Categories
Recorded Webinars

Improving Lead Generation Marketing Effectiveness & ROI

Lenskold Article Series

by Jim Lenskold

Improving Lead Generation Marketing Effectiveness & ROI

Learn about best practices from highly effective and efficient organizations and the secrets behind higher growth companies as identified in the 2010 Lead Gen Marketing Effectiveness research study.

You can also read the complete 2010 Lead Generation Effectiveness Study.

Categories
Article Library rio resources

Marketing to Customers, Channel Partners, & Influencers: How to Manage Multi-Funnel Complexity

Lenskold Article Series

by Jim Lenskold

Marketing to Customers, Channel Partners, & Influencers – How to Manage Multi-Funnel Complexity

Many companies need to win more than just the support of the customers to generate sales. Some companies sell or distribute their products/services through independent channel partners, such as brokers, resellers, distributors, or retailers. In addition, some companies are dependent on strong influencers, such as professionals compensated for their recommendations, expert reviewers, or independent funding sources who are paying for all or part of the purchase. Weakness in any one area can be detrimental to overall sales despite showing strengths with one particular target group. So where and how do you most effectively invest your marketing budget across these separate targets to successfully generate sales?

 

This is where the funnel approach becomes even more important and works best when established to manage multiple funnels as a single, integrated approach to driving new sales. These decision funnels will include the stages each target must pass through to purchase, sell/distribute, or recommend. Stages that include awareness, needs definition, consideration, engagement, preference, and action (much more detailed for actual use) represent what marketing must influence and where customers may “leak” if they fail to reach the desired outcome.

Managing multiple funnels can simplify these complex business models and help you 1) understand how decision funnels for target groups relate to one another, 2) identify where and how your marketing impacts funnel progression and leakage for each target, and 3) quantify both plans and performance evaluation to improve ROI.

Creating a Multiple Funnel Framework

While marketers using the funnel typically define the funnel stages from the company perspective, the funnel becomes much more strategic and actionable when defined from the customer perspective. Figure 1 shows high level funnel stages for each target group and an example of how they might relate to one another.

Influencer Impact

Influencers can play a significant role as customers reach the stage of researching and evaluating their options to address a need or problem. When influencers are recommending alternatives to your products/services, they create leakage points where customers decrease their consideration and purchase intention. When your marketing effectively wins greater support from more influencers, the impact will show an increase in these early evaluation stages of the customer purchase funnel.

Channel Partner Impact

Similarly, marketing to expand your channel partner penetration or increase the performance of existing channel partners selling or distributing your products/services ultimate impacts many areas of your customer funnel. The impact can shift perceptions and actions with the most important being a lift in sales conversions. Marketing organizations sometimes miss the opportunity to get better returns from investments to improve the effectiveness of their channel partners over investments into additional branding or demand generation.

Customer Impact

Customers typically drive the ultimate purchase decision, although channel partners and influencers can initiate the purchase direction or create significant purchase barriers. Marketing direct to the customer when strong channel partner or influencer relationships are present is likely to have an impact on the decision funnels of these other target groups as well. Marketing efforts may be directed at creating strong brands and high demand among customers that will increase performance from channel partners and win support from influencers. Or marketing strength with consumers can create enough demand to generate sales with limited channel and influencer support. This pull-through strategy can impact the customers’ choice of channel partners (such as the iPhone’s influence on AT&T sales) or impact the influencers’ decisions (such as a physician’s willingness to prescribe a specific brand based on a patient’s preference).

Developing a more detailed version of this multi-funnel for your own business model provides clarity for assessing different strategic approaches to grow sales. Your assessment of the primary areas of funnel leakage, with either detailed quantitative analysis or general qualitative input from sales and marketing teams, will lead you to opportunities to improve effectiveness and ROI. While companies often debate whether they need a push or pull strategy, the best opportunity for improving performance will come from identifying the weak areas within the combined funnel.

