoption of otherwise valuable marketing options.

Here’s a simple suggestion as you contemplate the great digital shift towards the promise of better ROI… set your expectations based on poorer results than you may have experienced in the past, and/or ratchet-down vendor claims of look-alike results presented in “case studies”. Before committing to the “me too” plan of going digital, ask yourself if your planned online campaigns would be a good investment if they were 10% less effective than originally anticipated? Would your new social networking programs still provide good payback if they had a 20% less impact on potential customers? These may very well be the new reality when everyone rushes in.

In stark contrast, a friend who’s CMO of a packaged goods company tells me that while he is continuing to shift the balance of his total spend towards digital media, he’s doing so in a measured way built on careful experimentation. He’s working on a cycle of plan>execute>learn>expand>plan again. So he’s spending 20% more on digital media in 2009 than in 2008, but not moving huge chunks of his total budget all in one big push for magic returns. Nope. His philosophy is “hit ‘em where they ‘aint.” He’s buying more radio and magazines – media he’s developed clear success cases with in the past and places he can more accurately predict the impact on his business. He may find himself all alone there. But I suspect that’s part of the appeal.

Trying to "Justify" Superbowl Spending?

2008-12-23T07:34:00.003-05:00

"...as a responsible employer of more than 290,000 employees and contractors world-wide, there is a time to justify such an ad spend and a time to step back."

This quote was provided by the director of advertising at FedEx, in response to a question about why they would not be advertising on this year's Superbowl - the first time in 12 years they would be absent from the annual ad-fest.

The implication from his statement seems to be that, up until now, the Superbowl ads were "justified" by something other than sound economics. Sure, there was the fabulous reach into an attractive target demo, but the price is high. So maybe the premium was being "justified" by some "softer" benefits like employee morale, channel partner collaboration, or even that most elusive of all... "brand preference". And in these days of extreme bottom-line focus, these non-economic "justifications" just weren't going to cut it. It would send the wrong message to people losing jobs and benefits.

The sad truth here is that each and every one of the "softer" benefits can, in fact, be economically measured to a reasonable degree. There are practical, credible ways to calculate the ROI of employee morale, partner collaboration, and brand preference. But they require some techniques that few marketers have yet investigated, let alone perfected.

I don't have any idea if Superbowl advertising is a sound economic decision for FedEx, and I'm not questioning their judgment. It might have been a superb use of shareholder funds, or it may have been a terrible waste. I just cringe when I hear how such important marketing decisions are still, in this age of measurement enlightenment, being made on the basis of "justifications" that suggest something less than a robust economic framework was applied.

We, the marketing industry, can do better. We can measure each and every one of those softer elements in ways that our finance partners will embrace. Those 290,000 employees and contractors need us to do better. For their sake, let's try to ramp up our measurement game in 2009, shall we?

Trading GRPs for Clicks?

2008-12-21T10:43:00.002-05:00

Television networks are making their prime-time programming available in full-form via their websites. And not just the latest episodes of “Desperate Housewives”. CBS and ABC have both announced that they are now streaming from deep inside their programming vaults, bring back favorites like “The Love Boat” and “Twin Peaks”.

Hulu (joint venture between NBC and Fox) attracts more than 2.5 million unique viewers (distinct cookies) monthly, who stream content an average of more than 20 times each! That’s a bigger, more engaged audience than many cable stations draw in a month’s time. And anyone who knows their way around a Bass diffusion curve will tell you that adoption of online viewing is on a trajectory to achieve substantial penetration very rapidly.

All this is causing pre-revolution heartburn in the media departments of major ad agencies today. They’re trying to figure out which metrics best equate clicks (or streams) to GRiPs (gross rating points), so they can compare the costs of advertising online to advertising on TV. Apples-to-apples.

Wrong mission.

Online content streaming is, by its very nature, an active participation medium, while television is passive. As such, the metrics should reflect the degree to which advertisers actively engage the consumer: streams launched; ads clicked; games played; surveys completed; dialogue offered; etc. Selecting passive metrics encourages the content owners to use the computer to stream like they broadcast, thereby replacing one screen with another. In time, that will teach consumers to use it as a passive medium like TV.

If we (the marketers) want to capture the true potential of an active medium, we have to demand performance against active metrics. We have to design ads that give the multi-tasking consumer of today something else to do while they’re watching the show – enter contests on what will happen next; decide who’s telling the truth; test their show knowledge against other fans; shop for that cute skirt – you get the idea.

Effectiveness in this new realm is a function of the actual (active) behavior generated versus the expected amount. And the expected amount is that degree of behavior shift necessary to make the business case for spending the money show a clear and attractive return. Efficiency is then how much more positive behavior we’re generating per dollar spent than we did last month/quarter/year.

Sure, we need to have some sense of which content is attracting people who “look” like customers or prospects, but that’s just the basis upon which we decide where to test and experiment. The real decisions on where to place our big bets will come once we learn what execution tactics are most impactful.

Until then, be careful what you measure, or you will surely achieve it..

Blogging On (or is it "Blogging In"?)

2008-12-19T08:44:00.002-05:00

OK. I'm back.

I actually got quite a few requests to resume this blog, even though there were very few comments posted during the year I ran it originally. Plus, it seems to do REALLY well on Google organic search results.

So what have I learned?

1. Blogging on a subject matter like marketing measurement is less about the number of engaged readers than it is the quality of engagement of a few.

2. Blogging is far more about building a well-rounded web marketing presence. No single piece of the puzzle puts one over the top on search results. It's constant experimentation. Having dropped the blog for a while, I can tell you we saw a clear drop in performance of our organic search traffic.

3. Social media is so immature at this point that we're experimenting with many platform components from Twitter (follow me as "measureman") to feedster, to several dozen other elements. The cost of experimentation is high, and I used to think we weren't making sufficient progress towards any real insight. Then I had a bit of an epiphany... the experimentation process really IS the marketing process. Experimentation isn't just what we do to get to a marketing plan. The marketing plan is a summary of how we're experimenting with various methods, tools, and messages to get the desired results.

If you're interested in how we're measuring our own results here at MarketingNPV, shoot me an email and we can talk about the specific metrics.

Blogging off...

2008-04-29T16:52:00.002-04:00

As someone who prides themselves on allocating precious time to the highest return activities, I'll be ending this blog now.

It's not that there isn't a great deal left to be said on the topic, but rather that there don't seem to be too many people seeking information on this topic in blog form. Having tested several tactical approaches to getting the message into the market, this particular one does not seem to justify the time and energy it requires to feed the insatiable appetite for practical advice in the area of marketing metrics.

So I'm thinking of installing a web cam in my car and allowing you all to watch me as I drive...

Seriously, if you're looking for great content on marketing measurement, marketing metrics, marketing dashboards, brand scorecards, marketing resource allocation, marketing budgeting, or any of the other key search terms, catch us at our home page, www.MarketingNPV.com, where you'll find what you're looking for.

Thank you.

TiVo to the Rescue?

2007-11-12T08:30:00.001-05:00

Hot on the heals of the Google/Nielsen partnership, TiVo has entered the measurement fray with its announcement that it will begin providing advertisers with data on the viewing (and skipping) habits of consumers using TiVo’s panel of 20,000 set-top boxes. This has the potential to be far more illuminating than the Nielsen data as TiVo can provide insight into who is skipping ads (both on the demographic/lifestyle segment level and on the individual-addressable level) and which ones they are skipping. The result could be a wealth of information on ad performance, sliced and diced on many dimensions.

