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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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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 Study, 8 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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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.

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Five Steps to Show Exceptional Leadership by Better Aligning Marketing Performance to Business Goals

Lenskold Article Series

by Jim Lenskold

Five Steps to Show Exceptional Leadership by Better Aligning Marketing Performance to Business Goals

Since marketing ROI surfaced to the top of marketing executives’ priorities six or so years ago, the debate over marketing being more art or science has been endlessly debated without resolution. Marketing’s creative side is essential to engaging customers and the science of measurement and analysis is essential to managing performance. Strong cases have been made for both sides of the debate and, in my opinion, neither side wins out. Marketing should not be viewed as art or science, but as business, plain and simple. You spend corporate dollars and are expected to deliver revenues and profits back to the business, whether you do this artistically or scientifically.

Chief Marketing Officers (CMOs) and senior marketing executives must manage marketing performance with clear alignment to business goals to deliver short-term and long-term cash flow, growth, and profits. While most marketing strategies are designed with business goals in mind, the disciplined planning still falls short. As marketing executives head into 2008 planning, there are five key steps to follow to elevate your leadership role and better manage performance. And if any of these steps are made difficult by shortfalls in your systems, knowledge, or culture, then your goal is to make 2008 the time to improve your capabilities so you do not fall further behind.

1. Set quantified objectives and use KPIs aligned to business goals.

Not all marketing is intended to deliver revenue on its own but all marketing is ultimately intended to drive incremental revenue at some point time. Generating awareness, preference, engagement, or leads all contribute to the overall sales process, each playing a critical role in acquiring, retaining, and growing profitable customers. But these and the other stages in the customer funnel are not the end objective and are potentially not even good metrics unless put into the right context.

Setting revenue or profit objectives is much easier if you have historical analysis or measurements that create a link between your marketing efforts, changes in customer attitude or behaviors, incremental purchase activity, and financial value. But many marketers have not run measurements to have this information readily available. As a marketing leader, you want your organization to go through the discipline of at least quantifying their assumptions using the best information available. 

 

The idea is to follow the impact and find the contribution.

 

You start by developing the strategy and tactical plan to implement with a specific budget. Before you finalize this plan, you need to ask your team questions to follow the course of impact and quantify your assumptions. For example, consider the following series of questions.

  • What do you expect to occur as a result of your marketing initiative?
  • And then what happens between your impact and the point where they are purchasing or repeat purchasing your products and services?
  • How many customers will be impacted?
  • Are they current customers, competitor customers, or new to your category?
  • What is the expected time period for purchasing behavior to begin and what is the expected duration of your impact?

All of these questions connect the marketing plan to the business impact. But questions like these are not always addressed when the approach is to implement good quality marketing and assume a portion of those exposed to our message will change their mindset and possibly their purchasing decisions.

Not all of the marketing and sales activity that follows is within your control but surely your efforts are intended to work effectively with these other touchpoints. The discipline of quantifying your assumptions will make your planning more strategic, lead to greater dialogue with your peers responsible for other parts of the sales cycle, and lead to better integration. And you can more easily identify the right key performance metrics based on knowing your impact flow, the quantities at each stage of engagement, and the timing.

The same discipline works for long-term brand positioning and customer experience initiatives, even though the time horizon is extended. These types of metrics are best managed as part of a balanced scorecard so that marketing investments are properly allocated to both short-term and long-term financial health.

2. Plan your marketing with good insight on profit drivers.

 

Driving profitable growth ultimately requires a good ROI process and the financial framework to support it. As you gain additional insight into the drivers of profitability at both the product/service and customer level, the marketing organization can significantly improve its ability to manage and deliver bottom line impact.

Tracking revenues is important but limits marketing’s ability to optimize budget allocation. Strong marketing leaders need to educate the organization on the profit impact of different products and services, customer purchase patterns, the impact of the customer experience on customer tenure (retention) and cross-purchasing. Financial insight needs to be accessible to the marketing team in an easily manageable format so it can be incorporated into the planning process. This information can effectively guide customer targeting, the product/service mix, management of the customer relationship, and budget allocation (applying a technique we call value-tiered marketing).

3. Apply comprehensive measurements and analysis to gain competitive advantage.

 

Good marketing leaders recognize the value of outsmarting the competition, understanding customers, and experimenting with new marketing approaches. A culture that recognizes the value of a continuous cycle of learning will put good measurements and analyses in place to provide marketers with performance feedback. Improving effectiveness is dependent on knowing what works, what doesn’t, and why.

