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An Executive Summary of the 2006 Marketing ROI and Measurements Trend Study (Marketing Profs)

Lenskold Article Series

by Jim Lenskold

An Executive Summary of the 2006 Marketing ROI and Measurements Trend Study (Marketing Profs)

The buzz about marketing profitability measurement in previous years is certainly turning to action in 2006. At this point, companies not pursuing some form of financial measurements are in the minority. There are still 4 in 10 companies that consider themselves “a long way from where they should be” in terms of their ability to measure financial returns and another 4 in 10 that are “somewhat short of where they could be,” so the industry is in the early stages of the marketing profitability measurement journey.

 

Our objective of this study was to take the pulse of the industry. The original study in 2005 showed signs of life and now we see a strengthening heartbeat. The progress overall is inspiring and certainly demonstrates an evolution within the marketing practice.

 

The key findings can be summarized as:

 

  1. Capabilities to measure marketing’s impact on financial returns increases significantly since 2005.
    Marketers that describe their capability to measure financial returns of marketing as “a real source of leadership” or “as good as they need to be” increased from combined totals of 8% in 2005 to just over 16% in 2006. This was matched with a significant drop in the percentage of marketers describing their capability as “a long way from what it should be” (a decrease from 53% to 42%).

  2. Providing budget for marketing measurement and analytics showed slight improvement but continues to be a problem.
    Only 17% of marketers indicate their budget for marketing measurements and analytics is just right. Two out of three (64%) indicate this is slightly or far below the right level. Just 8% believe it is slightly or far above the right level. While it is discouraging to see a gap in the right amount of funding for an investment that can unlock significant profit potential, the glimmer of hope is the improvement over 2005, where 78% had indicated being under-funded.

  3. CEOs and CFOs have increased confidence that marketing investments are profitable, according to marketers surveyed.
    The percentage of marketers indicating their CEOs and CFOs are somewhat or very confident that marketing investments are profitable increased from 62% to 71% over the past year. Of the companies reporting they measure marketing profitability, 31% report that their CEO and CFO are very confident compared to 16% of those that do not measure marketing profitability.

  4. The ability to link brand measures to incremental sales and profits has increased over the past year.
    Marketers reporting their ability to make this brand measure link as “a real source of leadership” or “as good as it needs to be” increased from a combined total of 6% in 2005 to 15% in 2006. Those who considered their position as “a long way from where it should be” dropped from over two-thirds (65%) in 2005 to 42% in 2006.

  5. Marketing organizations that calculate ROI, net present value or other profitability metrics to assess marketing effectiveness report high CEO and CFO confidence and a high perception of accountability.
    There were 26% of the marketers surveyed that indicated their organizations calculate ROI or similar financial metrics for at least some portion of their marketing campaigns. Of this segment, 31% reported that their CEO and CFO were very confident that their marketing investments were profitable while only 16% of the marketers that do not calculate ROI or similar financial metrics indicated a very high level of confidence. In organizations calculating ROI, 28% of non-marketing executives were reported to view marketing as highly accountable, while this was just 15% in organizations not calculating ROI. One reason this group may be better positioned to calculate the ROI of marketing initiatives is that more reported having the right budget level compared to organizations that do not calculate ROI (26% vs. 15%)

  6. The expected profit potential from improved marketing measurement experienced a sharp jump in the “greater than 25%” category.
    When those measuring marketing profitability were asked “If measurements were in place to capture marketing’s contribution to sales, how much profit improvement would you expect?,” the percentage reporting “very high (profit improvements greater than 25%)” increased from 12% in 2005 to 28% in 2006. Another 46% expected increases of 10% to 25% profit improvement. Only 8% believed there was no opportunity for profit improvement.