Even more interesting, TiVo will offer advertisers the ability to learn (on a blind basis) the viewing habits of their actual customers. By providing TiVo with a customer file, marketers can get insight into exactly how many (and which types) of customers are skipping their ads, which should help both fine-tune message execution and enhance negotiations with networks.

TiVo still can’t tell us who is watching the ads – only who isn’t. But with its jump on the interactive feature options, TiVo may be faster to offer advertisers the back-end direct response element of the engagement chain.

This is a promising frontier for advertisers seeking to understand the actual payback of their advertising investments. It’s not in itself a magic bullet, but another step forward in getting the objective insight we need to draw credible conclusions.

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Google to Dominate Dashboards?

2007-11-05T10:44:00.000-05:00

Having conquered the worlds of web search and analytics, is Google about to corner the market on marketing dashboards?

Hardly.

What Google is doing is coordinating online ad display data with offline (TV) ad exposures. Google is partnering with Nielsen to take data directly from Nielsen’s set-top-box panel of 3,000 households nationwide and mash it up with Google analytics data to find correlations between on- and off-line exposure. The premise is, I’m sure, to help marketers integrate this data with their own sales information and find statistical correlation between the two as a means of assessing the impact of the advertising at a high level. By using data only from the set-top box, Google is able to present offline ad exposure data with the same certainty as it does online – e.g., we know that this ad was actually shown. Unfortunately, we don’t know if the ad (online or off) was actually seen, never mind absorbed.

However, with the evolution of interactive features in set-top boxes, it won’t be long before we begin to get sample data of people “clicking” on TV ads, much like we do online ads. So we’ll get the front end of the engagement spectrum (shown) and the back end (responded). But we won’t get anything from the middle to give us any diagnostic or predictive insights to enhance the performance of our marketing campaigns.

A full marketing dashboard integrates far more than just enhanced ratings data and looks deeper than just summary correlations between ads shown and sales to dissect the actual cause of sales. Presuming that sales were driven by advertising in the Google dashboard model would potentially ignore the influence of a great many other variables like trade promotions, channel incentives, and sales force initiatives.

Drawing conclusions about advertising’s effect solely on the basis of looking at sales and ratings would quickly undermine the credibility of the marketing organization. So while the Google dashboard may be a welcome enhancement, it’s not by any stretch a panacea for measuring marketing effectiveness.

It seems to me that Google has created better tools. But through their lens of selling advertising, they’re perpetuating a few big mistakes.

Masters of Marketing Minimize Measurement Mentions

2007-10-15T08:06:00.000-04:00

This year’s ANA “Masters of Marketing” conference in Phoenix was, as usual, the place to see and be seen. There were plenty of very interesting brand strategy stories from the likes of McDonald’s, Fidelity, Liberty Mutual, Anheuser-Busch, and AT&T. Steve Ballmer, CEO of Microsoft, set some bold predictions for the digital content consumption world of the future, and Al Gore introduced the fascinating new business model of Current TV (which, btw, stands to redefine the dialogue on “engagement” far beyond the current amorphous context).

To his great credit, Bob Liodice, ANA president, asked every presenter to comment on how they were measuring the impact of their work. Unfortunately, most of the speakers successfully ducked the question through a series of politically correct, almost Greenspanian deflections:

“Well, Bob, we’re making a major investment in improving customer satisfaction and continuing to drive brand preference relative to competitors to new heights while keeping our eye on price sensitivity and working to ensure that our associates understand the essence of the brand at every touchpoint.”

Leaving me (and a few of the other financially oriented attendees) to wonder why – as in why are the Masters so reluctant to share their true insights into measurement?

OK, so I get that measurement isn’t anywhere nearly as sexy to talk about as the great new commercials you just launched or your insightful brand positioning. I also get that many aspects of measurement are proprietary, and giving away financial details of publicly held companies in such a forum might give the IR folks the cold sweats.

But by avoiding the question, these “Masters of Marketing” – the very CMOs to whom the marketing community looks to for direction and inspiration – are sending a clear message to their staffs and the next generation that the ol’ “brand magic” is still much more important than the specific understanding of how it produces shareholder value.

The message seems to be that, when pressed for insight into ROI, it is acceptable to point to the simultaneous increase of “brand preference” scores and sales and imply, with a sly shrug of the shoulders, that there must be some correlation there. (If you find yourself asking, “So what’s wrong with that?” please read the entire archive of this blog before continuing to the next paragraph.)

Having met and spoken with many Masters of Marketing about this topic, I can tell you that each and every one of them are doing things with measurement that can advance the discipline for all of us. Wouldn’t sharing these experiences be just as important to the community as how you came to the insight for that latest campaign strategy?

Only the Masters can take up the challenge for pushing measurement to the same new heights as they’ve taken the art of integrated communication, the quality of production, and the efficiency of media. It seems to me that people so skilled in communication should be able to find a framework for sharing their learnings and best practices in measurement in ways that are interesting and informative while also protective of competitive disclosure.

Living up to the title of Masters of Marketing means going beyond message strategy, humor, and clever copy lines. We owe that to those we serve today and those who will follow in our footsteps, who will need a far better grounding in the explicit links between marketing investment and financial return to answer the increasingly sophisticated questions they’ll get from the CEO, CFO, and the Board.

So the next time Bob asks, “How do you measure the impact of that on your bottom line?” think about seizing the opportunity to send a really important message.

And Bob, thanks for asking. Keep the faith.

Use It or Lose It

2007-10-08T14:29:00.000-04:00

Do you have any leftover 2007 budget dollars that are burning a hole in your pocket that you have to spend by the end of the year or lose? Here’s an idea: Consider investing in the future.

By that, I mean consider investing in ways to identify some of your key knowledge gaps and prioritize some strategies to fill them. Or investing in development of a road map toward better marketing measurement: What would the key steps look like? In what order would you want to progress? What would the road map require in terms of new skills, tools or processes?

It seems kind of odd, but while the pain of the 2008 planning process is still fresh in your mind, start thinking about what you can do better for 2009. By orienting some of those leftover available 2007 dollars toward future improvements, you might make next year’s planning process just a bit less painful.

Lessons Learned – The Wrong Metrics

2007-10-03T09:22:00.000-04:00

In the course of developing dashboards for a number of our Global 1000 clients over the past few years, we’ve learned many lessons about what really works vs. what we thought would work. One of them is a recognition that, try as you might, only about 50% of the metrics you initially choose for your dashboard will actually be the right ones. That means half of your metrics are, in all likelihood, going to be proven to be wrong over the first 90 to 180 days.

Are they wrong because they were poorly chosen? No. They’re wrong because some of the metrics you selected won’t be as nearly as enlightening as you imagined they would be. Perhaps they don’t really tell the story you thought they were going to tell. Others may be wrong because they will require several on-the-fly iterations before the story really begins to emerge. You might need to filter them differently (by business unit or geography, for example) or you might need to recalculate the way they’re being portrayed. Regardless, some minor noodling is not uncommon when trying to get a metric to fulfill its potential for insight.

Still other metrics will become lightning rods for criticism, which will require some pacification or compromise. In the process, you may have to sacrifice some metrics in order to move past political obstacles and engender further support for the overall effect of the dashboard. If one of your organization’s key opinion leaders is undermining the entire credibility of the dashboard by criticizing a single metric, you may find it more effective to cut the metric in question (for the time being, at least) and do more alignment work on it.