Do you struggle with the fact that your business model makes it difficult to get good measurements? Congratulations, an extra effort on your part to get innovative and capture insight through measurements is very likely to put you ahead of the competition so you can win a greater share of the most profitable customers. Keep in mind that if it was easy, everyone would be doing it.

Highly reliable measurement methodologies are still under-utilized by many marketers (see the 2007 ROI Measurements and Processes Trend Study). Marketing executives must step up and fund more measurements and analysis and also set the expectations that the organization must not just report on measurement but apply this knowledge.

4. Identify and prioritize performance improvements with the greatest profit potential.

 

With objectives aligned to business goals, insight into key profit drivers, and measurements and analyses on marketing performance in place, marketing executives can better identify and prioritize where to focus their improvements. In some cases, the most profitable portion of the customer base can serve as a model to which the priority is to manage additional customers toward the same type of relationship. More likely, the greatest profit opportunities will come from better targeting, a better customer experience, better integration, or better experimentation.

Targeting has the greatest impact on marketing ROI. Marketing and sales efforts must be targeted toward the segment of customers that are both high in total value (short term and long term) and high in conversion potential (purchasing in response to your efforts. The customer experience is also critical since it determines the long-term value of acquired customers based on their likelihood to continue purchasing.

Better integration is a common gap that comes from not managing the customer’s buying journey or “funnel” as one continuous progression with marketing activities aligned to deliver incremental sales. Profit improvements also come from better experimentation as marketers develop and test diverse strategies and tactical plans with good measurements in place to breakthrough marketing initiatives.

Improvement opportunities are likely to exist across these key areas so if you are looking for just the top priority, the first step is to run financial analyses using historical trends to determine the sensitivities and upside potential of different improvements on profits.

5. Take action, deliver results, and push for more.

 

Too often, marketing measurements and analyses are used for nothing more than reporting. ROI analyses are used to justify past marketing expenditures and fill in static dashboards. Marketing leaders must shift this mindset so marketing is viewed as a “managed investment.” Marketing executives build credibility and respect among C-level executives as they demonstrate strength in continuously improving effectiveness as well as responding to both positive and negative changes in market conditions. The initial point of applying new insight on profitability and performance establishes a commitment and proves the value to the marketing organization (where skeptics are likely to exist). ROI analysis may start as a process to “speak the language of the CEO and CFO,” but it clearly becomes more significant when the process allows marketing to “deliver on the key metrics of the CEO and CFO.”

With greater credibility and confidence, marketing is better positioned to secure necessary budgets and earn that seat at the boardroom table. And the role of marketing expands as they manage the impact on customer value that each part of the business influences.

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A Well-Oiled Machine: How Measurements Improve the Marketing Process

Lenskold Article Series

by Jim Lenskold

A Well-Oiled Machine: How Measurements Improve the Marketing Process

Many of us are looking for the perfect way to measure advertising’s effectiveness and specific results. Unfortunately, no Holy Grail exists. The marketing environment is complex, and a mix of different research initiatives is required to truly tell us how well we are performing and where improvements are necessary. Measurements are a critical part of the marketing process, but in most companies, marketing falls far short of its potential by not tapping into the proven or emerging methodologies available.

 

What is it that makes marketing measurements so challenging? Well, in order to demonstrate the impact of your marketing programs, you need to measure the customer and sales activity that follows those initiatives and compare it with the activity that would have happened without them. The difference is the incremental impact of your efforts.

 

Sounds simple, perhaps, but how do you know what would have happened without your marketing, given that your company and competitors have other sales and marketing initiatives running at the same time?

 

I met a CMO who explained to me how he tracks sales activity prior to the marketing campaign and compares it with sales activity during and after the campaign. When there is a positive increase in sales, he attributes the lift to marketing. When sales decrease, he attributes it to external factors in the market. In reality, the sales levels are constantly fluctuating, so the measurements are far from valid regardless.

As amusing as his approach sounds, this was actually how the company made its decisions—and I’ve heard another dozen people repeat the same story.

 

One of the best measurement tools I’ve found for isolating the impact of marketing initiatives is market testing, or experimental design: using test and control groups. The control group (from which a portion of the marketing is withheld) represents what would have happened in the absence of that marketing component. The approach can be used to measure the effectiveness of an entire campaign, the incremental value of one marketing channel within a campaign mix, or the impact of increasing ad spending over the existing level.

