Marketing Accountability: Optimizing Investment and Output
Marketing requires disciplined planning, rigorous measurement and constant improvement.
Marketing is increasingly under pressure to make the most of its brands, its investments and its organization. In the boardroom, leaders ask for accountability and assurance that every dollar spent on marketing is contributing to long-term profitable growth. Although this pressure is particularly intense in tough economic times, the topic is increasingly relevant even in good times.
Marketing must respond through disciplined planning, rigorous measurement and evaluation, and continuous improvements in performance. It has to be able to link the cause and effect of investments, to diagnose performance problems in a timely way, and make fact-based decisions on how to increase return on investment (ROI). Marketing must be efficient and effective at the same time. The keyword is “marketing accountability”—investing in the right tools and content (effectiveness) and optimizing the ratio of investment and output (efficiency).
As a matter of fact, more and more companies are investing in marketing accountability initiatives. However, in many cases, the focus of these initiatives has been too narrow, which diminishes the impact. In order to achieve a sustainable and effective effort, all value levers need to be activated.
The Six Value Levers
Value Lever No. 1: Strategy
A solid strategic foundation is critical, as it sets up a series of choices that informs all downstream value levers. These include, for example, overarching marketing objectives that are derived from the corporate and business strategy, the definition of critical segments and targets, and brand positioning and opportunities for differentiation.
Erroneous assumptions around any one of these issues can fatally undermine the effectiveness of all subsequent marketing investments. Yet in most companies, this pitfall is avoidable with a disciplined and transparent approach. This includes informing all stakeholders about the facts, data, beliefs, and assumptions on which the individual decisions are based in order to develop a shared view of the brand and communication strategy.
This transparent approach is based on a set of well-understood analytical and conceptual techniques involving customer segmentation, target group definition, customer driver analysis, pathway modeling, brand equity modeling, positioning, value propositions, etc. All of these tools can help a company focus on the most promising solutions. When these analytical approaches are combined with creative and innovative ideas, a company typically ends up with a strategic value proposition that is worth its weight in gold.
The medium to long-term strategy needs to be translated into short-term marketing and communication objectives. When defining these objectives for the next planning period, current barriers to communication with the consumer must be taken into consideration. Do we need to focus on increasing our awareness, or should we focus instead on retaining existing customers? These types of questions, together with long-term brand and communication objectives, should indicate which path to pursue.
Value Lever No. 2: Content
The strategic foundation needs to be translated into compelling and engaging messaging that is appropriate for the medium. In this context, “messaging” refers to the entire creative package of taglines, copy, visuals, colors, sound, and iconography that is usually part of a broader communication/content platform. The best content platforms come from a magic combination of strategic insight and creative expression and find a way to connect in authentic, emotionally compelling ways. Here it is crucial for the creative ideas to draw on the themes and guidelines provided by the strategy.
To fuel creativity, a company needs to pursue somewhat independent and competitive paths. It is important to remember that great content ideas can come from anywhere. One method is to provide internal teams as well as external agency partners with a similar briefing. Ideas can also originate from individuals who have creative intuition. Or even from participants whose contributions are collected through crowdsourcing. Irrespective of how the potential messaging platforms are sourced, clever companies make certain to validate their messaging ideas through testing before implementing a full-scale creative campaign. Moreover, the latest academic research also suggests that testing multiple communication ideas is the right way to go.
Value Lever No. 3: Marketing Vehicles
Next, a company needs to make a series of decisions about which kinds of marketing vehicles are the most compelling and effective in delivering against the strategy, messaging objectives, and desired return on investment/objective (ROI/ROO). This implies the set of instruments must be derived directly from the marketing and communication objectives (see value lever no. 1) and not simply based on the mix of vehicles from the previous year, which unfortunately is often the case.
Vehicle choices, when made effectively, should enable your messages to reach and connect with your strategic target audience in a timely, relevant, cost-effective and increasingly, multi-platform way. To do this effectively, you must understand how your target customers interact with media—i.e. where they interact with media and their openness to receive messages in that setting. Additionally, the costs and benefits of the vehicles must be considered.