Finally, many of your initial metrics simply may not offer any real diagnostic or predictive insight over time. You may pretty quickly come to realize that a metric you thought was going to be insightful doesn’t have sufficient variability to it, or it may not offer much more than a penetrating glance into the obvious.

So the fact that half of the initial metrics will be proven to be wrong over the course of several months after your roll out your dashboard is bad news, right? No – it’s actually a good sign. It shows that the organization has embraced the dashboard as a learning tool, and that the flexibility to modify it is inherent in the process of improving and managing the dashboard as you go.

Here’s my advice: When implementing a new dashboard, be prepared to iterate rapidly over the first 90 days in response to a flood of feedback. After that initial flurry, develop a release schedule for updates and stick to it, so you can make improvements on a more systematized basis. But above all, make sure you’re responsive to the key constituents and that those constituents have a clear understanding of how their input is being reflected in the dashboard. Or if it’s not being reflected there, be prepared to explain why.

Knowing Is Believing

2007-09-19T14:29:00.000-04:00

Now that 2008 budget season is upon us, it’s time to identify knowledge gaps in the assumptions underlying your marketing plan – and to lay out (and fund) a strategy for filling them.

We recently published a piece in MarketingNPV Journal which tackles this issue. In “Searching for Better Planning Assumptions? Start with the Unknowns” we suggested:

A marketing team’s ability to plan effectively is a function of the knowns and the unknowns of the expected impact of each element of the marketing mix. Too often, unfortunately, the unknowns outweigh the hard facts. Codified knowledge is frequently limited to how much money lies in the budget and how marketing has allocated those dollars in the past. Far less is known (or shared) about the return received for every dollar invested. As a result, marketers are left to fill the gaps with a mix of assumptions, conventional wisdom, and the occasional wild guess – not exactly a combination that fills a CMO with confidence when asked to recommend and defend next year’s proposed budget to the executive team.

Based on our experience and that of some of our CMO clients, we offer a framework to help CMOs get their arms around what they know, what they think they know, and what they need to know about their marketing investments. The three steps are:

1. Audit your knowledge. The starting point for a budget plan comes in the form of a question: What do we need to know? The key is to identify the knowledge gaps that, once filled, can lessen the uncertainty around the unknown elements, which will give you more confidence to make game-changing decisions.

2. Prioritize the gaps. For each gap or unanswered question, it’s important to ask how a particular piece of information would change the decision process. It might cause you, for example, to completely rethink the scope of a new program, which could have a material impact on marketing performance.

3. Get creative with your testing methods. Marketers have many methods for filling the gaps at their disposal; some are commonly used, others are underutilized. The key is determining the most cost-effective methods – from secondary research to experimental design techniques – to gather the most relevant information.

Don’t let the unknowns persist another year. Find ways to identify them, prioritize them, and fund some exploratory work so you’re legitimately smarter when the next planning season rolls around.

Where Have All the CMOs Gone?

2007-09-11T09:55:00.000-04:00

If I had to sum up in a phrase what I heard Monday at the ANA Accountability Forum in Palm Beach, Fla., it would be “hard work.”

We heard several stories of marketers (IBM, VF Corp., Johnson & Johnson, Kimberly Clark, Siemens, and Discovery Networks) who are at various stages of understanding the payback on their marketing investments. Some have established impressive abilities to ascertain directional returns via marketing mix models supplemented with online research panels. Others have defined their vision, building the requisite foundation - aligning roles, goals, and expectations – and beginning to see some results. Yet many of the attendees still appear to be circling around the need for better measurement, looking for a point of entry.

Depending upon how one interprets the survey of measurement and accountability practices released at the ANA event, somewhere between 20% and 40% of large marketing organizations are doing measurement reasonably well. Another 20% to 40% are making some progress, but still addressing large gaps of a cultural, organizational, or technical nature. And the remaining 20% to 40% are, apparently, selling far more product than they can produce, ergo they’re not interested in measurement.

Sadly, these numbers do not seem to have improved from surveys done in the past.

I have two theories on why we may have stalled.

First, the truth is getting out: Measurement is hard work. And now that all the low-hanging fruit of defining metrics and building models using available data has been picked, the real insights have proven to be hiding higher up the tree. It’s one thing to know you have a data gap in an all-important metric, but quite another to secure the resources to close it while developing a credible proxy in the interim. If you’ve bought all the relevant syndicated data and are still left with gaping holes in your spend-to-return equation, you face the possibility of having to build your own data, from scratch, to travel that all-important last mile. And if you’ve been standing on the periphery looking for a cheaper, faster, less organizationally intrusive approach to give you great insight at little cost (financially or politically), it’s not going to happen. Get out your ladder and start picking fruit.

Second, the actions of CMOs indicate that they may be losing interest in the topic. Events like the one I’m attending this week used to attract a strong following of CMO types. This year, very few. Have they lost interest? Do they know something the rest of us don’t? Is measurement fading as an issue with CEOs and CFOs? Do CMOs not like Florida in September?

The CMO’s absence in the dialogue suggests they’re delegating really difficult organizational problems to smart, hard-working people who unfortunately lack the political clout necessary to solve them. Maybe the CMO has sufficiently “checked the box” by assigning people to work the issue. Or maybe it’s just not a very fun project to work on relative to the excitement of strategic planning or shuffling the organizational chart. If the CMO is losing interest, progress will be measured in minor increments and marketing is unlikely to ever achieve critical mass of enlightenment.

Whatever the reason, the result is the same: Marketing loses credibility and influence in each passing quarter in which the CMO can’t answer the difficult questions about the relationship between spend and returns. The opportunity cost, both to the company and to the career of the marketer, is staggering.

Bottom line: This measurement stuff is hard work. As I see it, the CMO has two choices: Roll up your sleeves and get into the thick of it, or start calling the recruiters and let the next person worry about it.

Marketing and Finance on the Same Team: Building the Dashboard Together

2007-06-18T14:58:00.001-04:00

I meet with dozens of marketing executives every year, and in the vast majority of these meetings, I hear frustration over an inability to effectively communicate marketing program value to the CFO. The two departments often disagree on which metrics — and which programs — are the most significant to the bottom line, as well as on the interpretation of results.

The problem is that when the chemistry isn’t just right, the personal relationship bridges aren’t strong, and the awareness of the range of solutions is limited, the collaborative spirit surrounding marketing measurement devolves quickly into a power struggle. And in that environment, everything stalls and nobody wins.

We recently had a chance to talk to a few marketers, including KeyCorp, Bank of America, Yahoo! and Home Depot, among others. Common to all was an effort to build joint ownership between marketing and finance over marketing measurement responsibility. The result seems to include setting goals that are better aligned up front with the P&L, as well as enhanced interdepartmental communication and an improved ability to interpret and act on results.

Here’s a snapshot of some of the things Marketing is doing. They:
• Build shared goals up front;
• Get up-front buy-in from Finance and corporate executives;
• Align marketing metrics with the P&L;
• Involve Finance in dashboard design;
• Provide them with full transparency;
• Give Finance partial ownership of the dashboard;
• Have the corporate scorecard mirror the LOB scorecards;
• Go beyond deciding which metrics to track to deciding how to distribute the results and to whom;
• Focus on the things that are really going to make a difference in company performance;
• Reach out to all stakeholders and LOBs and ask what’s important to them; then build in different levels for different stakeholders;
• Are realistic about trying to solve things they don’t have control over, or where there may be gaps in information; and
• Don’t leave the numbers open to interpretation; they use a narrative to explain each metric, and they publicize an action plan for the next quarter.