 

Marketing mix modeling can also be used to establish the correlations between marketing and sales activity. The analysis shows which portion of previous sales activity can be attributed to each of the various marketing initiatives. The portion of activity that does not correlate to any marketing is considered the base activity that would be present without any marketing. This methodology does not require a control group and can be run on historical data. Its key limitations, however, include the inability to measure the impact of smaller initiatives and that it provides limited diagnostic analysis to understand exactly what is driving the sales activity.

 

I’ve been a major skeptic when it comes to using quantitative survey research as a primary source for assessing the impact of marketing on actual sales outcomes. Survey research is an excellent source of understanding customer perceptions and attitudes, but it is hard to trust self-reported purchase behaviors and the correlation to marketing activity. Recently, however, I’ve been converted after seeing an innovative measurement methodology that integrates modeling with quantitative research.

Establishing Links

The use of survey research by a major consumer products company probably wouldn’t surprise you, but what if I told you that a leading defense and aerospace supplier uses survey research to measure ad effectiveness? Raytheon sells primarily to the Department of Defense and other government agencies, but it launched a new corporate ad campaign in 2003 and used just such a methodology—one created by the Brand and Analytics Group of Phoenix Marketing International (formerly Cambridge Brand Analytics)—to measure its ad performance.

 

Phoenix’s unique methodology consists of conducting surveys with decision-makers in Raytheon’s industry, where impact on purchase consideration is linked back to specific ads by Raytheon and its competitors.

 

In other industries, the Phoenix research will establish a link directly to sales or customer response activities. In Raytheon’s case, the link to purchase consideration is considered the best match to the corporate communications objectives that are centered on helping their customers succeed in their “warfighters” mission.

 

Lucy Flynn, director of brand and marketing communications at Raytheon, relies on the Phoenix analysis for quantitative results when reporting to the executive team. “Our analysis provides the rationale for shifting corporate positioning to align with the priorities of our clients,” she says, “and the hard data allows us to make solid strategic decisions with confidence.”

 

By gaining insight into the performance of each specific ad extending across all forms of media, the communications team at Raytheon has been able to improve its effectiveness by determining the positioning and messaging that best differentiates the organization’s ability to support the mission of its customers—and ultimately the mission of the men and women in uniform. That has helped the company refine campaign strategies, reallocate dollars into more effective ad executions and create new executions.

 

Raytheon also gets a read on its public relations impact. By incorporating PR articles into the Phoenix research, the company can confirm a respondent’s prior exposure to the articles and derive its impact on image and reputation, which helps to guide the PR strategy.

“If we aren’t getting the right message to our audience, we know it’s better to adjust our plan than to continue with the current ad spending,” says Flynn. And, as Flynn reminds us, “the worst way to measure is to not measure at all.”

The Innovative Methodology

Using a combination of Internet, mail and telephone research, Phoenix’s research participants are presented with actual ads and marketing communications for all major competitors in the category. That eliminates questions as to the validity of ad recall based strictly on verbal or written descriptions, and large sample sizes provide the necessary statistical validity.


Add sophisticated modeling to all that and you get a predictive and diagnostic tool for marketing measurement. Whether the research is modeled against a response step in the marketing process, purchase intentions, self-reported sales activity or even actual sales activity, the analysis establishes correlations to the survey data that have proven to be quite accurate.


The strategic value of this methodology is really in the diagnostics. The analysis identifies the performance of each specific ad, as well as competitors’ ads, in terms of breakthrough and recall, message relevance and persuasiveness—all critical components of effectively influencing customer behaviors. Marketers get a clear picture of where barriers and opportunities exist in terms of media plans, message and creative execution.


In the end, however, effective marketing performance management requires a plan that integrates multiple methodologies. Running controlled market tests in conjunction with the Phoenix research will deliver precise incremental sales results backed with clear analysis about where campaigns are effective at influencing awareness, perceptions, competitive differentiation, intentions and actions, and where campaign modifications can make the greatest impact.


Company executives are increasingly putting pressure on CMOs to demonstrate their contribution to the bottom line. Marketers need to understand the measurement tools that are at their disposal and put them to use.


Marketing measurements require a commitment of budget and staff resources, adequate time to complete measurements prior to major strategic decisions that are dependent on the insight, and a culture of using continuous analytics and insight as a competitive advantage. The path to better measurements seems clouded by many challenges, but once you move forward, the clarity from increased insight and knowledge will prove to be quite rewarding.