Making the wrong choices here can torpedo your entire effort to achieve more accountable marketing. It is no small challenge. There is a risk of failure when the vehicles are mismatched with marketing goals or target groups. Another pitfall is not having the necessary resources to effectively execute the right mix of vehicles, which can be summarized by the keyword “under-spending,” i.e., not achieving the efficient zone.
Finally, you must ensure that all vehicles are well integrated, so they appear as a seamless and integrated campaign to your customers. The most important factor here is customer perception—ongoing and consistent communication of the messages massively increases the impact of your advertising and is a critical element of efficient and effective communication.
Value Lever No. 4: Investment Levels
This lever operates in two dimensions—the appropriate investment in marketing activities relative to the overall income statement, and the appropriate level of investment in any given marketing vehicle relative to its intended ROI/ROO and relative to other investment alternatives.
With this value lever, we are trying to diagnose whether the overall marketing investment is too high or too low relative to the ROI/ROO of the proposed marketing activities and the strategic objectives. Defining the exact boundaries of investment is difficult, as there are few solid empirical foundations that would back those boundaries up. An incremental approach is promising: Starting with the current investment level (overall and for a specific vehicle) you can investigate whether an additional investment unit would over-proportionally increase the benefit or whether a reduction of one investment unit would have an under-proportional impact on the ROI/ROO. As a result, you will have a better understanding of how much lift significant increases or decreases in your overall investment levels might provide to the business.
Investment planning and ROI/ROO calculations are always based on assumptions. These assumptions can change quickly. Everything—from target group behavior to competitive activity—can have short-term effects on the ROI. A solid, assumption-based plan is essential, as it makes objective evaluation of results possible over time. It helps to consistently build a pool of KPIs that help plan and evaluate future investments even more accurately.
Value Lever No. 5: In-Market Execution
Even if your company excels with the first four value levers, your overall marketing investment performance can still be adversely impacted by poor implementation. Great content only achieves maximum impact in the market if it is successfully implemented.
“Simplicity, understandability, and transparency of marketing efficiency tools must be woven into daily business routines.”
Planning of this value lever requires key decisions to be made in terms of creative implementation as well as media mix. In both cases, crystal clear briefing is the critical success factor—too often errors are made at this stage. Both the creative and media agencies must have a deep understanding of the strategy, target group, messages, and vehicle mix and align the implementation strategy accordingly. Including a performance bonus in the contract is a very effective instrument to ensure the agency partners make this alignment a top priority. This bonus-malus (Latin for good-bad) system should be based on how well the campaign meets the marketing objectives (for example, increase of specific image attributes, advertising recall). It is most important to ensure that these objectives are highly dependent upon the implementation in order for the agency to have a real influence on outcomes.
Value Lever No. 6: Fixed Cost Management
To fully realize the benefits of a marketing accountability program, a company needs to focus on continuously improving cost efficiency. Better management of fixed costs is crucial. A company needs to focus on all of the costs that go into producing the various marketing programs that your company may employ, such as external agency costs and production costs. The types of fixed costs depend upon the mix of marketing programs. These costs are estimated to amount 20 to 60 percent and are therefore a considerable lever for cost optimization.
The value lever “Fixed Cost Management” demands pragmatic thinking from purchasing or procurement managers. The first step is to develop an understanding of the ratio of “working” and “non-working” spend and to consistently implement strategic sourcing principles. These include, for example, streamlining suppliers and agencies, continuous negotiations of prices, and reengineering overall processes.
How to Successfully “Operate” the Value Levers
There are strong interactions across the six value levers; they do not work independently. An extraordinary marketing program can fail simply because the wrong set of vehicles is applied, or the wrong level of investment is chosen. Evaluating just one lever incorrectly is enough to cause the marketing budget to be misallocated. As a result, a company needs to continuously identify and prioritize those levers, which will best help the company meet its objectives.