 

Following are examples of leakage points that marketing can influence…

For Channel Partners:

  • More likely to recommend competitive products/services
  • Not promoting your products/services
  • Promoting your products/services but ineffective at converting buyers

For Customers:

  • No brand awareness, consideration, or preference for your products/services
  • Not responding to channel partner promotions
  • Prefer other channel partners that do not sell your products/services
  • Responding to influencer input with decreased preference and purchases

For Influencers:

  • No brand awareness, consideration, or preference for your products/services
  • More likely to recommend competitive products/services
  • Lack of access for influencers supporting your products/services to reach customers and channel partners at the right time in their decision process

Guiding Strategies and Tactical Planning

Once you have created your integrated, multiple funnel framework, you can then put it to use to guide strategies within or across the multiple target groups with a better sense of the impact on all target groups as well as the connection to incremental sales.

 

  • Formulate your marketing strategy within or across target groups.
  • Identify the tactics and the initial outcomes in terms of influencing funnel progression for the specific target group contacted.
  • Identify secondary outcomes in terms of funnel progression on the other non-contacted target groups.
  • Map out how the expected initial and secondary impact is intended to lead to an increase in sales to customers.
  • Use the expected impact on specific areas of the multiple funnels to guide key metrics, implement tracking, and define measurements of marketing effectiveness.
  • Measure new marketing initiatives and/or test alternatives to determine the actual impact relative to expectations. Measurements should concentrate on targeting and funnel leakage where improvements are likely to have the most significant value.

Pharmaceutical Marketing Example

Pharmaceutical companies have a very unique requirement for their multi-funnel environment with two very strong influencer groups in addition to the consumer; healthcare practitioners who write prescriptions (such as physicians) and insurance companies (a.k.a. “payers”) who fund all or part of the expense for consumers. There are marketing and sales efforts to all of the target groups. Practitioners have the potential to drive sales volume even without consumer marketing, and, along with insurance companies, can create significant funnel leakage even when consumer demand is high. Leakage results when practitioners have strong objections to the product or when the lack of funding from payers leads to competitive replacement.

 

Here is a brief example of how the initial and secondary outcomes guide the primary metrics to track and measure.

Initial Outcome
Secondary Outcome
Primary Metrics
Practitioner marketing (influencers as professionals)
Decision based on assessment of quality of healthcare and impact on patient satisfaction
Increase recommendations   Increase prescriptions with consumer acceptance and payer approval Increase payer conversion with increased demand (payer risks losing enrollment from consumers and employers) Increase in recommendations Increase in prescriptions
Insurance Company marketing (influencers as payers/funding source)
Decisions with long-term impact based on cost control and offering attractive coverage
Increase prescriptions with consumer acceptance and physician support Increase in physician recommendations Increase in prescriptions Increase in quantity of insurance companies offering coverage  
Consumers (customer decision-makers)
Decision based on health benefits and personal cost
Increased brand preference Increased requests to physicians Increase prescriptions with physician support and payer approval   Increase in recommendations Increase in prescriptions

Allocating Budget to Multiple Target Groups

One of the greatest barriers to choosing the best marketing investments is an organizational structure that separates marketing teams into silos which each concentrate on the different target groups. Not only does this make it difficult to integrate marketing initiatives, but it also tends to limit measurement of the marketing impact to just the group targeted so the opportunity to create higher impact campaigns influencing multiple target groups gets missed. In addition, the organizational structure can lead to competition for budgets that may compromise the decisions to manage toward a greater collective impact.


There are many levers that marketing can use to improve bottom line results, such as:


  • Invest in brand to influence customers, channel partners, and influencers
  • Motivate channel partners through their decision funnel to either expand the number of partners or grow your share of existing partners
  • Improve the marketing and sales effectiveness of channel partners to increase sales with customers and increase channel partner preference/loyalty
  • Motivate influencers through their decision funnel to either increase the number of influencers, increase the strength of recommendations, or increase the frequency of positive mentions
  • Connect customers in early stages of the purchase funnel to positive influencers to increase the portion of customers progressing to a purchase decision
  • Improve the customer experience with your products/services to increase repeat purchasing from customers, increase channel partner benefits, and win more support from influencers

Here are several options for evaluating where to invest marketing based on effectiveness and profit contribution, ranging from basic to more sophisticated:


  • Measure the effectiveness of existing marketing on the initial outcome (i.e., the primary objective) and incremental sales
  • Test new strategies to determine how to best improve marketing effectiveness
  • Assess funnel leakage independent of marketing campaigns to prioritize the need for new or improved marketing based on profit potential
  • Run analytics to understand the affect of improvements within one target group on other target groups (such as the marketing impact on influencer outcomes having a subsequent impact on channel partner decisions)
  • Model the impact of specific tactics on multiple target group funnels (such as the consumer advertising impact on influencer and channel partner perceptions and actions)

Companies in the high-tech, financial services, insurance, pharmaceutical, automotive, and dozens of other industries are dependent on winning the support and influencing the decisions of multiple target groups in order to successfully generate sales. Each target group has their own decision funnel that can benefit from marketing support. With limited marketing budgets, marketing executives can use integrated multiple funnels as a smarter approach to guide strategies, measurements, and improvements to performance and profitability.

Categories
rio resources White Papers

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.

Fill Out the form to complete the download


By submitting this form, you are consenting to receive marketing emails from: Lenskold Group, 601 Bangs Avenue, Suite 504, Asbury Park, NJ, 07712, https://www.lenskold.com. You can revoke your consent to receive emails at any time by using the SafeUnsubscribe® link, found at the bottom of every email. Emails are serviced by Constant Contact

By submitting this form with the Subscribe button checked, you are granting: Lenskold Group, 601 Bangs Avenue, Suite 402, Asbury Park, New Jersey, 07712, United States, https://www.lenskold.com permission to email you. You may unsubscribe via the link found at the bottom of every email. (See our Email Privacy Policy for details.) Your e-mail will be kept private and only used for educational content from Lenskold Group as outlined in our Privacy Policy. By clicking on the link delivered via e-mail to download content, you consent to use of a cookie that will provide you access to all other content without completing the form again.

Categories
rio resources White Papers

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.

Fill Out the form to complete the download


By submitting this form, you are consenting to receive marketing emails from: Lenskold Group, 601 Bangs Avenue, Suite 504, Asbury Park, NJ, 07712, https://www.lenskold.com. You can revoke your consent to receive emails at any time by using the SafeUnsubscribe® link, found at the bottom of every email. Emails are serviced by Constant Contact

By submitting this form with the Subscribe button checked, you are granting: Lenskold Group, 601 Bangs Avenue, Suite 402, Asbury Park, New Jersey, 07712, United States, https://www.lenskold.com permission to email you. You may unsubscribe via the link found at the bottom of every email. (See our Email Privacy Policy for details.) Your e-mail will be kept private and only used for educational content from Lenskold Group as outlined in our Privacy Policy. By clicking on the link delivered via e-mail to download content, you consent to use of a cookie that will provide you access to all other content without completing the form again.

Categories
rio resources White Papers

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.

Fill Out the form to complete the download


By submitting this form, you are consenting to receive marketing emails from: Lenskold Group, 601 Bangs Avenue, Suite 504, Asbury Park, NJ, 07712, https://www.lenskold.com. You can revoke your consent to receive emails at any time by using the SafeUnsubscribe® link, found at the bottom of every email. Emails are serviced by Constant Contact

By submitting this form with the Subscribe button checked, you are granting: Lenskold Group, 601 Bangs Avenue, Suite 402, Asbury Park, New Jersey, 07712, United States, https://www.lenskold.com permission to email you. You may unsubscribe via the link found at the bottom of every email. (See our Email Privacy Policy for details.) Your e-mail will be kept private and only used for educational content from Lenskold Group as outlined in our Privacy Policy. By clicking on the link delivered via e-mail to download content, you consent to use of a cookie that will provide you access to all other content without completing the form again.

Categories
Article Library rio resources

The Brand-Value Connection

Lenskold Article Series

by Jim Lenskold

The Brand-Value Connection

The image that your target audience has of your brand will have a significant influence over your sales and marketing effectiveness. Investments specifically to establish brand image can have a variety of objectives including brand awareness, emotional bonding, differentiation, and preference. In some industries brand marketing can serve as a lead driver of sales while in others its role is primarily to support salesforce initiatives.

