Lenskold Article Series
by Jim Lenskold
How to Address Marketing ROI & Measurement Pressures in a Tight Economy
When the economy tanked in 2008, this research study found that 8 in ten marketers indicated that the need to measure, analyze, and report marketing effectiveness actually increased in the following year, as reported in the 2009 Lenskold Group / MarketSphere Marketing ROI and Measurement Study. The challenge is that for 6 out of 10, this increased need for measurement was not accompanied with the budget necessary for such measurement efforts. In addition, 65% of marketers surveyed reported that their CEOs and CFOs were making greater demands than last year to show a potential return on investment as part of securing their budget.
Given the economic conditions where marketing budgets are smaller and most companies are expecting a sales decline, this is not entirely a surprise. Executives have higher expectations for accountability and want the limited budget and staff resources invested where they can get the best returns. They question the payback on marketing investments in general and want assurance that they first meet current financial goals while also managing the long-term financial health.
With marketing teams challenged to deliver results on tighter budgets with smaller staffs, how is it possible to improve measurements and ROI analysis now when it did not get addressed in prior years when more resources were available? We’ll draw insights from the 2009 research study and present opportunities for addressing current pressures for measurements, ROI and performance improvements.
As our research shows, companies that already have marketing measurement discipline and marketing operations functions in place clearly have an advantage in terms of higher marketing effectiveness and efficiency, and greater growth than their competitors. We can learn some lessons from these top tier companies and plan out some practical action steps.
Opportunities for Measurements and ROI Analysis
Marketers indicating their marketing is “highly effective and efficient” have a number of strengths that provide them with a competitive advantage in the current economy. Compared to all other firms, including those with marketing described as “somewhat effective and efficient,” these high performance firms are more than twice as likely to report strengths in having insights, measurements, and marketing automation as shown in the figure below:
Research survey results
There is good reason to believe that these strengths contribute to the high performance of these companies. In addition, the research shows that firms outgrowing their competitors also have greater strengths in many of the same capabilities.
Companies that are under pressure to quickly improve their effectiveness and efficiency should first look at the characteristics of these high performance firms and then plan a course of action that delivers the insight into growth opportunities without draining limited resources. Here are my three top priorities for improving measurements and ROI analytics in the current year:
1. Understand profit drivers & project ROI potential
The most significant difference in the strength of capabilities between companies outgrowing competitors and those with slower growth was found in “understanding profit drivers to prioritize current budget.” Many marketing organizations concentrate on revenue or sales and not on profits, but incremental profits become much more important when you are managing the financial health of the organization. With a good understanding of product and service profitability, and customer segment profitability, marketing organizations can run ROI analyses that align marketing investments with profit potential.
Our research showed that more than half of marketers (51%) estimate the ROI of marketing initiatives as part of their planning. This jumps to 81% for the top tier companies with highly effective and efficient marketing. Running ROI scenarios in the planning stage can be done with basic spreadsheet tools and a base level of financial data. This is a low cost initiative that can have an immediate impact on improving profitability as marketers gain insight into the dynamics of profit per sale or per customer relative to sales conversion rates. These scenarios also help the marketing team understand how certain marketing tactics are dependent on additional marketing and sales contacts to ultimately lead to incremental sales. In our experience, this is the most common practice among marketing ROI best-practice companies and we repeatedly see clients achieving significant improvements in both incremental sales and cost efficiencies.
2. Leverage existing data for analytics into customers and sales
In a time when there are fewer buyers and decreased value per customer, it is critical to tap into customer and sales analytics. Two-thirds of companies with highly effective and efficient marketing report “using customer analytics to improve marketing effectiveness” as a strength (compared to 31% of all other companies). You ultimately need to identify which customer segments continue to purchase, which are most impacted by current conditions, and which are likely to emerge as higher value segments in the future.
Analytics can run from basic to quite advanced. Targeting is the most significant driver of ROI and analytics of purchasing behaviors and purchasing trends should be used to prioritize customer segments.
Analytics is one area where companies must consider incremental spending since 1) the incremental sales can be very significant and 2) the payback can come relatively quickly. We are seeing a much higher interest in analytics for customer behavior analyses (factoring in economic impact), forecasting of marketing impact and sales levels, and predictive modeling. Even with tighter budgets, companies that have held off on this are now taking action.
3. Get basic measurements in place
Executives are asking for better measurements of marketing effectiveness to build confidence in their investments into marketing. This does not mean that all marketing initiatives need to be measured. Marketers need to identify select measurements that will provide new insights with broad application. Measurements that provide insight into the total marketing spend, the level of media support, segment-level analysis of marketing response and sales conversion, total customer value, or key metrics in customer funnel progression, can all lead to modifications in strategies that extend across multiple campaigns.
In terms of measurement methodologies, market testing (test vs. control) can be done with reasonable cost and very high accuracy. This can work for testing within direct marketing or for mass media (where media markets can be treated differently). We recently designed a measurement plan to help a client determine if their total media spend was too low and where to shift budget across media channels. If you are making the argument that budget cuts were too severe, back it up by showing the upside potential.
Investments in Marketing Operations
Marketing operations enable marketers to perform at a much higher level, which is great for companies who already invested in campaign management tools, marketing resource management, and dedicated marketing operations teams. In fact, our research showed that companies with dedicated marketing operations teams were more likely report highly effective and efficient marketing. But what can a company do now if that infrastructure is not in place?
There are improvements to market capabilities and the supporting infrastructure that are most essential. The following two areas for consideration, at opposite ends of the resource requirements spectrum, will give you an idea of how to approach your request for short-term urgencies or long-term opportunities:
Access to Critical Data
- Make the case that systems support and technical improvements to provide access to customer, sales, and marketing data residing already within the company is needed now more than ever in order to improve marketing effectiveness and growth opportunities. During strong economic times, inefficiencies and decreased effectiveness could still provide reasonable returns. In today’s economy, marketing needs to be more precise and delivered without waste.
Infrastructure Investments
- While many companies will shy away from infrastructure investments into new data marts, analytics systems, planning tools, and campaign management solutions, other companies will determine that now is an ideal time. These investments are intended to make marketing more productive once the economy recovers. Companies that can plan to maximize long-term returns can forego current marketing programs that offer minimal returns in exchange for infrastructure that will offer significant future returns.
Culture of Discipline & Accountability
The final category of actions that can make an immediate impact on the business concentrate more on the culture, with the expectation that this will lead to increased use of ROI, measurements, and the overall discipline of managing marketing profitability. “Having the financial and resource support from the executive team to improve our marketing ROI measurement and management capabilities,” was a strength for 67% of the companies with highly effective and efficient marketing (compared to 42% of all others). And as reported earlier, more CEOs and CFOs are requiring marketing to demonstrate ROI potential.
This is an opportunity that performance-driven marketers should capitalize on to shift capabilities and culture. Make the case for additional marketing and measurement support by running pilots and demonstrating the potential impact. Raise concerns over data access and operational barriers to measurements and management of marketing effectiveness. Highlight the facts from the research that show the advantages that align to highly effective and efficient marketing.
You want to look for every opportunity to build support for better measurements, either immediately or as marketing budgets recover. Each measurement or pilot should be reinforced as beneficial and providing value to the organization. The goal should be to emerge from the recession stronger and with resolve to maintain good habits as standard business practice. The dot-com boom and bust put ROI on the executive agenda back at the turn of the century and it has generally held steady since. There is reason to believe that there will be positive impacts from this increased pressure and that it can have a lasting impact as well.