  7. Those marketing organizations that launch new marketing campaigns using market tests over intuition are even stronger in confidence from the CEO and CFO and are reported to have greater accountability.
    One segment from our analysis that stood out was the set of respondents defined as those marketers that answered the question “Which best describes your organization’s typical approach to launching new marketing campaigns?” with the response “campaigns are first market tested to a small segment of the target audience for a quantitative assessment.” Just 14% selected this response and they showed incredibly high performance on our assessment questions compared to the balance of the participants that selected “campaigns are rushed to market based on the limited intuition of a few people” (38%), “campaigns are assessed against a large team’s intuitive knowledge” (30%) or “campaign creative / concepts are tested in qualitative research” (13%).Even more so than the segment of respondents calculating ROI, this segment of “market-testers” showed stronger results in all different areas including greater effectiveness at measuring financial returns, higher incidence of calculation of financial metrics, higher use of marketing methodologies, greater CEO and CFO confidence and better perceptions of being highly accountable. They were also more likely to indicate their marketing measurement and analytics budget was “just right.” Running market tests as part of new campaign launches is not what drives increased adoption of financial measures or even greater credibility with executives. It is however, a good indicator of a marketing culture that values disciplined measurements, ROI analysis, and financial accountability.

In our opinion, the positive momentum identified in this study is likely to continue. Why? Because corporations need sources of profitable growth and improving measurements helps unlock additional profit potential.

 

Improvements in data access, analytics, measurements, and financial assessments must continue to be important to move past the noted barriers to measuring marketing profitability. As companies work to make marketing profitability measurement a guide to their growth, they can benefit from the discipline of:

1. Developing better projections of marketing’s financial contribution
2. Creating tighter integration across marketing programs and even with the sales organization
3. Taking a greater role in maximizing customer value
4. Seeking to measure and understand marketing’s impact at a deeper level

Companies that share their marketing ROI success stories at industry events or in articles almost always state that they still have further to go. It’s not because their work is incomplete but because the success they have already achieved makes it clear that additional progress will lead to additional benefits. Look closely at these trends in financial measurements for marketing and, regardless of where you are at on your marketing ROI journey, consider what progress you can make in this and future years.

Access the full report: 2006 Marketing ROI & Measurement Study.

© Lenskold Group Inc. & MarketingProfs, LLC.

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How Marketers Win Friends and Keep Profitable Customers Through ROI Analysis

Lenskold Article Series

by Jim Lenskold

How Marketers Win Friends and Keep Profitable Customers Through ROI Analysis

Customer-centric metrics and measurements are essential for guiding profitable marketing strategies and tactics for both B2B and B2C companies. Learn how better analysis and planning help marketers more effectively retain profitable segments of customers. We’ll cover specific steps with marketing ROI techniques and analytics you can take to manage key profit drivers — such as targeting, customer longevity and vulnerability, the customer experience, referral value, and planning integrated marketing over the customer lifecycle — to deliver more profitable retention marketing.

 

To view webinar, you will be redirected to marketingprofs.com and will be prompted to sign in to view session. *Please note that fees may apply for non-premium members.

 

Click here to view webinar.

 

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CMO Guide to Marketing ROI

Lenskold Article Series

by Jim Lenskold

CMO Guide to Marketing ROI

Marketing ROI and measurement analysis may be daunting subjects for many. Why, where, when and how marketing is driving financial contribution are valid questions. But, managing marketing profitability is top of mind for every Chief Marketing Officer. Most CMOs understand that a reliable and practical ROI process provides unique opportunity to catapult profit potential, improve efficiencies and effectiveness, and build credibility for the entire marketing team. And clearly the greatest path to increased effectiveness and delivering the greatest return is evident with marketing ROI measurements, financial analysis, and decision support.


The CMO Guide to Marketing ROI is a compelling 16-page editorial that breaks down the critical steps needed to establish a marketing ROI framework. It simplifies complex business issues and offers a practical, pro-active approach to create the culture and capabilities for managing and improving marketing ROI.


The white paper features compelling content, a case study with Kodak, and a practical quick-tip checklist. It also summarizes the marketing ROI framework with an easy to follow flow chart. The paper identifies the big wins with ROI analysis, measurements and applying insights to strategic decisions.