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

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Change the Culture to Change Marketing ROI Success

Lenskold Article Series

by Jim Lenskold

Change the Culture to Change Marketing ROI Success

Most marketing executives know that with better insight into how current marketing is performing and what is driving (or not driving) marketing effectiveness, they can deliver greater impact with better use of marketing resources. With information available on best practices, numerous success stories, and increased pressure from the CEO and CFO, why are many marketing organizations so slow to adopt marketing ROI and measurement practices? Blame a combination of cultural inertia that inhibits change and artful dodgers who manage to avoid accountability.

 

Overcoming this significant barrier of organizational culture requires CMOs and marketing executives to understand what drives different types of players in the marketing organization to adopt marketing ROI practices. For example, you need to know what to do with your Champions and how to keep Artful Dodgers and Cynics from derailing your progress. Stakeholders outside of marketing also need to be on board to contribute their expertise to enabling marketing ROI measurements and management.

Prepare for Each Role within the Marketing Organization

If you want to truly improve the financial contribution of strategies and tactical campaigns, the marketing organization must adopt practices for better measurements and ROI analyses. Marketing ROI capabilities can range from basic steps that individuals can take to organization-wide transformations that involve several stakeholders.

 

Success is dependent on understanding how to manage:

 

Players within Marketing

  • Champion
  • Sponsor
  • Followers
  • Artful Dodgers
  • Cynics
 

Supporting Organizations

  • Sales
  • Analytics
  • IT/Operations
  • Agencies
  • C-Suite Executives
 

Not much happens without a marketing ROI Champion.


As with any significant change initiative, there must be a champion who is willing to motivate action. The champion is someone who is passionate about the potential benefits and wants to push new boundaries to improve marketing performance.

 

There are three ways that the first steps toward marketing ROI can get underway:

 

  1. The champion is empowered by executives to rally a team and lead the adoption for the organization.
  2. The champion will work independently to achieve their own small-scale success and eventually either gain visibility to win executive support or build grass-roots support to spread success across the organization.
  3. Executives will mandate that the marketing organization improve their accountability and, without a champion, the organization will move slowly and less effectively toward a basic level of capability.

Clearly, the best option is to find and empower a champion within the organization.

 

Executive Sponsors drive the scale and speed of adoption.


The ideal situation is where executives within marketing or at the C-level establish a vision for a high-performing, results-driven organization and align the stakeholders to implement change. Sponsors are in the best position to set priorities, bring key stakeholders together, fund required resources, and shift the culture at a faster pace than a Champion’s grass-roots efforts.

 

If this role is missing in the organization, the Champions must demonstrate how marketing ROI and measurements provide opportunities to align marketing to business objectives, delivering measured results and increased profits.

 

Momentum and proven processes provide a path for Followers.


When it comes to new processes, adding a quantitative function to marketing, and addressing first-time challenges, you may not find many in marketing fighting for that Champion role. There will be plenty of “Followers” who will take the “wait and see” attitude as others forge ahead.

What is necessary to prepare this group for success is 1) education, 2) success stories from initial marketing ROI initiatives, and 3) simplified tools and processes.

 

Watch for the Artful Dodgers trying to slow you down.


It’s not uncommon to find “Artful Dodgers” in marketing, who manage to generate excuses and create delays to maintain the status quo. And don’t be surprised to find Artful Dodgers in fairly senior roles within the organization. This is a difficult group to convince since challenges with data, performance measurement, and financial analyses in complex marketing environments make it easy to create excuses instead of solutions.

 

The best solution to motivate these individuals is executive sponsorship and a mandate to measurably improve performance.

 

There will always be Cynics and some can be helpful.


The “Cynic” for marketing ROI will go beyond avoidance and proactively stand against marketing ROI practices. There will be some cynics protesting measurements and analytics that interfere with the creative strengths of marketing and others who doubt the validity of the data or conclusions coming from the measurement process.

 

This latter group of cynics is the one that can provide insight into potential gaps and flaws in the process. It’s best to give them a voice and validate their short comings, but have solutions-oriented people address their concerns.

Gain Support from Extended Team Players

Marketing ROI capabilities involve many different organizations outside of marketing. You’ll find the same roles within these groups that have to be managed accordingly to adjust their culture as well. Here are tips for winning over the teams that can make or break your successful adoption of comprehensive capabilities to manage and improve marketing ROI.

Motivate Sales team alignment with this sales-driven process.