You can see more of this discussion online by clicking here.

The Marketing Mix Model Grows Up

2007-05-31T19:33:00.000-04:00

I’ll be honest — a couple of years ago when marketing mix models started to catch on, I wasn’t entirely enthused. Like any new measurement technique or tool, I felt MMMs just skimmed the surface of tactical optimization when, to offer real value, they really needed to be used as a strategy support tool. But MMMs have gotten better at doing that. Specifically, today’s marketing mix models:

- Provide more operational guidance, aligning increases or decreases in marketing campaign spending with channel management and supply chain considerations;
- Link to trade-off analyses on a market segment or brand-equity level;
- Help companies monitor the impact of marketing programs on incremental revenue while further explaining that amorphous “baseline” number.

Improved automated functionality is also allowing marketers to react more quickly to results based on their needs by, refreshing the models monthly to allow for more frequent changes in marketing support planning.

Ever the devil’s advocate though, I still see some need for improvement. Specifically, modelers need to:

- Ensure that the organization as a whole understands the assumptions and limitations of the marketing mix model;
- Realize that laying the acceptance groundwork around those assumptions is as important and challenging as building the algorithms or collecting the data;
- Be aware of changes in the competitive environment and how they affect your results; this is an area where marketing mix models often break down;
- Understand that the model will, on occasion, fail; expect it and plan for it.

Finally, don’t stop at marketing mix models. Risk is magnified by over-reliance on a single tool. Today’s marketing measurement toolkit needs to be much broader. Deep understanding of brand drivers, customer behavior and value require input from tools and techniques outside the mix model, as well as in.

If you’re interested in more about marketing mix models, as well as how to evolve them, click here for the article on our website.

Net Promoter Score — Beware the Ceiling

2007-05-17T14:27:00.000-04:00

The popularity of Net Promoter Scores as a means to link customer experience execution to financial value creation has been astounding. In just the past two years, American businesses of all sizes, types and structures have begun asking customers about their proclivity to recommend it and the reasons why or why not. Whether you’re a fan of NPS or prefer other methodologies, it would be difficult to dispute that, in the aggregate, this has been a very positive trend that has elevated the consciousness of executives to the link between investing in customer experience improvement and creating shareholder value.

But what happens when we, as consumers, begin getting so many surveys asking about our likelihood to recommend that we become numb? What happens when we realize en-masse that we can end the call quicker by just answering “10” and “no.”

It’s not hard to envision how the simplicity of NPS surveys will eventually lose effectiveness. Familiarity breeds contempt. Respondents will lie with greater frequency. NPS scores will begin to rise — artificially — while the relative competitive gaps begin to disappear. By that point, it will be too late. We’ll have unknowingly made some bad decisions on increasingly flawed data and be left without a transition strategy.

This scenario may not play out for some time yet. But I think it’s helpful to be aware of the inevitability of it; to build early indicators into our current NPS review processes; and to begin imagining what the next solution may look like.

If you’ve had any particular experience with this dynamic, I’d love to hear from you.

When Segmentation Loses its Meaning

2007-04-18T11:00:00.000-04:00

Segmentation seems to be on its way to becoming one of those vendor co-opted words that is fast losing its meaning.

As I’ve painfully learned with the word “dashboard”, once a concept catches on it quickly becomes perverted beyond recognition until, on some level, everyone is doing it and all consultants and technology providers are experts in it (think CRM). I suppose this is just another benefit of living in the digital age.

Lately, I’ve seen “segmentation” used to describe approaches for:

- finding the most likely prospects for an existing product/service set;

- developing the most effective ad copy; and

- explaining the similarities and differences between competitors in a given market space.

Those of you who know me know that I’m not too hung up on definitions. But I am pretty hung up on meaning. To me, “segmentation” is the process of defining naturally occurring groups of homogenous prospects or customers who share a common need-set, determining the relative size of each group (from the perspective of profit potential), prioritizing their attractiveness, and then developing go-to-market plans best suited to appeal to each.

First off, this can’t be done without quantitative research of some sort. There are many techniques with different circumstantial strengths. But if someone is talking about segmentation based on “some interviews”, run. Fast.

Second, segmentation based on attitudes, beliefs, or perceptions is fine for writing copy or creating positioning statements, but what does it really tell you about the not-so-subtle trade-offs in constructing the real value proposition of the product/service?

A focus on feelings may cause you to miss the importance of making your product easier to spot on the shelf, or modifying your distribution-channel structure, or even extending credit to achieve competitive advantage. Incorporating attitudes into segmentation is smart. Basing the entire segmentation on them can be tragically flawed.

Finally, segmentation without sizing is irrelevant. Whether you size on revenue or contribution margin (preferred) opportunity, you need segmentation to help you understand the relative opportunity of allocating your resources one way versus another. Good segmentation forces you to make hard decisions because it shows you multiple viable pathways. Great segmentation helps you quantify the risk/reward propositions and leads you to the best choice.

How, you may be asking, does this relate to marketing measurement? Segmentation is the basis of all resource allocation. Segment your market properly, and your most meaningful metrics will emerge from your understanding of how to create customer value.

Let the marketer beware, though. The sad paradox of segmentation is that declining standards of imagination and process discipline increasingly mean that all segments are created equal.

Understanding the Accounting and Marketing Benefits of Customer Franchise Value

2007-03-29T17:37:00.000-04:00

It can often be difficult — sometimes down right impossible — for marketing and finance to coexist when finance needs short-term results to satisfy their generally accepted accounting principles (GAAP) and marketing is trying to build overall brand equity, which leads to long-term customer relationship value.

In the diagram below, you can see that there is much involved in arriving at ROI from the marketing point of view. However, the accounting department only sees that the shortest distance to any destination is a straight line — i.e., 2007 marketing activity should lead directly to 2007 sales.

Customer Franchise Value (CFV) can help bridge the gap between the two departments and help marketing give finance what they need. CFV is a metric that gives the CFO a tangible number to get his hands around that explains payback on marketing efforts today — key emphasis on the word today. In short, it’s a “net present value” snapshot of your current customer base.

At the same time, it serves as a more disciplined way of helping marketers understand the tangible, financial value being created over time — not just the strategic value. Basically, it gives marketers the breathing room they need to invest in longer-term sales growth.

In our latest issue of MarketingNPV, you’ll find a robust discussion on this subject that will help you create your own customer franchise value metric system.

Click here for the article on our website.

Big News in the World of Marketing Measurement

2007-03-15T10:32:00.000-04:00

I don’t spend a lot of time talking about our firm and what we do – but I need to share some big news….

Dave Reibstein, William S. Woodside Professor of Marketing at Wharton, past Executive Director of the Marketing Science Institute, and co-author of the recent book - Marketing Metrics: 50+ Metrics Every Executive Should Master – is joining our firm.

I’m delighted to be working with Dave and his colleague from CMO Partners, Peter McNally. They are world-class marketing strategists with a strong financial orientation and great expertise at selecting the right marketing metrics to diagnose and predict performance. Working together – aside from having some fun - we’ll be looking to conquer the challenges of effective and efficient marketing resource allocation.

If you’d like to get a sense of the things that will be driving our work, check out “10 Immutable Laws of Marketing Measurement”, a new piece co-authored by Dave and yours truly.

Beware Bogus Surveys That Kill Credibility

2007-03-05T11:54:00.000-05:00

The popularity of the marketing measurement movement seems to have every PR-hungry consultant jumping on the “survey says” bandwagon to create some “content”. You know the type. “We asked 1,000 people what they thought about….”