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Maximizing Lead Generation Marketing ROI

Lenskold Article Series

by Jim Lenskold

Maximizing Lead Generation Marketing ROI

This white paper combines a four-part article series on Maximizing Lead Generation Marketing ROI. It builds from the basics of strategy and organizational alignment to measurements and metrics.

Part 1: Lead Quality Counts

Part 2: Insight, Alignment & Action

Part 3: Measuring Effectiveness

Part 4: Dashboard Metrics

Loaded with actionable information, this is one of our most popular papers.

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CMO Guide to High-Performance Integrated Marketing

Lenskold Article Series

by Jim Lenskold

CMO Guide to High-Performance Integrated Marketing

As integration across the complex mix of multi-channel marketing improves, the increase in marketing effectiveness and efficiency greatly improve ROI. After all, the collective impact of those multiply contacts is needed to drive customer purchase decisions. However, the significant benefits from tightly integrated marketing require addressing the operational and culture challenges inherent in organizations that plan and execute marketing in silos.

 

The CMO Guide to High Performance Integrated Marketing is the third white paper in our Marketing Profitability Management series. You’ll learn how integration advances through three levels, starting with basic “cohesive” marketing, progressing to a “cumulative” level of integration and ultimately achieving “customer relationship integration.” This paper outlines how to improve integration through targeting, messaging, marketing mix, and engagement at each of these three levels. The 5-step process helps to address strategic development, operational issues such as aggregating data, and processes that help overcome the cultural barriers.

 

As with the other white papers in this series, we outline the priorities for CMOs to achieve success and include a “quick tips” checklist for easy reference.

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CMO Guide to Maximizing Current Customer Marketing ROI

Lenskold Article Series

by Jim Lenskold

CMO Guide to Maximizing Current Customer Marketing ROI

Marketing to current customers is different than new customer acquisition, at least is should be. With current customers, there is an opportunity to capture intelligence on purchase history, profiles, and engagement activity to shed light on their interest and needs. This CMO Guide addresses the challenges and opportunities to maximize customer growth with more effective marketing. We map out an approach using intelligence, analytics, measurements, and ROI to better guide strategic and tactical decisions.


These sophisticated techniques equip the CMO and their marketing team to leverage customer relationships and create competitive advantages through more profitable marketing. Better measurement and ROI capabilities provide insights that marketers can act upon to earn credibility and demonstrate accountability to the CEO and CFO.


The white paper features rich content, a customer case study, tips, and an at-a-glance checklist to maximize performance and ROI from your current customer marketing. This is the first release in our series of CMO Guides intended to improve marketing profitability management. We thank Citrix® GoToWebinar® for their sponsorship and support.

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Why CMOs Need to Instill Better Measurement Discipline – Now!

Lenskold Article Series

by Jim Lenskold

Why CMOs Need to Instill Better Measurement Discipline…Now

There is no shortage of marketing measurements in most large corporations, yet there exists a significant gap in terms of measurement discipline. Measurement problems exist on a number of levels ranging from basic accuracy and prioritizing what should be measured, to how those measurements align with objectives and how the results are applied. Measurements and analytics are powerful tools that provide insight to improve marketing performance. These serve as the sources for knowledge and facts that shape strategies and guide tactical decisions. Without reliable insights into what’s working and where improvements are possible, marketers must piece together their gut feelings on what makes sense with their informal read on marketing’s influence on customers and sales.

 

Putting a measurement discipline in place involves going beyond the occasional campaign measurement or results tracking to establish standard processes across the organization. Within many large marketing organizations there are always a few measurement “champions” who recognize the benefits and push to improve their own results with better measurements. However, leadership from the CMO or VPs of marketing is necessary to move this to a discipline that is engrained into the culture of the organization. When measurement discipline is achieved, the organization works more effectively and efficiently toward clear business objectives.

To put you on the path to measurement discipline, I’ll share what it takes to understand current shortfalls, establish a measurement management process, build capabilities, and create the right culture.