The sales organization can often be the hardest group to win over, yet it is the group with the most to gain. The challenge is overcoming the perception of marketing. In companies with a sales organization, marketing is dependent on the sales team for better tracking and outcome reporting (not a task that is sales-friendly). Sales teams can be won over using ROI scenarios or small scale pilot initiatives that show how ROI analyses and measurements deliver increased sales and revenue (definitely an outcome that is sales-friendly).

Get Analytic resources in place.


Marketing analytic and research teams may or may not reside within the marketing organization. This group is typically an advocate and sometimes the source of Champions. It’s not unusual for this group to be understaffed which might lead to the culture of “no” when additional work to support marketing ROI is requested. Analytic resources can make a significant difference in the pace of adoption, so staff appropriately.

Show potential revenue impact to rank as a priority for IT/Operations.


Companies committed to building comprehensive marketing ROI and measurement practices need the IT organization for 1) access to data and 2) marketing automation for campaign tracking and dashboards. IT prioritization is very often driven by business cases tied to revenue potential, making it challenging for marketing to rise to the top of the list. The revenue potential for marketing ROI and measurements may not be apparent at the start, but a few initial success stories will make a difference to show huge upside potential.

Leverage your Agency’s strategic insights to interpret and act on results.


Marketing agencies vary in their position on supporting marketing ROI measurements. There are Artful Dodgers and Cynics that push against adoption and Champions that step up to motivate clients to assess and improve ROI. The most critical contribution an agency can make is adding a strategic perspective on expected and actual campaign outcomes (i.e., how is marketing influencing customer behaviors and ultimately their purchase activity?).

What marketing organizations must do to make agency involvement constructive is to not use ROI measurements as pass/fail assessments. Marketing ROI measurements are intended to provide insight to improve strategies and tactics. The agency and marketing groups must work together to constantly increase marketing effectiveness.

Set expectations with the C-Suite.


Finally, the C-Suite executives must be properly managed to ensure a successful marketing ROI adoption. Senior executives may demand accountability without understanding the requirements for quality measurements and improvement processes. The key to success is setting expectations that better measurements and ROI insights are necessary to understand the constantly changing customer behaviors, competitive environments, and market conditions. This insight builds with effort and time to become a strategic advantage.

To summarize, the most critical actions that are necessary to create a culture where marketing ROI practices can grow and thrive are:


  1. Empower Champions to build capabilities, conduct pilots for new initiatives, and refine the process for easy adoption by Followers.
    2.  
  2. Engage executives to serve as Sponsors, align stakeholders, and set expectations that are consistent with an effective marketing ROI process.
    3.  
  3. Win support from stakeholders outside of marketing using ROI scenarios that show profit potential as marketing ROI insights guide strategies and tactical improvements.
    4.  
  4. Silence Cynics and Artful Dodgers with success stories from initial pilot projects to large-scale process adoption.
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Justifying the ROI on Intelligence

Lenskold Article Series

by Jim Lenskold

Justifying the ROI on Intelligence

Customer intelligence can be extremely valuable in driving marketing performance, when effectively applied. The problem many marketing organizations face is getting support and budget to capture the intelligence. With a clear vision for profitably converting intelligence into actionable insight, you should be positioned for justifying such investments that generate a clear ROI. Here are five steps to help organize your justification along with a perspective on the type of intelligence most likely to improve your marketing profitability.

1. Define the Intelligence Needed

Whether the objective is retention, acquisition, winback or cross-selling, the most significant profit driver for marketing always comes down to targeting. Insight that guides targeting toward customers with higher value and a higher likelihood to purchase offers the greatest return potential. When you consider capturing intelligence, don’t limit your thinking to just customer intelligence. Insight into effectiveness measurements, research, data analysis, and modeling must also be considered as intelligence that contributes to better decisions.

 

Potential Value

 

  • Customer needs indicate what they are likely to purchase and their preferences indicate how they like to buy
  • Share of customer indicates the potential profits that can be won from the competition
  • Customer transaction history indicates trends in value and can also be used to model future value based on customer behavior patterns
  • Customer demographics allow segmentation based on profiles of past high value customers

 

Likelihood to Purchase & Stay

 
  • Modeling and profiling identify customer segments most likely to purchase as well as those most likely to be retained
  • Competitive relationship information collected through customer contacts identifies competitors’ vulnerable and loyal segments

 

Marketing Effectiveness

 
  • Historical performance analysis guides the development of strategies and tactics
  • Campaign ROI brings financial intelligence into the decision process
  • Marketing mix modeling optimizes integrated campaign channels
  • Brand attribute research establishes the connection to actual purchase behaviors so brand initiatives can be tied to sales contribution

2. Assess Sources of Intelligence

You must now categorize each source for the data and intelligence needed as 1) existing, 2) accessible, 3) desirable or 4) impossible. The “existing” and “accessible” sources should require minimal effort and cost. The “impossible” sources are those not likely to happen. Therefore you will focus your justification analysis on the “desirable” sources, which can improve your profitability but will require some effort and investment to implement.