 

As with all marketing investments, it is essential to understand and plan where the financial return from increased sales is expected for each investment. Are there certain target segments or regions that should experience increased sales? What is the timing for the impact in terms of short-term and long-term sales? Long-term brand equity is critical but it is dangerous to avoid an ROI analysis of brand investments based on the assumption that some small impact is occurring over a long period of time. The goal is to establish a framework where insight into the value of branding investments can guide the type and level of brand marketing.

 

Making the connection between branding initiatives and the incremental profits generated requires effective identification of the underlying drivers where the brand can influence customer behavior. The correlation between these key brand attributes and the value created is done through a combination of market research and modeling.

 

Modeling is a significant initiative that requires quality historical data. Companies with existing data should determine how modeling and marketing analytics can better guide brand investment decisions. Companies that lack historical data or the support to begin a modeling initiative at this time may want to at least lay the groundwork by preparing for future analysis. Put the processes and systems in place to capture detailed information on branding expenses, customer behavior objectives, target audience reach, contact timing, media channels, media mix and integration, pre and post marketing sales data, and attribute measures (if collected). You can gain additional benefits by also setting aside a control group that receives no contact, if that is feasible.

 

Even where detailed measurements and analysis are not possible, there is significant benefit that is gained by projecting the impact of branding activities on customer behavior completely through the sales cycle. This can eliminates gaps such as awareness advertising that lacks a subsequent call to action contact or brand differentiating marketing that reaches the wrong target audience or brand investments that far exceed the potential returns that might be generated. The marketing ROI process provides financial intelligence that can and should be used to shape strategic and tactical marketing decisions.

Categories
Article Library rio resources

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.

Categories
Article Library rio resources

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.

Categories
Article Library rio resources

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.

Categories
Article Library rio resources

Financial Intelligence for Strategic Planning

Lenskold Article Series

by Jim Lenskold

Financial Intelligence for Strategic Planning

Look at the some of the fundamental information you collect to guide the strategic market planning process: customer intelligence, competitive intelligence and market intelligence.

 

Marketers use this intelligence as insight into the types of strategies that are likely to be successful. Bringing financial intelligence into the mix offers new insight into the potential value of strategic and tactical alternatives and also leads to a disciplined approach to marketing campaign development.

 

With solid marketing return on investment (ROI) techniques and planning tools in place, marketers can improve the effectiveness and profitability of their campaigns.

Marketing ROI as the Core Measure

Traditional marketing measures such as response rates, cost per lead and brand impressions do not capture the complete view of both the incremental profits generated and the expenses invested. Even objectives such as increased customer loyalty must be balanced with appropriate spending levels to ensure that the business generates an acceptable ROI.

 

Only marketing ROI measures can deliver insight and analysis with sound financial integrity that meet the needs and expectations of the CFO, CEO and the Board of Directors.

 

For marketers, getting in sync with the objectives of senior executives is not only a business necessity but also a significant advantage. Companies with marketing ROI processes in place experience faster decision-making, support for additional budget funding, and greater respect for their contributions.

 

Plus, the increased insight into profitability leads to stronger strategies and more precise planning. It is critical to cut the excessive waste of marketing dollars that is abundant in most businesses. Efforts must be concentrated on winning the greatest share—not of customers or revenues—but profits, which benefits shareholders, customers and employees.

 

Holding true to financial practices, the marketing return on investment formula is as follows:

 

Return        NPV of Gross Margin–Marketing Investment

ROI = —————- = —————————————————–
Investment                  Marketing Investment

 

The ROI value is a percent, and 0% is the breakeven point. As part of the process, companies should define an ROI threshold or hurdle rate above which marketing programs will be funded. There are many considerations that go into setting the ROI threshold, and for the sake of simplicity the examples that follow will use a 50% threshold.

 

A quick example of the ROI formula: if you spend $1 million on a marketing campaign that generates $1.6 million in gross margin, the ROI will net to 60% (calculated as $1.6 million minus $1 million, divided by the $1 million investment). That exceeds the ROI threshold and would be funded.