Measurement Practice Shortfalls – What’s Missing Today

For most marketing organizations, measurements are an afterthought relative to strategy and campaign development. There are companies that have extremely well-designed measurement methodologies using different forms of modeling, tracking analyses, or market testing. But even these companies typically fall short of their full potential. Based on conversations with well over one thousand marketers over the years, here is how I would summarize the state of marketing measurements in terms of shortfalls and opportunities.

Measurement Shortfalls

  • Campaign results are tracked and reported without drawing any clear conclusion on what is driving results and what should be done to improve results
  • Measurements are inaccurate but assumed to be accurate if positive (marketers using pre-post tracking attribute negative results to the influence of external factors while attributing positive results to marketing)
  • Measurements do not have clear objectives tied to how the information will be used
  • Measurements are primarily designed around tactics and neglect the big picture, strategic performance drivers
  • There is no budget or no practice to measure marketing impact
  • Metrics not tied to financial performance are measured without any knowledge of how (or if) these metrics influence sales and financial contribution

Opportunities from Better Measurement Discipline

  • Plan measurements 6+ months in advance and integrate with campaign plans to prioritize strategic and tactic insights based on potential performance improvements
  • Establish a process to accumulate and retain knowledge on how marketing influences customer purchase decisions
  • Develop standard methodologies and measurement techniques with acceptable accuracy
  • Ensure results are consistently applied to guide strategies and campaign plans
  • Communicate measurement success stories to reinforce the culture and build momentum
  • Design measurements with the goal of assessing outcomes, diagnosing shortfalls, and improving results

Developing the Vision & Process

If you look at the opportunities listed above, you can see why this is a CMO imperative. The measurement discipline elevates the ability to guide the most critical decisions with better precision for greater impact. Marketing organizations manage large budgets that are facing greater scrutiny without the credibility that comes from measurements. CMOs should not be satisfied with measuring marketing contribution but should also demand that the organization demonstrate the ability to act on measurements and improve performance. This is where credibility is earned.

The vision for better measurement discipline starts with the CMO’s expectation that well-constructed measurements concentrated on key profit drivers will provide a competitive advantage when developing strategies and tactical plans. The process requires integrating measurements into key stages of the marketing planning and delivery cycle. The planning cycle should follow this general direction:

  • Set marketing and campaign objectives aligned to business objectives
  • Develop your strategy with ROI scenario planning to improve profit potential
  • Complete a rolling 6-month measurement plan to prioritize measurements and integrate into campaign planning
  • Develop tactical plans with measurements defined prior to execution
  • Execute & measure marketing initiatives
  • Track and analyze results
  • Refine upcoming objectives, strategy, and tactical plans, leveraging insights to improve performance
  • Manage the learning cycle by maximizing the use of measurements and identifying the  next measurement priorities

CMO commitment is critical to success. To achieve new levels of success, the CMO must motivate the team to invest additional effort into measurements and also back that effort with resources. CMOs should empower those measurement champions within the organization to lead the effort and innovate. The payback comes to all in the organization as they understand the value measurements provide in informing their decisions.

As reported in the 2009 Lenskold Group / MarketSphere Marketing ROI & Measurements Study, companies that are outgrowing their competitors are much more likely than companies growing slower than competitors to indicate that they are “using good measurements of marketing effectiveness to prioritize top marketing campaigns” (41% vs. 24%) and “have data, facts, and insights to better guide marketing spend decisions” (44% vs. 27%). The benefits are clear so now the team must map out a path to establish this measurement discipline.

Building Capabilities & Culture

In organizations where measurements are used inconsistently or are not yet running to their full potential, improving measurement discipline must be done in stages. You want to build both capabilities and culture as each supports the other.

 

Capabilities include providing data access, systems support, and internal or external measurement resources. You have to accept that the process will start with the best available information and, even as it improves, it will never be perfect. Enhancing your capabilities may involve introducing new methodologies such as structured market testing or modeling. You may decide to shift what you measure, putting additional emphasis on more strategic or high priority insights. Or you can add depth to your results analysis, understanding more about segment level performance or diagnosing the weak areas in your customers’ purchase funnel.