 

Sources of data and intelligence that should be considered:
 
  • Existing customer data from financial, sales, marketing, and customer contact systems. If this is not already cleaned and consolidated, it will be necessary to look closely at data integrity and quality issues.
  • Third party customer data to append to your files.
  • Touchpoint opportunities where you can capture specific information from customers and prospects.
  • Marketing communications history.
  • Marketing interactions including customer response, involvement, and inquiry information.
  • Marketing spend and results history for effectiveness measures.
  • Customer research to build profiles of customer behavior patterns, value patterns, and needs.
  • Predictive modeling analysis to correlate marketing activities, brand attributes, targeting, offers, and channel mix to sales performance and lifetime value.

3. Identify Highest Profit Potential

Your investment to build greater intelligence may be a one-time initiative to capture insight for a specific purpose or a permanent change in the process or infrastructure of collecting intelligence. Preparing an estimate of the expense requirements is relatively easy. The challenge is estimating the potential impact on profits. By starting the process with a focus on improving the key drivers of marketing profitability, your analysis includes the value component.

 

For example, identifying your share of customer spend through call center and online contacts may have a significant impact on the 15% of the customers where information actually gets captured. This might be compared to a potential research study to understand which customer acquisition channels bring in customers with the highest retention rates or a modeling initiative that identifies which marketing channels are most effective.

 

You must determine what forms of intelligence can have the greatest impact on your ability to win more high value customers, reduce wasted marketing to unresponsive and unprofitable customer segments, and provide insight into marketing effectiveness. The ROI analysis provides a comparison based on the estimated returns for each intelligence initiative. To win the support of your CFO or senior executives, your business case must be based on generating incremental profits and cannot rely on non-financial metrics such as improved satisfaction or relationships. Assess your marketing impact through the entire sales and relationship cycle to determine the financial contribution.

4. Prioritize Investment Opportunities and Gain Support

Once you have completed your ROI analysis and prioritized the intelligence that offers the highest value, it is time to pitch the concept to the decision makers. Seeking additional budget is never easy. You’ll either have a compelling business case that justifies the increased funding or you will need to reallocate existing budgets. Some marketing executives incorporate research and intelligence collection into their campaign budgets so, for example, 10% – 15% of a campaign budget will be dedicated to capturing the intelligence necessary to improve future campaigns.

5. Test, Validate and Refine Profit Potential

Some initiatives may be first funded on a trial basis to validate the assumed impact of intelligence on profitability. For all funded initiatives, it is important to validate assumptions and focus on continuous improvement. The amount of intelligence that can be collected is endless so 1) make sure you continue to drill down to improve your decision-making precision and accuracy and 2) make sure you focus on the intelligence that has the greatest impact on results so you are not overburdened with excess information.


It is important to recognize that intelligence can be a significant competitive advantage when applied as insight into your strategies. Improving marketing profitability helps your marketing budget go further and deliver a greater share of customer profits while competitors continue to be misdirected by sales volume and share of revenue.


The original version of this article was published by CRM Today.

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Recorded Webinars rio resources

Lead Generation Marketing Effectiveness Report: Key Findings

Lenskold Article Series

by Jim Lenskold

Lead Generation Marketing Effectiveness Report: Key Findings

Jim Lenskold and Debbie Qaqish share key takeaways from their 2012 Lenskold Group/Pedowitz Group Lead Generation Marketing Effectiveness Study.

Read the full Lenskold Group/Pedowitz Group Lead Generation Marketing Effectiveness Report.

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Recorded Webinars rio resources

Marketing Accountability & ROI Webinar

Lenskold Article Series

by Jim Lenskold

Marketing Accountability & ROI Webinar

Recorded Webinar available for replay on demand.