The answers are supposed to provide you, the marketing executive, with a benchmark of what your “peers” are doing, so you can gauge the relative performance of your own company or department. Only they don’t. They just manipulate your desire to know and play off of your lack of technical knowledge in reading research results.

It’s ironic, isn’t it, that people who supposedly specialize in credible marketing measurement resort to scientifically flawed methods in their own marketing efforts:

- The survey samples are drawn from convenience and are representative of no larger group (except the group of people who happened to respond to the survey).

- The motivations of the respondents to be truthful seem to pass without question.

- There is no attention paid to the non-respondents (whom one might presume are protecting some real, non-public insights).

- And the summaries exclaim how 40% of respondents said this while another 52% said that, all the while ignoring the fact that the error rates for the study may be +/- 20% or more.

If you presented such garbage information to your executive committee, chances are you’d be out on your ass quicker than your resume could get updated.

I’m not diminishing the importance of qualitative research by any means. I’m simply calling on the emerging industry of measurement consultants to adhere to the same standards they advise their clients on. If you seek publicity for qualitative work, be sure to clearly label it as such and use as many words to explain the limitations of the conclusions as you employ in proposing them.

On the client side, you should have higher standards. Ask a few key questions about anything labeled “research”:

1. Is this qualitative or quantitative? Qualitative research summaries shouldn’t be rooted in numerical comparisons across sub-samples. Their findings are only valid at the level of broad observations and hypotheses.

2. What universe is this sample representative of? Understanding the sample number of respondents in the context of the non-respondents and the group selected to receive the opportunity to respond will tell you if those who did respond are really reflective of your “peer” group and if the differentials reported are meaningful, or manufactured.

3. What is the error factor of the findings? If they can’t say for sure, then it’s not a quantitative study, which means you should pay no attention to the actual numbers and percentages reported.

If we all apply a bit higher standards for credibility in our work, we will collectively advance the credibility of the marketing discipline in its ability to self-measure. Failing that, we’ll continue to be accused of being more interested in PR than real results.

Marketing and IT: Hyatt Proves That A Team Approach Is Doable

2007-02-22T16:36:00.000-05:00

For years, marketing has been feeling the short-end of the stick from IT in terms of support and prioritization. IT, on the other hand, has been mopping up after marketing “experiments” with outsourced, on-demand solutions that didn’t work exactly as hoped. So how do you get the CMO and the CIO to work more closely to integrate their efforts to achieve their (presumably) common goals?

Hyatt seems to have solved the problem. They named Tom O’Toole, formerly “just” the CMO, to be CIO, too.

In an interview I did with Tom recently, he offered a few suggestions for ways to solve expectation and delivery gaps that typically form in the Marketing-IT relationship. Now before you read these, keep in mind that they were coming from the mouth of someone who spent the bulk of their career in the brand marketing world…

Tom’s suggestions for CMOs are:

1. Don’t develop and staff your own applications without at least discussing it with IT. If you do, we don’t have the expertise or the staff to support them. Most often, these systems aren’t well-documented.

2. Don’t mess around with the network. There are security concerns, bandwidth concerns, and reliability concerns. You really have no idea how problematic it can be for a network manager whose job depends upon network performance and uptime to all of a sudden have major delays or outages caused by a rogue Web server he didn’t even know was connecting. It can literally bring the entire company to a standstill.

3. Try to stick with packaged solutions. If you can recommend a solution from a vendor who has already built all the interfaces with the software we run our enterprise on and has tested them with dozens of other clients, it takes a tremendous amount of work (and time) out of the assessment process.

For the entire Q&A with Tom O’Toole, go to:
http://www.marketingnpv.com/interview.asp?ix=1176

Predicting The Path of Predictive Analytics

2007-02-01T09:25:00.000-05:00

Analytics are increasingly the lifeblood of a CMO’s accountability process. And we’ve seen marked advancements in these tools, as marketers turn up the pressure for more usable insight.

In the aggregate, I see four key trends shaping the analytics space:

1. C-level involvement. The corner office will go from interested to involved to participating in marketing decision making. The analytics underlying resource allocation recommendations will need to more clearly articulate and justify what you need, why you need it, and yes, the payback. They will have to speak for themselves, sans the geek interface.

2. Continuous marketing measurement. The near future of analytics will go beyond one-time, “what’s going on today” metrics to present real-time continuous results. This constant flow is critical to overcoming the challenges of today’s fractured media environment. A new ‘test and learn’ framework is also helping marketers capture feedback and adjust to it more quickly.

3. Cheaper, faster models. Similar to Moore’s Law, the speed of analytics models will continue to increase and the capabilities will improve, while the price will gradually decline. Specifically, we anticipate deeper support for data integration and “what if” scenarios.

4. Software tailored to your needs. You’ve been made to walk the walk. Soon, the analytics vendors will be doing it too. While this may be the trend furthest down the pike, we feel the survival of today’s analytics tools is dependent on their ability to be “componentized” to create relevance and meet the unique needs of individual marketers.

None of these trends will cause a definitive paradigm shift next week, or even next month. Rather, the change will be subtle and incremental. But a look back 12 months from now should show considerable advancements beyond today.

For a deeper analysis of these four predictions, go to:
http://www.marketingnpv.com/article.asp?ix=1180

WOM Measurement – The Wild, Wild West

2007-01-16T19:23:00.000-05:00

As one of the newest media (and one that is still very much evolving), there’s quite a bit of measurement snake-oil surrounding the links between word-of-mouth marketing and financial value creation.

I don’t think we’re far off from bringing respectability to it, because all the necessary tools are there. But we won’t progress unless marketers stop being satisfied with simple “stroke counting” measures — like message delivery and open and pass along rates — and start building a roadmap that more clearly links WOM to revenue and profit.

Here’s a 6-step prescription for WOM measurement progress:

1. Define Objectives. Clearly and succinctly state the intended outcome of the campaign expenditure in economic or behavioral terms.

2. Test the effectiveness of your message strategy to determine the recipients’ behavioral outcome.

3. Develop test-and-control constructs to determine the true predictive value of the awareness or attitude change, and its effect on behavior.

4. Conduct post-campaign interviews with current and new customers, and those who still resist your value proposition to find out what did or didn’t influence their decision to act or not act.

5. Review your proposed measurement methodology with key constituents of the outcome (i.e., the CFO and CEO) in advance to get their feedback and to tighten any loopholes and gaps.

6. Be clear on your expectations. State them in as tangible of financial terms as you can. Then ask yourself the tough questions: Did you succeed in achieving your goals and expectations? Continue to adjust as you move forward.

As word of mouth grows into a recognizable line item on the budget, the measurement practice must improve along with it. Otherwise, it’s the wild, wild west all over again.

If you want to see more on measuring word of mouth marketing, read:
Is There a Reliable Way to Measure Word of Mouth Marketing?
http://www.marketingnpv.com/article.asp?ix=1175

Prediction for 2007… Pain

2007-01-02T08:17:00.000-05:00

With all the hype surrounding the resurgence of legendary on-screen boxer Rocky Balboa, I couldn’t help but borrow a line from the old Clubber Lang (Mr. T) in anticipation of what 2007 will bring for marketing measurement. He said, “My prediction… pain.”