 

Here are actual examples of how companies we work with have improved their measurement discipline:

 

  • Designed a measurement pilot to assess customer retention strategy
  • Developed the first comprehensive measurement plan for a 6-month mass media and sales channel media blitz and concurrently defined the measurement planning process for future campaigns
  • Established a structured market testing program to assess both strategic and tactical performance drivers
  • Introduced marketing performance modeling to calculate baseline sales and marketing lift from retailers with the ability to forecast sales levels based on marketing plans, expected competitive advertising, and market conditions
  • Mapped out a detailed 4-quarter measurement plan outlining specific measurements and the process for applying results

Regardless of your current measurement practices, a good process for advancing to the next level is through pilot initiatives with select team members. Pilots help senior management recognize the benefits of applying new insights and help the marketing team build confidence and accelerate adoption.

 

Once new measurements are trialed and accepted, the process can be systematized and infrastructure further improved to take the next step up in capabilities. Measurement success stories must be communicated to demonstrate how measurements offer strategic value and can truly deliver performance improvements.

 

Following measurement pilots and adoption, the marketing organization must establish a clear process for what gets measured, how, and how often. Remember that is it not important to measure everything. Your measurement objective is to identify actionable insight that can improve future marketing effectiveness and profitability.

 

To complete the process, the CMO must set the expectation that measurements are valuable and must be acted upon. Good measurement discipline also requires that the CMO encourage sharing of all measured results, both positive and negative, since it is all necessary to guide improvements.

Why Now?

The need for marketing to adopt better measurement discipline has always been important but it has certainly become more urgent in the past year. As reported in our 2009 Lenskold Group / MarketSphere Marketing ROI & Measurements Study8 in ten marketers (79%) indicated that the need to measure and report marketing effectiveness has increased in the past year. With current economic conditions, every budget dollar counts and really needs to deliver results. These conditions put pressure on senior executives who then put pressure on the marketing team to show they can impact the bottom line. And realistically, you cannot fully manage and improve marketing effectiveness without knowing what is working and what needs to change.

 

The other timing consideration to motivate action now is the annual planning process that is just beginning for many companies. Making progress on your measurement discipline requires 1) bringing more measurement and analysis insight into the current planning cycle and 2) planning and budgeting for better measurements in the upcoming year. There may still be an opportunity to inform 2010 planning with either some quick measurements incorporated into current marketing, or running an historical analyses on past marketing.

 

With tight budgets next year, it could be hard to find budget for measurements and analysis, especially if it has been under-budgeted to date. However, allocating a portion of budget for measurements and analysis can make the rest of the budget more productive and create a competitive advantage for both the current and future years.

 

Measurement discipline requires time and effort. But once marketing executives make the commitment, the process will gain momentum and continue to evolve as it delivers new insights to guide performance improvements.

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Monitor Long-Term Buying Behaviors When Growing Short-Term Sales

Lenskold Article Series

by Jim Lenskold

Monitor Long-Term Buying Behaviors When Growing Short-Term Sales

When you think of marketing metrics, it’s not likely that the customer experience immediately comes to mind. The warm and fuzzy stuff isn’t as easy to calculate as your typical marketing measurements. Yet leading CMOs will tell you that customer experience is key when building solid marketing measurements.

 

At Dow Corning, for instance, the marketing organization has done a terrific job implementing Six Sigma methodologies—the discipline of improving predictability and precision through structured measurements and processes—to drive marketing success. CMO Scott Fuson describes Dow’s “voice of the customer” as the cornerstone of its process, guiding the company’s marketing measurements toward clearly defined critical customer requirements.

 

Measurement of such key performance indicators supports sales and marketing in developing stronger customer loyalty and proactively addressing issues that negatively impact long-term customer profitability. The results have been significant in both shifting Dow’s culture and generating more than 20 times the financial returns on external spending.

 

I co-chaired a conference that featured more than a dozen CMOs from companies such as Hewlett-Packard, The Home Depot and Allstate. The topic: measuring marketing’s impact on the bottom line. As you would expect, these CMOs provided insight into their journeys toward greater profitability management. They talked about the difficulties in developing their measurement infrastructure and acknowledged the need for building accountability.