What we covered in this event…

– How is marketing ROI defined?
– How do you calculate incremental value?
– How do you capture this incremental value?
– What type of organizations should use Marketing ROI?
– Incremental value can be complex so how do companies get started?
– How do you determine how much to invest in measurements to get an ROI on marketing

Speaker Bios


Jim Lenskold


President of Lenskold Group, a consulting firm specializing in ROI-based marketing measurements, analytics and dashboards. Jim authored the award-winning book “Marketing ROI, The Path to Campaign, Customer and Corporate Profitability.” Based in Asbury Park, NJ, Lenskold Group supports corporate clients nationally and globally. As a marketing ROI innovator, Jim’s team brings a strategic and practical approach for delivering insights, tools and capabilities that drive highly profitable marketing performance. In Cooperation of three university’s, Jim has conducted a study to develop an understandable definition of Marketing ROI.


Michiel van de Watering


Author of YES! Accountable Marketing. Marketing ROI and Accountability are the key issues for all businesses and marketers. For businesses to succeed they always need to plan for and prove ROI for all their investments, so why not for marketing? In this book the experiences from SME and Corporates have been combined for you to bring the key concepts of marketing accountability to life. Whether you’re working in a small marketing organization or at a major brand, you’ll find methods and concepts that you can begin executing right away.

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rio resources

The Metric that Matters Most to the CMO

Lenskold Article Series

by Jim Lenskold

The Metric that Matters Most to the CMO

There are many metrics that are relevant and critical for a Chief Marketing Officer (CMO) to monitor and manage the organization’s performance. The CMO must have access to marketing metrics that are highly relevant to the corporate executives who are concerned with sustaining and growing revenues and profits. Many metrics, including revenues and profits, work well for the current state of the business but provide little or no insight into long term performance. The metric or the set of metrics that is best owned at the CMO level to manage both short term and long term performance is Customer Lifetime Value.

 

Customer Lifetime Value (CLV) is the one metric that reflects most of marketing’s financial outcomes. CLV is driven by targeting high value customers, maximizing the value across product/service categories and business units, maintaining efficiency across marketing touchpoints, and balancing short term purchases with long term satisfaction and brand health.  CLV is dependent on so many aspects of the business – including functions outside of marketing – that it would be hard for anyone other than the CMO to own. Even when companies cannot capture and project a specific CLV metric, the CMO focus on managing lifetime value will generate the set of metrics most closely aligned to CLV.

Defining CLV and Related Metrics

Customer lifetime value represents the net present value of future cash flow, which consists of the profit margins from the stream of purchases over time, less the costs for managing the relationship and delivering that stream of purchases. There are variations on the exact calculation but there are three versions to define customer lifetime value, depending on intended use.

Historical CLV accounts for each customer’s actual lifetime value going back to the very start of the relationship. Historical CLV is used to create predictors of Projected CLV.
Projected CLV is the predicted future lifetime value of a given prospect or customer. It supports targeting and can be a key metric for evaluating performance. (Note that this CLV can be further modified to have a unique value for each specific type of purchase outcome.)
Incremental Customer Value (ICV) represents the customer value that is expected without additional investment to retain or grow the customer. It is a more narrowly defined time period (not their full lifetime) and is the better metric to assess specific marketing initiatives. It ensures that the stream of profits that may be generated from future marketing contacts is not all attributed to one current marketing initiative.

In this article, we are referring to Projected CLV unless otherwise noted, since the CMO benefits from managing forward-looking metrics.

 

Why is this a high priority metric for the CMO?

Many financial drivers align to and influence CLV
CLV serves as a predictive, early indicator metric that allows corrective action
CLV maintains focus on short term and long term performance drivers
CLV is a strategic metric driven by customer needs and behaviors
The CMO has more influence with non-marketing functions that influence CLV

The need for the CMO to own the CLV metric and influence non-marketing organizations is not just for the benefit of expanding the role of the CMO. Any step to improve CLV makes it easier for marketing to generate positive ROI by converting higher value customers. CLV is still present even in business models that work on unit volume without insight into the customer relationship, such as consumer package good companies. In this case, marketing needs to understand CLV drivers using market research studies for insights such as knowing if first-time buyers will repeat purchase or if customer loyalty is so low that the customers you attract are switching brands based on price offers that keep margins low.

CMO benefits from monitoring customer lifetime value and knowing how changes in other metrics will ultimately lead to changes in CLV. The set of metrics closely associated to CLV are very actionable since they are generally tied to actual and likely behaviors.