In the case of marketers, that pain is likely to be felt most by some of the late adopters to measurement discipline. In fact, marketers who haven’t yet made a concerted effort to get a suitably comprehensive and properly stakeholdered measurement process in place are likely to feel the pain more than ever in 2007. Why?

First, CEOs and CFOs are hearing more and more about how measurable marketing is these days. They’re seeing it at conferences, reading about it in their trade journals and hearing it firsthand from their peers. These seeds, once planted, can’t help but grow up through the most hardened sidewalks of resistance. And when they crack through the foundation of credibility, the crumbling is impossible to stop.

Second, unless you’re lucky enough to be in a high-growth business spinning out exceptional shareholder returns, the die is likely already cast for another year of cuts to the marketing budget. The best you can hope for is that the slashes will be swift and sharp. But chances are, they will more likely resemble death by a thousand small incisions. And you can forget about defending your turf. If you had the insights the CEO needed to be more confident, you wouldn’t be the one who’s budget they look to begin with.

Third, if you’re entering the “opportunity zone” of your tenure with the company (somewhere between months 20 and 30), you may have but one more chance to put a sound foundation behind your next budget recommendation. But you’ll need to start now. It takes a minimum of nine months, and more often 18, before you can really get a good historical handle on marketing performance drivers and be able to correlate them to spending with any predictive validity.

The good news is that, if you start in January while the year is fresh and new, you’ll have a fair chance of making a big difference for 2008. You can build a foundation that will serve you immediately and for many years to come. But by April, your window will close. So the question for many marketers isn’t whether or not there will be pain in 2007, but whether it will be the pain of progress or the pain of avoidance. Either way, the choice is deliberate.

Wishing you the very best (and a full bottle of Advil or Tylenol) in 2007.

WOM – Before You Measure, You Need to Define

2006-12-21T07:51:00.000-05:00

If you’re unsure whether word of mouth is shaping into a highly valued tool that should be a required element in your marketing arsenal, you need look no further than the November 29th issue of The Wall Street Journal. In it, Research In Motion (RIM) — makers of the infamous BlackBerry wireless device — ran a full-page ad touting the strengths of WOM in building their BlackBerry business.

When a company is willing to spend tens of thousands of dollars in a national print publication to let the world know that word of mouth is working for them, all CMOs should sit up and take notice.

But while this gives WOM some of the respect it deserves as a media form, I’m not seeing a slew of other companies pushing to get in line behind RIM to do the same. That’s because most companies today are still struggling with the basics — things like defining what constitutes word of mouth, establishing a budget for it and defining how to measure it.

Through several interviews we conducted for the lead article in our latest issue of MarketingNPV Journal (“Is There A Reliable Way to Measure Word of Mouth Marketing?”) we found that marketers, consultants and other industry experts do not even agree yet on a definition. This is a critical first step if we are to eventually achieve the task of standardizing metrics.

The Word of Mouth Marketing Association, in its 2005 report, does a good job of clearly explaining all the elements that encompass word of mouth. We break them down for you in our article — things like defining the difference between organic and amplified word of mouth; the latter can be facilitated and controlled by companies, the former cannot, and that’s critical for companies to know and understand.

Which type of word of mouth an action or campaign falls under also affects the portfolio of metrics at a company’s disposal that can be used to track and measure them. For instance, organic WOM can be measured through traditional brand tracking devices, reputation surveys and customer experience monitoring, while amplified WOM lends itself more toward direct response-type campaign measurement tools.

To access the full article and learn more about how to define and measure word of mouth marketing:
http://www.marketingnpv.com/article.asp?ix=1175

Building Actionable Performance Dashboards

2006-12-05T20:59:00.000-05:00

No single metric — especially not ROI — will suffice in providing all the data a company needs for making appropriate day-to-day and long-term decisions about marketing resource allocations. Instead, dashboards — which integrate a company’s key performance indicators into a centralized strategic view — are crucial to a firm’s ability to understand overall effectiveness and efficiency, as well as identify which efforts affect the bottom line.

We’re constantly looking for best practices on building marketing dashboards to impart to our readers. In a recent issue of MarketingNPV Journal, we presented the results of a Marketing Leadership Council study in which we participated that does just that.

The study presents a robust roadmap for marketers to follow when building a dashboard based upon some real case studies of Global 1000 companies, including critical steps common to all dashboards, pitfalls to watch out for and best practices for moving forward.

To read a full-text copy of our summary of the report, click here.

To learn more about the Marketing Leadership Council, go to: http://www.marketingleadershipcouncil.com.

For additional articles on marketing dashboards:

5 Keys to an Effective Marketing Dashboard

The Balanced Scorecard: Prelude to a Marketing Dashboard

Marketing Performance Out of Alignment? A Good Marketing Dashboard Will Focus and Inspire

Interview with Arun Sinha, CMO — Pitney Bowes

Timken Rolls Out a Marketing Dashboard for Industrial Bearing Group

Getting More Than Goodwill From Corporate Reputation

2006-11-10T12:20:00.000-05:00

How do your employees feel about your firm? Are you getting the most favorable analyst ratings? Do your investors and shareholders approve of your vision and direction?

How your constituents — customers, employees, investors, shareholders, financial analysts, the media, interest groups, regulators, partners/resellers, and suppliers — view your corporate reputation directly affects, either positively or negatively, your bottom line.

Each group is unique in how its behaviors can positively or negatively affect a company’s reputation and bottom line. For instance, favorable employee opinions can result in longer employee retention and higher morale, which reduces employee acquisition and training costs and improves productivity. Bad morale or publicity can cause an employee exodus. Favorable ratings from financial analysts can help improve share price, but more tangibly, they can lower the cost of capital and generate greater interest in the company’s bonds amongst the investment community. Meanwhile, an endorsement from an influential community interest group can open doors for powerful partnerships, increase acceptance among customers, employees, and analysts, and could even generate increased interest within the investment community.

The chart below shows examples of profitable behaviors by constituency group. Each of these constituent behaviors is trackable, measurable, and can be directly related to a desired financial outcome. The key to achieving those outcomes is to set reputation goals that tie in directly with your business goals, then to create metrics that measure performance against them.

Constituency groups are not "one size fits all", however. Some companies have unique needs and adjust the groups within the circle to fit. For instance, Bill Margaritis, senior vice president of worldwide communications and investor relations at FedEx, includes “emerging markets” as a distinct constituency group because he feels you have to communicate differently with people in markets you are entering than you would with people in markets in which you already have an existing reputation.

Judi Mackey, senior vice president and director of the U.S. corporate and financial practice of public relations firm Hill & Knowlton, splits consumer customers and B2B customers into separate buckets because she feels consumers seldom base their purchase decisions on a corporate brand (unless there is a scandal). Conversely, she’s found that if a corporation behaves badly, it influences B2B customers more.

To truly understand the benefit of cultivating positive constituent behaviors and maximizing them to your company's advantage, consider the following example:

Retail investments giant Company A invests $2 million in a public relations campaign in a mid-sized market centered around a donation to revitalize youth sports facilities, in return receiving naming rights on a prominent Little League complex. Its rationale for making this gesture is to enhance the image of the company as a community-minded local organization and to associate its brand with the youth and vitality of sports.

Given these objectives, Company A measures the effectiveness of its investment in terms of the change in attitudes amongst the local customer, prospect, employee, agent, legislator, and vendor constituent groups. It develops elaborate surveys on key brand equity attributes and measures the pre-post differential in the affected market vs. nearby control markets where there are no such sponsorships. It also measures the number and nature of media “hits” received in the local press and calculates the value of that exposure if it were paid at rate card for each media.