 

But the theme that was most prevalent—and least obvious in terms of relating to marketing measurements—was the importance of managing the customer experience.

 

When you think about it, how can you really manage marketing profitability without thinking about the customer experience? After all, for the vast number of companies, the real profits roll in not with new customer acquisition, but with repeat purchases from the most profitable customer segments.

 

Paul Koulogeorge, vice president of marketing at EB Games, an electronic game retailer with more than 2,000 stores worldwide, is attentive to customer experience numbers and knows that repeat business is critical to his company’s success. He tells a story of how the company occasionally receives letters from concerned parents complaining about how store employees had a Mohawk haircut, tattoos or “a bit of an attitude.” Koulogeorge describes his typical reaction to these letters as: “Great!”

 

“We hire raving fans and include free trials and midnight openings for new games to ensure the store experience is unique and completely focused on the young male audience who are avid gamers,” says Koulogeorge. “The in-store experience has to be centered on this core audience and entice them to return again, whether they make a purchase or not at that time.”

In the Pipeline

Funnel management is a major component of marketing profitability management. A customer funnel lays out the progression from unaware prospect to long-term customer; it is central to marketing measurement because it creates the link between marketing activities intended to motivate customer behaviors and the impact of those behaviors on financial outcomes for the company.

 

Allstate, HP and Siebel all include the customer funnel as part of their management of marketing measurement and the overall customer experience. CMO Joe Tripodi describes how Allstate’s marketing scorecard tracks customer progression through key milestones such as quote rates, close rates, cross-sales and renewals. His Balanced Scorecard broadens to include business results (quote volume generated, ROI), brand health (awareness, consideration) and customer experience (retention, customer loyalty, referrals). Given that Allstate’s advertising is intended to generate incremental business by building strong emotional bonds, measurements around the customer experience before and after the initial purchase are critical.

 

Think about it this way: Your marketing efforts through all of your touch points influence a select segment of customers to be more inclined to buy from you. At any point in the funnel, leakage can result from a single gap in the experience, such as a failure to communicate a critical piece of information, a disconnect in positioning, or delivery of products and services that fall below expectations. Leakage points represent lost profit opportunities. Your marketing measurements must be structured to uncover the leakage points in the funnel in order to guide new strategies, tighten integration across diverse marketing initiatives and motivate a common commitment to improving profitability.

Finding Your Inner Customer

The former CMO of a leading heating and air-conditioning equipment company told me that, shortly after joining the company, he recognized that the real opportunity for growing profits lay in taking ownership of the customer experience. His efforts to get the company to become more customer-centric, integrate sales and marketing, and manage the complete brand experience were largely driven by the work he did to establish the right metrics for the organization.

 

While there are many lessons to be learned from this CMO, I saw four key steps that really made the difference in his success. Initially, he took the approach of questioning the obvious. He came into a sales-driven organization where the primary business metrics were transaction-based and reflective, tracking products sold by region. There were no predictive metrics to indicate how current performance would affect future sales and no customer-based metrics to indicate who the top customers were.

 

On the surface, the current metrics indicated overall business performance was going well. To get a deeper understanding of the customer and sales process, he met with top sales executives, conducted customer focus groups and initiated customer satisfaction research. He discovered that the likelihood that recent customers would repurchase from his company was 50-50 at best, so he knew the current metrics were not telling the full story.

 

He then mapped out the customer experience with a close look at all touch points, including the sales process. The sales approach shifted from pushing products to selling customer-specific solutions. He also sought to move the company from being product-centered to being customer-centered. Such buy-in was significant, since the introduction of new metrics would mean a disruption in the current sales compensation plan.

The last critical step before initiating the transition was defining key metrics for the organization. Its core metrics were shifted to align with its customers’ success metrics.

 

A carefully constructed customer satisfaction measurement was designed to correlate with sales performance. Other customer-driven metrics included contribution to the customer’s speed to market, total cost of ownership and compliance with customer regulatory requirements. Common metrics were established across all sales and marketing groups. Now the company’s sales and marketing culture is attentive to not only customers’ satisfaction but also the satisfaction of its customers’ customers.