Primary drivers of CLV include:

Acquisition of higher lifetime value customers
Retention to extend the lifetime and value of current customers
Upsell to increase purchase activity and value
Cross-sell to extend the relationship and value
Customer value optimization from integrated initiatives
Efficiency from reductions in cost to serve
Profitability from shifts to higher margin products/services
Customer experience and brand health for long term preference
Customer referrals and advocacy to drive new buyers

Other metrics also feed into customer lifetime metrics. Take for example metrics that relate to growing and retaining existing customers, such as post-purchase satisfaction and brand preference. These drivers of customer lifetime value can further cascade down to metrics on the customer experience or product quality, which influence satisfaction and brand preference.

Where CMO Involvement Influences CLV

Here are some examples of where greater CMO involvement has advantages in managing and improving customer lifetime value.

Customer Experience

Perhaps the most fundamental and critical driver of CLV is the quality of the customer experience relative to expectations. Every interaction from the marketing communications and sales contacts, to product/service delivery and customer service becomes highly relevant. CMOs must have access to the customer experience feedback loop through Voice of the Customer research or social media monitoring to quickly act on any threats that will impact future purchase behaviors.

Marketing & Sales Relationship

The CMO must guide the organization to optimize customer lifetime value collectively, looking across the various silos of the organization to map out the most profitable long term relationship. That may mean prioritizing marketing contacts to first sell lower margin products and services that can lead to increased conversion rates on high end solutions. Or it may lead to one part of the organization acquiring customers at a loss to win high potential customers likely to cross-purchase. The sum of the sales across organizational silos can easily add to more than working independently.

Brand Health

Monitoring brand perceptions across a broad audience is good but monitoring brand perception among current and recent customers has much more meaning. These perceptions of what your brand stands for and delivers, and how it compares relative to competitors, will influence the future revenue stream and CLV of those customers. Brand shortfalls that are not addressed will have a cumulative effect that can significantly impact future revenue streams. Managing the brand health aspect and its impact on CLV ensures that the long-term performance is considered along with short-term performance.

Trade-Offs that Decrease CLV

From a strictly financial perspective, it is possible to grow the business by generating a higher volume of lower CLV customers. This may be a temporary decline based on entering new markets, or it may be a strategic move necessary to succeed against stronger competitors. Even though it is possible that decreasing customer lifetime value is beneficial to the company, CLV remains a primary metric for the CMO. The company will need CLV insights to weigh the trade-offs of volume vs. value, will need to ensure the CLV does not decrease below certain thresholds, and will want to identify actions that increase CLV.

Four Steps to Monitor and Manage CLV Metrics

Customer lifetime value is a forward looking value, so it requires intelligence and a methodology for projecting future value. Here are the four steps necessary to calculate and manage CLV.

1. Analyze Historical CLV

A customer lifetime value calculation must be carefully constructed to take into account customer purchases/revenue/profits as well as costs over time. Since sales growth is generated from marketing and sales team efforts, there should be some estimate of those costs as well. The calculation should allow you to generate an actual CLV to date for current and past customers. Once customers can be ranked based on their Historical CLV, a predictive analysis can be completed to determine which purchase, profile, and interaction data are the best indicators of future value. More data points and more sophisticated predictive modeling will clearly provide more accurate future projections.

2. Score Customers and Prospects

The predictive models or data mining findings are used to determine the scoring criteria which will calculate the Projected CLV of prospects and customers. The Projected CLV is very actionable for targeting marketing initiatives to win higher value customers.

3. Track Effectiveness

The same scoring methodology is also beneficial to assess the Projected CLV upon acquiring new customers or generating incremental sales from existing customers. The scoring will identify if the marketing is attracting new buyers above or below the average CLV. The Projected CLV should also be tracked for defecting customers (leaving or becoming inactive). These CLV metrics are excellent for CMO tracking since they are indicators of current marketing effectiveness and how marketing performance today is likely to influence the future revenue stream. CLV provides much more valuable information than strictly tracking current period purchases.

4. Manage CLV Metrics

With better insight into the core metrics driving CLV, the CMO can maintain a consistent focus of the marketing organization on driving the right behaviors and outcomes. These metrics can ensure alignment within marketing and across extended teams (such as product, service, technical, and finance) whose actions influence CLV. It is the right set of metrics to facilitate a strategic dialogue among executives with a direct link to financial results.


As with the introduction of any new set of metrics, the approach must be developed in stages to get the right definitions and interpretations to effectively guide management decisions that improve performance and profitability.