So when all these indicators respond positively, what does Company A tell the shareholders? “The campaign was a huge success! The attitudinal shifts are through the roof. And we generated over $2.5 million in free media exposure, giving us an ROI of 25% on the media value alone!”

Compare Company A’s approach to retail investments giant Company B, which makes a similar investment in a different market, but does so against the stated goals of:

increasing the number of “power agents” (those doing more than $10 million annually in sales) from 38 to 54;

improving employee retention in their local call centers from 70% to 85%; and

getting a local ballot initiative on the legislative calendar to create greater flexibility for the introduction of new products.

Like Company A, Company B painstakingly measures shifts in key brand attributes amongst the key audiences. And it measures the amount and nature of media coverage it receives in the local press. But the firm also measures the number of agent-to-power-agent migrations, employee retention rates, and the week-by-week progress of its target legislation. So when it comes time to report back to the board on the campaign effectiveness, the board can relate not just that attitudes have improved amongst the key constituency groups, but more tangibly that:

the firm increased the number of power agents to 57, which has a forecasted net present value (NPV) of $1.4 million;

employee retention fell slightly short of the 85% goal at 82%, but the expected savings in recruiting and retraining are still worth $1.8 million NPV based on employee tenure and productivity; and

the ballot initiative is in the right committee of the state assembly and a straw poll of legislators suggests a 65% likelihood of passage within the next six months, which would translate into a probability-adjusted $4.2 million in incremental net profits from new product sales.

Bottom line: The managers in Company B can report to shareholders that not only have they improved attitudes among key audiences, but the investment they made in enhancing the company’s reputation has achieved short-term payback of $3.2 million, for an ROI of 60%, plus the prospect of a longer-term payback of an additional $4.2 million. And that’s before the value of any incremental media exposure is taken into account — which sophisticated investors know is not really worth the rate-card value of the exposure, unless the company had intentionally planned to forego other advertising or communications expenses in achieving it.

So what did Company B do differently than Company A? It set expectations for the investment it was making in more financial, tangible terms, and then developed the framework for measurement in terms of the expected economic behaviors it intended to create. Sure, it included the attitudinal shift surveys to diagnose the effectiveness and consistency of its message. It just didn’t stop there.

Have you had any bottom line success from tracking, measuring and cultivating the benefits received from positive constituent behavior? Feel free to share your story here. MarketingNVP and your industry peers would love to hear from you.

Have You Measured Your Reputation Lately?

2006-11-02T12:46:00.000-05:00

We've seen all too clearly in recent years how having a negative reputation can cost companies millions...or worse, can destroy them entirely (think Union Carbide, Enron, Arthur Andersen and Cendant). But for most companies, the effects of a negative reputation to their bottom line are much more subtle and 'under the radar' -- perhaps even creating a perception of weakness rather than negativity. These are the worse kind, however, because they go unnoticed and unmeasured for long periods of time, yet can create as much damage against a company's shareholder value and bottom-line profits as a single catastrophic event.

A well thought out and planned reputation management strategy, with clear metrics, should be part of every company's overall business plan. However, until such an internal plan is put in place, there are a number of tools at companies' disposal that can be implemented immediately or almost immediately. They include:

1. Public Rankings. Many best-practice leaders consider public annual rankings such as Fortune’s “Best Companies to Work For” and “Most Admired Companies” critical measures of how they are perceived in the marketplace. Rankings such as these directly affect a company's ability to draw in the best employees, generate positive analyst ratings and secure favorable financing terms.

2. Reputation Indexes. One public dashboard used to track and measure reputation is the annual Reputation Quotient(SM) by Harris Interactive. Reputation Quotient metrics fall into six categories, each with 20 attributes rated on a 7-point scale. The study culminates in a list of the top 100 companies ranked by revenue. The ranking is based on up to 8,000 general public interviews identifying the companies with the most visible (best and worst) reputations. Then, approximately 20,000 people are each given about six company names from the list and asked if they are familiar with the companies. If they are familiar, they are asked to rate up to two companies on each of the 20 attributes. Each company is rated by approximately 650 people. Out of this ranking comes the Reputation Quotient score.

Other organizations providing similar tools with different methodologies include the Reputation Institute’s RepTrack®, CoreBrand, Millward Brown, and Young & Rubicam.

3. Media Content Analysis. MCA tools have advanced greatly from the days of manually cutting out articles with a scissor. Today, vendors in this space such as Biz360 and Delahaye provide robust analysis of what media mentions actually mean. For instance, Delahaye gathers news from major news sources, then scores and ranks the top 100 U.S. companies by measuring how many positive and negative reputation-driving attributes are found within each story. The attributes are classified into five dimensions: stakeholder relations, financial management, products and services, organizational integrity, and organizational strength. Delahaye looks at such things as tone, whether key messages or graphics were used, whether the company name was in the title, and where it appeared in the publication. Each component carries a different weight. The summary measure, called the Net Effect, provides an all-inclusive bottom-line figure of news measurement. The firm publishes a quarterly index. Clients also get customized reports that show how they compare against industry leaders in the index.

4. Reputation Mix Models. Like the now commonplace media mix models, some companies are beginning to develop reputation mix models that feed detailed attitudinal scores from multiple constituent groups into regression algorithms along with sales, margin, and share-price data to see where the correlations are. Simulation tools can then be developed to “forecast” the impact on one or all of the economic output variables if the reputational attributes could be enhanced by various degrees. These models provide a basis for attempting to assess the utility of investment in developing specific reputation components amongst key constituent groups.

Regardless of which tools you use, every company should have a clear, well constructed reputation management measurement system that ties back to a board-level dashboard. A negative or weak reputation can have significant financial ramifications. Conversely, a well-structured program will provide companies with benefits tied to improved shareholder value.

100 Measurement Stories Don’t Add Up to Any Great Insight

2006-08-07T12:38:00.000-04:00

Most large marketing organizations have made significant strides in the development of sophisticated methods to improve marketing measurement. Ph.D. mathematicians are commonly on staff, stewarding elaborate survey research, media-mix models, and analytical models for assessing the return from proposed initiatives.

But step back from the complexity and one can’t help but wonder if all that measurement is being approached in too tactical a way to credibly tell the overall story of marketing effectiveness and efficiency. With few exceptions, marketing departments appear to be measuring payback in a disjointed series of technically sound but ad-hoc ways in four distinct measurement silos: customer metrics, unit metrics, cashflow metrics, and brand metrics.

The customer metrics silo often looks at how prospects become customers. From awareness to preference to trial to repeat purchase, many companies track progression through a “hierarchy of effects” model to track evolution of broad market potential to specific revenue opportunities. Satisfaction with the customer experience is measured by surveys and reported by channel and touchpoint, although rarely in correlation to specific customer behaviors.

In some companies, the customer metrics silo includes robust attitudinal data on customer segments — why they want what they want or buy what they buy — which is often correlated with actual customer transactional data to create a robust segmentation model. The segments are then monitored for “mobility” (the directional progression of prospects/customers from one segment to a presumably more valuable one) and velocity (the speed with which customers are moving between segments). In many B2B organizations, this customer pathway can go all the way to developing a customer-specific P&L.