Based on experience, a set of principles that significantly increases the success of marketing accountability programs across all value levers can be identified. These are summarized in six critical success factors (see exhibit 2).
Critical Success Factors
Success Factor No. 1: Art & Science
Successful marketing accountability programs employ a combination of both extraordinary quantitative processes and tools and out-of-the-box qualitative concepts. The best mathematical marketing mix models are worthless if they optimize the vehicles without considering the right content. The six value levers show that they can only be fully implemented if a balanced combination of art and science is applied.
Success Factor No. 2: Company-Specific Solutions
Standardized one-size-fits-all efficiency approaches and projects often fail, since they cannot fully consider company-specific context and the most important levers. Additionally, these tools are often highly complicated, resulting in a negative attitude among the intended users of the models. Simplicity, understandability, and transparency of marketing efficiency tools must be woven into daily business routines. Ongoing, long-term success is only achieved when the tools are consistently applied by the relevant employees in the marketing department. As a result, marketing accountability initiatives need to be analyzed, designed, and activated in a way that is relevant to each company.
Success Factor No. 3: Just Do It!
Often, marketing accountability approaches are planned over a long time period before they are applied. Expectations are too high and companies try to engineer relationships between marketing investments and results that are either difficult or impossible to prove. This vision of a 100 percent solution will sooner or later result in a standstill of the marketing accountability initiative. Simple and effective measurement and planning tools build a pragmatic and motivating starting point. Marketing efficiency can start small and then be extended and more sophisticated over time.
Success Factor No. 4: Focus (80/20 Rule)
The 80/20 rule also holds true in the area of marketing efficiency. Often 20 percent of the value levers can impact 80 percent of the optimization. Therefore, successful marketing efficiency approaches focus on the central levers and activity areas. It can be worthwhile to carefully assess the potential of the individual levers during the analysis phase. This holds true for the analysis in the context of a comprehensive marketing accountability project, as well as for the annual or quarterly evaluation of marketing and communication focus areas.
The 80/20 rule also applies, in particular, to the measurement of effectiveness and efficiency and reporting efforts. In many cases, an extensive list of seemingly random KPIs is measured and documented with an emphasis on breadth rather than the most critical measures. This dilutes the focus and jeopardizes continuous learning and improvement. The success of a marketing vehicle should be based on its ability to achieve its primary objective. For example, if the primary objective of a sampling program is to increase the trial rate of a product, the success of the program needs to be measured against this objective e.g. Cost per Trial (efficiency) or Trial Rate (effectiveness). All other KPIs are secondary.
Success Factor No. 5: Objective-Oriented Approach (ROO)
In many cases, marketing accountability approaches fail because they cannot fully explain financial interdependencies, e.g. the effect an advertising campaign has on total revenues. This is where the basic problem of established ROI concepts lies—the impact of marketing investment on financial results takes too long or is disconnected and depends on many additional determining factors. Therefore, successful approaches combine the ROI perspective with return on objective (ROO, often referred to as ROPI [Return on Program] or ROMI [Return on Marketing Investment]) KPIs. These KPIs address shorter impact periods (e.g. the ability of a campaign to increase specific brand attributes or advertising recall) and therefore are more transparent and motivating, allowing more effective control of the marketing programs.
Success Factor No. 6: Activation Within the Marketing Organization
Only when the marketing accountability approaches are activated within the marketing organization with pragmatic, transparent tools and when the process and tools become part of a commonly shared marketing accountability language, do the marketing accountability approaches realize their full effect. Sustainable marketing efficiency is not created with an annual complex excel spreadsheet—sustainable marketing efficiency happens every day, influencing the planning process of a brand manager, a procurement manager’s negotiation, or at a briefing with a creative agency.
Enhanced marketing effectiveness and efficiency is an attainable objective. If a marketing organization is focused on the six value levers and considers the six critical success factors, it can prove its value to the business as a whole as the creative, yet the rational source of future growth.