Financial Intelligence to Guide Investment Levels

Marketers gain financial intelligence in the campaign planning process by mapping out marketing activities and expected customer behaviors completely through the sales cycle and running alternative scenarios to determine where the greatest profit potential exists. There are a number of marketing ROI planning tools that simplify the math and financial details so marketers can make smarter decisions. Two of these are presented here.

 

The “customer investment limit” represents the maximum amount of marketing investment that can be made to generate a desired customer behavior. It is calculated by running the marketing ROI formula with the ROI threshold value and the estimated customer value associated with the desired customer behavior. The ROI threshold is input as the ROI figure, the customer value is the return, and the equation is solved to find the investment. Reworking the original ROI formula leads to this one:

 

Gross Margin

 

Customer Investment Limit  =   —————-

 

(1 + ROI)

 

Looking at an acquisition campaign targeted at customers with an average net present value of $1,200 in gross margin, we can determine the Customer Investment Limit, which represents the maximum amount we will spend to acquire each customer, as follows:

 

$1,200

 

Customer Investment Limit   =   ————  =  $800

 

(1 + 50%)

 

This tells us that we can spend $800 to earn a $1,200 customer since the $400 net return meets our 50% ROI threshold. Acquiring customers at a lower cost or higher value achieves a higher ROI and is more desirable. This customer investment limit should be used to approve all marketing initiative that can exceed this limit.

 

The “marketing allowable” translates this value into an estimated cost limit per prospect. If we expect to acquire 10% of those we contact, the $800 per new customer must now be limited to $80 per prospect since we must spend on 10 prospects to close one sale. If we will acquire only 1% of those targeted, the marketing allowable is $8 per prospect.

 

Now, instead of assessing the average value of an acquired customer, let’s break the prospect base into several segments based on their value and look at the marketing allowable at various projected close rates:

Marketing Allowable Chart (50% ROI Threshold)

                                                            Sales Rate
NPV Customer Value 1% 5% 10% 50% 100%

$300

$2

$10

$20

$100

$200

$600

$4

$20

$40

$200

$400

$900

$6

$30

$60

$300

$600

$1,200

$8

$40

$80

$400

$800

$1,500

$10

$50

$100

$500

$1,000

$1,800

$12

$60

$120

$600

$1,200

$2,100

$14

$70

$140

$700

$1,400

This financial intelligence can be applied in the campaign planning process in a number of ways. For instance, the chart can establish tiered investment limits so that additional marketing effort can be directed to higher value customer segments. Now instead of relying on average values where $8 per prospect was acceptable at a 1% sales rate, we know that we cannot exceed $2 per prospect to achieve that sales rate for a customer value of $300.

 

Another application of this intelligence is to compare different combinations of marketing allowables and sales rates.

 

For example, marketers can apply their experience and knowledge to determine if increasing the spending per prospect from $8 to $40 has the potential to move the response rate from 1% to 5%. This is where marketers can apply creative and strategic thinking to generate innovative marketing campaigns that are within the spending limits and have the potential to generate incremental customer value required.

 

We are only scratching the surface of financial intelligence for campaign planning. Several other analyses that provide valuable insight include these:

 

  • Marketing Allowable charts can be created to show numerous combinations of input variables for the ROI formula.
  • Assessing various campaign scenarios using incremental ROI analysis can provide critical insight into setting the optimal cutoffs for target market selection and offer value.
  • B2B marketers can analyze the sales pipeline to determine where changes in results offer the greatest ROI potential.
  • Market test results can be analyzed to show incremental value of additional offers, contacts, and targeting.
  • A clearer assessment of up-front offers and investments can be made to price discounts and other sales-dependent offers.
  • Insight into potential customer value and customer investment limits can be developed into a strategic framework known as Customer Pathing.

Challenges Exist Between Projections and Measures

There are measurement challenges and limitations in capturing a complete and accurate view of the exact return from each marketing investment. However, applying marketing ROI tools and techniques can typically have much more value than most marketers anticipate.

 

In the planning process alone, the discipline of estimating the sources and value of profit returns, plus running scenarios to determine profit and performance sensitivities can lead to more informed and profitable decisions. Following the planning stage, the ROI process should continue with measurements and validation of assumptions. As the process is refined, the profitability analysis can move from the campaign level to the customer level where true optimization is possible.