The unit metrics silo is the one likely to be at an advanced state of maturity in most companies, owing to the underlying IT systems ability to tell what was sold, where, and at what price. Most marketers have fairly good information on how many redheaded, left-handed, overweight men in their 40s have purchased a minimum number of units in the prior six months with an “r” in them. (Yet surprisingly few know the identity of the individual they actually sold it to.) With some quick math, they can figure out the marketing cost per unit as a gross method of measuring efficiency. Some further mathematical gymnastics can get to pricing optimization analysis, which in turn can provide some insight (albeit a bit oblique) into the value of branding.

The cash-flow metrics silo focuses on efficiency of marketing expenditures in achieving short-term returns. Program and campaign ROI models measure the immediate impact or net present value of profits expected to be derived from a given investment initiative. Media-mix models use statistical regression techniques to identify which combinations of media placements, integrated media elements, and even copy executions generate the most profitable response from customers. And armed with those insights, the marketing department can demonstrate how it is optimizing resource allocations toward the activities and executions with the greatest forecast return in a sort of “portfolio management” exercise.

The brand metrics silo often tracks the development of the longer-term impact of marketing through brand health. Survey-based tracking studies gauge customer and prospective customer perspectives on the brand — its functionality, personality, accessibility, and value propositions. Brand scorecards monitor the evolution of these perspectives over time within market segments and across multiple constituencies like employees, regulators, and community influencers to get a full view of brand equity drivers. And many have taken the successful leap to develop financial models for estimating the financial value of the brand as a means of determining the aggregation of assets on the balance sheet as an outcome of marketing investments.

Yet despite the implementation of effective measurement systems within one or more of the silos, most marketing departments still struggle to synthesize insights gained across silos in a manner that helps one silo explain another or clarifies the predictive drivers of the business on a broader level.

For most companies, it’s not possible to do this scientifically since it’s not an econometric modeling problem solvable by equations and computers. Each silo measures very different components of marketing effectiveness in very different ways. Some are shorter term and some longer term. Linking them algorithmically forces you to make some very large assumptions that may be unreliable in the face of actual marketplace dynamics.

Even if you can solve the problem algebraically, you will likely have to employ statistical techniques of such sophistication that few people in either marketing or finance will understand sufficiently to embrace and defend the method.

The net effect of all this uncoordinated measurement is that marketing gets lost trying to divine the true story of effectiveness of resource allocation from 100 data points on a three-dimensional scatter plot with no clear picture emerging. And while it may have been accepted practice in the past to throw this measurement spaghetti at the wall when asked about the payback on spend, today’s CEOs and CFOs have little patience for the fog of complexity.

To tell the complete story of effectiveness and efficiency of marketing investments, consider developing a marketing dashboard. A dashboard can structure many disparate sources of information in a comprehensive, organized manner and present the insights derived from each silo in a graphically related view that facilitates the human brain’s incredible power to find subtle, contextual links. A well-designed dashboard suggests to the user that the many individual component metrics are actually all part of one single story, not a jumble of dozens.

The debate on the “art” or “science” nature of marketing is over. It’s both.
The science is reflected in the mathematical, cognitive, and behavioral tools we employ to identify opportunities and gauge our success at exploiting them. Our repertoires are expanding with every passing year as more researchers develop better tools and techniques.

The art has historically been defined as the creative spark of imagination behind our execution of marketing messages in words, pictures, and forms used to engage the customer.

Today, the art is increasingly needed to help make sense of the science. The best scientific measurement techniques are lost on the audience that suffers through dry and uninspired soliloquies of interpretation, or, worse yet, death by 100 pages of charts and tables.

As true marketers, we should be able to paint a picture to tell a better story. The dashboard can be a powerful canvas.

Engagement: The Emperor’s New Clothes?

2006-07-31T12:43:00.000-04:00

After much buzz, the Advertising Research Foundation (ARF) came forth at their annual conference recently with a proclamation about the new way to measure advertising effectiveness. They called it "engagement."

When I think of customer "engagement," I tend to think in terms like repeat purchasing, loyalty, customer referrals, or perhaps even just an inquiry. As you can probably tell, I’m hung up on the idea of actually making profits from mutually beneficial customer interactions.

The ARF, a learned and highly professional organization dedicated to the study of advertising effectiveness, took a different approach. In a press release issued last week they said: "Engagement occurs as a result of a brand idea or media the consumer experiences which leaves a positive brand impression. It is now a critical advertising model to replace GRPs in the 21st century. It is important that we think hard about engagement to develop a robust measurement of when consumers are strongly engaged in brands, brand ideas, and their surrounding environments.”

The ARF deserves applause for trying to push beyond the GRP as the standard measure of advertising. Imagine how difficult it must be for an association like theirs to straddle the incredibly diverse and often conflicting interests of its membership. But this definition of "engagement" appears to leave the emperor shivering naked in the cold.

For starters, the term "engagement" implies an active level of involvement with the brand. Yet their definition suggests that achieving a passive "positive brand impression" fills the bill. It doesn't. Advertising history is chock-full of examples in which famous campaigns have created favorable impressions but failed to make the registers ring sufficiently enough to cover the investment.

Further, the proposed definition of engagement doesn't even require achieving a level of brand preference. It stops at favorability. The implication is that an advertising campaign could be deemed successful in engagement terms if it created widespread favorability without actually engendering any incremental preference for the brand on an emotional or rational level. When faced with the actual purchase decision, and confronted with variables of price, convenience, competitive presence, etc., a consumer who is only "engaged" at the level of favorability is highly unpredictable. Even those who have actually developed a brand preference will defect in significant numbers in the face of actual buying conditions.

It would be difficult to argue that creating engagement as they define it is a worthwhile goal for many brands — particularly those mired in the perennial parity of mature categories with few distinguishing product/service characteristics. But while the recommended shift from the exposure-driven concept of ratings to the consumer-centric element of favorability is a step in the right direction, it stops far short of being a practical measure of success.

Rather than adopt a single, broad-sweeping, lowest-common-denominator definition of "engagement," the advertising community would be better served to recognize engagement as a progression from awareness to interest to favorability to preference to purchase to repeat purchase. True, this linear relationship doesn't always reflect the reality of the consumer buying process in every category, but it is an effective starting point for companies to begin to ask themselves what they really know about the patterns of progressive engagement in their key categories. Some will need to add elements of "participation" to the chain to reflect voluntary dialogue pre- or post-purchase. Others will want to include referral as a crucial measure of engagement. It can (and should) be customized to the needs of the circumstances.
The key is to recognize that "engagement" isn't a stage, it's a process. It should be measured in a time series with frequency distribution of prospects and customers at various points along the evolution spectrum. Volume, mobility, and velocity of movement between stages should be the key metrics of engagement. Taken together, they tell a story of continuous improvement and help to predict the economic value of investments targeted at promoting movement earlier in the process.

Contrary to debate within the research community, the greatest challenge for the ARF model of engagement will not be engineering a technically valid and reliable mechanism for reporting (and pricing) on engagement. Rather, if the favorability-focused definition is adopted as the emerging metric for the effectiveness of advertising in the 21st century, marketers (and media and agencies) will cement their positions nearer the bottom of the credibility ladder in the eyes of their C-level peers who will struggle mightily to understand the very subtle differences in the proposed approach vs. the broadly discredited ones of the past. It will not help marketing (or finance) get a better grip on advertising effectiveness. Only efforts focused on bridging the gap between the spending and financial value recognition can do that. Short of that, we’re just shifting the traditional marketing vs. finance argument to a new set of words.

The ARF deserves recognition and thanks for having steered their members onto the right train. Let’s just be careful that we’re not getting off a few stops too early to really help advertisers understand the economic value of further investment in advertising.