of your organization? Do you know the return on investment (ROI) for the marketing expenditures you make? How does measuring marketing ROI help you determine how to invest your marketing dollars or measure the effectiveness ofexpenditures? Leading marketers, benefiting from recent breakthroughs in market research methods, can answer each of these questions with confidence. Their marketing budgets are set, allocated, and managed for profitability through a process based on measured marketing ROI. The keys are to develop organizational structures and processes to effectively integrate these new research methods; earn the confidence of management; further the migration of ROI marketing; and advance research methods to better understand and foster long-term branding effects, target profitable consumer segments,
and improve the overall reliability and precision of the methods.
This study sought to examine three key areas.
1. Developing the marketing budget—How best-practice organizations establish their marketing budgets for maximum return
2. Allocating the marketing budget—How best-practice organizations allocate their marketing budgets among all of the marketing elements and programs within their organizations
3. Monitoring and adjusting the marketing budget—How best-practice organizations monitor, adjust, and maximize their marketing budgets as time progresses
Based on the analysis of the detailed questionnaires and site visits to the
best-practice organizations, this study generated the following findings and
- The pressure is on marketing to demonstrate a quantifiable return and on CEOs
to deliver value to their stockholders and business alliance partners. While managing those stresses, they can’t forget that delivering value to customers is a critical requirement for profitability. CEOs are relying on their marketing heads to be more productive stewards of a large share of the corporate budget for which they are responsible.
For marketers to add value through the programs that they develop, their decisions must be supported by valid, reliable, and relevant research. Unfortunately, recent studies have found that market research is not frequently perceived to offer the quality of marketing budgeting guidance that marketers need. Marketers are looking for help in improving the ROI on their marketing programs as a means of competitive advantage.
ROI-based marketing is sought by more marketers. The development of econometric marketing mix models (MMM) has enabled best-practice organizations to gain a competitive advantage and increase profitability in a fairly short time. When they have systems in place for an ongoing assessment of alternatives, they have found less need to conduct special studies. And even when additional research is necessary, the interpretation of that research is more rapidly accomplished, which leads to more actionable recommendations. Because ROI-based marketing provides a framework for addressing decisions, it leads to consistent approaches and reduces second guessing. If the management team fully embraces ROI-based marketing, as well as their counterparts’ judgments, consensus is reached more readily. This leads to faster marketplace reactions.
An ROI-based approach to marketing embraces more than a suite of MMM
tools; companies change the way they plan, implement, and assess their marketing programs. With a companywide ROI approach, they hasten their learning processes because they have a common framework for sharing. Lessons of a fundamental nature are captured and embodied in the corporate culture. And when working within a common framework, trust and management accord improve. Shared language and discipline result in shortened time to make
decisions and take action in the marketplace. It also increases the confidence in decisions, which then moves downstream to customers who react more positively to the offers extended to them. Also, performance falls closer to expectations and provides greater efficiency in resource allocation.
A key deterrent to cooperation among different parts of a company is the use
of different definitions of performance metrics across functional areas. When ROI metrics are properly put in place, much of the debate focuses on payout or
profitability. Payout rates vary. For example, ROI-based promotion management is more likely to show payout in a year or two than is advertising. In consideration of silos, the study team advises organizations to build into
the project some payoff for each of the stakeholders. Also, include contingency
plans to minimize the damage, and set reasonable expectations.
- ROI process works best with ongoing programs and interdisciplinary teams. The
team concept involves fluid interaction among marketing, research, media, finance, and others. Team work is essential, as is expertise from research analysts. When ROI-based systems are ongoing, they are an integrated component of budget planning, recommending, and revising. Consequently, they become more consistent contributors to decision making; decision makers find the information they need waiting for them, rather than a requisition process away. In building success stories, one must pick an area where need is recognized and unmet and then develop support for a focused project. It is important to have the support of as many of the stakeholders as possible. If they don’t exist, sympathetic finance or marketing managers will have to be sought out and given a series of experiences to enable them to champion the program. Winning the confidence of senior managers is especially challenging because they are less likely to have handson experience with new ROI-based decision support systems. Careful planning is required to elevate the level of acceptance up the ranks of the organization.
- ROI-based models encourage decision makers to challenge and revise the budgeting processes. The modeling process can develop principles of successful marketing. Researchers and decision makers can then develop new mental models
that positively influence decision making beyond the immediate influence of the
ROI-based models. The common language and discipline across the firm facilitates the drive for research functional excellence, even in a decentralized organization. In setting the overall marketing budgets, the influence of ROI analyses increases for the partner companies from the planning stage and recommendation stages to the budget revision stage. When allocating marketing budgets across the marketing mix elements, the influence of ROI evaluation tools is greater for partners than for sponsors.
It is advisable to build marketing ROI-based decision support into the process.
As ROI tools become more widespread, their use becomes more institutionalized.
When maximizing marketing ROI becomes a basic part of the marketing culture,
resources are dedicated to gathering lessons about using tools effectively; the
budgetary commitment to research is built in; and the data, staffs, systems, and software are always in place.
- Leveraging suppliers adds competitive advantage. Best-practice organizations are investing in long-term relationships with their research partners and data providers to access data. A framework can guide start-up projects for data acquisition and basic analytics, using consultants at modeling partner(s) with relevant experience. Even if information is leaked to competitors, learning together is a strong incentive for top-grade craftsmanship and a vital source of team building. Industry associations can also be a key data resource. Organizations can hasten their learning by taking part in committees at their associations. This enables cooperation on complex, controversial, or costly issues. Associations can also provide connections to useful networks of individuals with shared problems. In addition, such trade associations validate analytic tools and approaches.
PROFILE OF PARTICIPANTS
Four best-practice partner firms and 23 sponsor companies or divisions took part in this consortium learning forum. Whereas three of the best-practice firms were from packaged goods companies (Kraft Foods, The Minute Maid Company, and Colgate-Palmolive), AT&T Consumer Services was the exception among the partners. Providing products and or services to consumers contributed 90 percent or more of the revenues for 60 percent of the respondent companies or divisions. About half of the participants (55 percent) referred to a division of a larger company n completing the detailed questionnaire. Among the respondents answering for divisions, 60 percent of them indicated that their division accounted for a third or less of their total company’s sales and profits. The participating companies also reflected a wide range in size of the number of brands represented. Forty-five percent have five or fewer brands, and 22 percent had more than 30 brands.
A listing of the sponsor organizations in this study, as well as the best-practice (“partner”) organizations that were benchmarked for their innovation and advancements in measuring marketing ROI.
- Executive Summary
A bird’s-eye view of the study, presenting the key findings discovered, the methodology used throughout the course of the study, and a profile of
participants. The findings are explored in detail in the following chapters.
- Study Findings
An in-depth look at the findings of this study. The findings are supported by quantitative data and qualitative examples of practices employed by the
- Partner Organization Case Studies
Background information on the partner organizations as well as their innovative