Analyze This

Consider what your current marketing metrics actually tell you in terms of the entire customer-funnel progression. If you are measuring awareness and consideration, do you look at your performance as a single metric across your broadly defined target audience? Or do you assess your position for noncustomers, new customers and loyal customers differently? The results for each group provide very different insight into your potential success.


And if you are running marketing mix modeling, are you content with the correlation between advertising spend and total sales volume? Or are you drilling down to uncover the underlying behavioral shifts by new customers, short-term shifts in buying patterns or sustainable shifts in loyalty? Are you completing the right research to identify how the customer experience influences future purchase decisions or leads to leakage from the funnel?


I encourage you to bring your analysis down to the customer level, whether it’s through mining your customer database, creating a new approach to modeling, running quantitative research studies or observing the actual customer experience. As you learn how your marketing influences the behaviors of prospects and customers over time, you’ll be better positioned to design future strategies and tactics and project the financial outcomes from those initiatives.


Copyright © 2005, CXO Media Inc., reprinted by permission from CMO Magazine.

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Make a Plan to Get More Out of Your Annual Planning and Budgeting

Lenskold Article Series

by Jim Lenskold

Make a Plan to Get More Out of Your Annual Planning and Budgeting

In our days of youth, we dreaded the end of summer and the return to school. Now, as marketing and business managers, we have the equally dreadful annual planning and budgeting process that for many starts toward the latter part of summer. CFO Magazine reports that almost half (45%) of financial executives say “budgeting and reporting are contentious, political, and time-consuming.” If the number-loving finance group has this view, you’re not likely to find marketers’ opinions to be any better.


Since planning and budgeting are not going away, you may as well make the effort to get more value out of the process. It’s actually an ideal time for putting basic ROI analysis to use. Here are four ways to use financial insight to create more profitable strategies and tactical plans while building greater credibility with your executive team.

1. Alignment with objectives sets the right stage

Alignment with business objectives and at least a reasonable financial estimate of your impact will enhance your credibility with Finance and the executive team who are determining where in the company to put their limited financial resources. The credibility from showing ROI and contribution to business growth puts marketing on equal footing with other departments, making it more of an investment than a discretionary expense.


Start by using the best information available to map the impact of your marketing on customer perceptions and behaviors completely through to financial outcomes. Not every marketing initiative directly drives incremental sales, so look beyond this independent initiative and consider how this integrates with other initiatives. It’s helpful to consider the customers’ buying funnel that represents the progression from unaware prospect to profitable customer.


Your plan should state both what your marketing accomplishes on its own and specifically how that contributes to business performance. If you are not sure how your marketing contributes, you quite likely have gaps in your strategies and plans.


Getting an estimated ROI projection from this point can be done two ways:


  1. The first approach is to compare the cost of your marketing initiative (your investment) to the incremental financial contribution (the profit directly from your initiative or in excess of the profit that would have been contributed without your marketing initiative).
  2. The second approach is to sum your initiative and the ones that follow (where sales are actually generated) to compare that total investment to the total profits returned.

Yes, there are lots of details to getting these figures precisely right, but running an estimated projection is the start to understanding your profit potential.

2. ROI scenarios lead to better profitability

Even if you are working without perfect information, you should be able to at least assess the relative value of your marketing initiatives to improve each, and then prioritize for budget allocation. Run ROI scenarios to understand how changes to your target, marketing mix, offers, integration, and general investment levels change the profit potential.


Be sure to put most of your effort into prioritizing your target market segments, since targeting almost always has the greatest influence on ROI. You need to concentrate your efforts on not only high-value customers but also high-potential customers—the ones you can cost effectively motivate to choose your products and services.


The final budget allocation needs to reflect the business objectives for balancing short-term and long-term results. It should also have an appropriate mix of proven marketing initiatives (low risk) and new initiatives that are innovative and high potential (high risk).


Some 72% percent of the financial executives surveyed by CFO Research Services say that “planning and budgeting information is unrealistic or irrelevant,” either frequently (27%) or occasionally (45%). Of course, marketing always has unknowns, such as customer response, marketing effectiveness, and competitive activity, but smart marketers will make their estimates as realistic as possible. You’ll use the best assumptions you can, maybe tapping further into historical data or custom research.


The more your ROI analysis can represent your expectations of marketing performance, the easier it will be to refine those assumptions and adjust your marketing decisions. Plus, the exercise to estimate the financial outcomes of your marketing investments will help identify information gaps, leading to the next action item presented in this article.

3. Better insight today makes for better decisions tomorrow

One of the reasons the planning process is so painful is that there is rarely enough quality research and analysis to make informed decisions. Instead of finding yourself in that same position again next year, incorporate greater learning into the plan you are developing.


Granted, it’s not easy to pull budget from revenue-producing marketing activities to fund measurements and analysis. What you have to consider is that (1) the value of some marketing initiatives is already questionable; (2) in most cases the insight gained will pay back with more effective marketing in the current or following year; and (3) plenty of new insights can be gained with little or no incremental budget if you take the time to plan right.

4. Use the right metrics in the right way

Finally, you want your success metrics to be aligned with business objectives as well. There are a lot of dynamics involved in properly setting goals and objectives, and we’re only going to touch on one key point here. The marketing organization as a whole must reach the point where the primary goals contribute to the business objectives of profits and growth (both short term and long term).


Performance metrics, such as awareness, audience reach, advertising recall, and even leads generated, are critical for knowing whether you are on track to deliver on those goals. But be careful not to let performance metrics become your goals. Keep in mind that executives feel less pain when they cut budgets that have no clear connection to business objectives.


Conclusion


The planning and budgeting process apparently brings out the worst in us. Over half (53%) of the financial executives surveyed by CFO Research Services say the budgeting process “encourages undesirable behaviors among managers.”


Besides the gaps in data, performance measurements, and analyses that limit the accuracy of annual marketing plans and forecasts, there are also corporate culture issues that come into play. Executives engage in wishful thinking and push managers to deliver more results with less budget, while managers seek to under-commit and over-perform, especially where bonuses are dependent on the final plan.

For now, let’s focus on using quality ROI analytics to improve both our accuracy and our credibility. Let’s also try to act on our best behavior.

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Challenges and Opportunities for Marketing ROI

Lenskold Article Series

by Jim Lenskold

Challenges and Opportunities for Marketing ROI

I have delivered 2-day Marketing ROI Techniques workshops to over 2,900 marketing professionals in 13 countries. The interactive sessions are designed to educate marketing professionals on how to bring marketing ROI principles into campaign strategies, planning and measures while also identifying the challenges and barriers that must be addressed to make improvements.


One might think that the greatest challenges would center on the accessibility of customer and financial information or measurability issues. There were cases where these barriers applied, however the most prevalent and significant barriers stemmed from the corporate culture, mindset and organizational structure. Consider just a few of these types of barriers:


  • Resistance to change from existing performance goals originally set based on what could be measured instead of measures that are in aligned with what needs to be accomplished.
  • Insufficient resources and budget for market testing, analytics, or research to bring the intelligence necessary to drive more profitable performance.
  • The lack of cooperation between marketing and sales to create a cohesive and measurable approach covering the entire sales cycle.
  • Intentionally restricting access to customer information to within business unit “silos” to maintain control and advantages over other business units.

At the same time the workshop participants were identifying challenges, they were also recognizing the significant financial benefits that could be achieved with a more disciplined approach and greater insight into marketing ROI. Companies benefit from the increased understanding of key profit drivers and the framework to guide investments into the right strategies and tactical executions. 


Those companies that are investing time, effort and budget into advancing their marketing profitability and focus on the most profitable customers are creating a competitive advantage in an area where precision has great payback. It’s time for executives and marketers to remove the organizational barriers and take some bold moves toward achieve high performance marketing.