“I know that half the money I spend on advertising is wasted. I just don’t know which half.”
Department store magnate John Wanamaker
John Wanamaker was right. He knew how to run a department store and help create the world of advertising. Advertising back then was rather different than it is today. Less complex, more to the point. You advertised to sell, not to entertain or win awards.
The world of marketing has evolved since then. Marketing is no longer just advertising and is constantly evolving. The facts of yesterday become the opinions of tomorrow often paralyzing the best of marketers. In today’s world of over-communication, finding what works is a constant search for the truth (a tough word in marketing.) And there is no two ways about it, you need to measure what you do.
There has been dozens of trends since 1993 when Peppers and Rogers launched the concept of one-to-one marketing, still Nirvana in the world of marketing. The latest trend, for lack of a better word, is marketing return on investment, or MROI. F the past 3 years, many gurus and businesses have been trying to achieve a good understanding of the impact marketing had on businesses using ROI as their main tool. The top business organizations in the world already have a fair view of their MROI mainly because they dedicate processes and people to measure it. Most organizations are not that big and need to develop the skills to evaluate the true value of their marketing
Planning for Marketing
The biggest danger in setting-up your marketing strategy is not the type of strategy at your disposal, you can do almost anything in marketing, it’s you.
At the heart of a good marketing strategy are the beliefs of the person running the business. If you don’t believe in marketing, no amount of investment, and marketing is an investment, can help you. If you run your own shop, polish your marketing skills or hire the best person you can afford (and constantly polish his or her skills.)
Your next step is your plan. It can be complex or simple, a few dozen pages or a single page, but at all times it should be implementable. The best strategies falter not because they’re not clever but because they are not implemented properly. Implementing a marketing strategy is a daily activity and requires constant attention. A strategic approach that works well is to start with defining the target market you’re aiming as follows:
Ø Target Who is your customer?
Ø Positioning What can you do for them?
Ø Objectives/ROI What is your quantifiable return?
Ø Strategy & Tactics How will you go about it?
Ø Budget How much are you planning to invest?
Ø Schedule When will you do what?
Ø Actual ROI How much did you make? How far is it from your objective?
This is a simple marketing strategy as it does not need to be complex to succeed.
Marketing Investment: Where should you money go?
If you follow the teaching of Jay Conrad Levinson, author of Guerilla Marketing, and you should, you will find at least one hundred marketing weapons in which to invest your budget (of which half of them are free.) Prior to evaluate them, let’s address the issue of budgeting. There are four main ways to establish your budget, namely:
Ø Affordable method
Ø Percentage of sales method
Ø Competitive parity method
Ø Objective and task method
The first one is simply based on you think you can afford. It’s main drawback is that not connected to what you need to invest to succeed. The percentage of sales method is commonly used but follows the ups and downs of your revenue line. This could mean that at the time when you need to invest more, don’t forget that marketing often has a time delayed impact, you will end-up with less money. As for the competitive parity method, you simply need to know or estimate how much your competition is investing. The first drawback is that you might simply never know, the second, why should you copy if you want to lead the market? The last one is the objective and task method, this is the one you should focus on. It’s a simple method that looks at your objectives, determine the tasks or tactics needed to achieve them and estimate the investment required to implement them. This is the most practical method around today as it focuses on what you are trying to achieve, not what you can afford or what your competition is doing.
The selection of marketing tools, whether advertising, public relations, electronic, etc. is dependent on both your target market and your objectives. Why should you advertise if your target segment does not respond to it? Why should invest in an extravagant web site if your target segment only watches TV?
One of the principle tenets of marketing is that your company is not defined by the type of tools it uses. You are not your advertising, you are not your web site. Marketers often forget that being easy to do business with is probably one your most important marketing tool because, you see, marketing is not a function, it’s way a doing business, a philosophy in some ways, or more precisely, a business philosophy.
So where should you invest your marketing dollars?
To answer this question it’s best to consider that there are two ways to influence your target market:
Direct Revenue Impact
Your first consideration in developing the marketing tools you need is their direct impact on your revenue. In this area, learning all you can about Direct Marketing will allow to maximize your revenue while developing your brand at the same time. There are three main ways to impact your revenue directly, the first one being the acquisition of new customers, nothing new there, but how many of your marketing tools are focused on that objective? The second, and often most profitable, is focusing on increasing revenue for your existing customer base (the value of a good database is therefore self-explanatory.) The same question stands, how many of your tools are focused on this objective?
Indirect Revenue Impact
There are two elements to this way of influencing your target market. Every marketing and non-marketer is familiar wit the first one: your Brand (with a capital B as it is not small matter.) This is the area most often associated with advertising but let’s face it, advertising is not branding. It’s probably one of its best tool up until the advent of the Internet which has redefined the way people respond to a brand strategy. The second strategy focuses on developing your customer base. This strategy can be extremely profitable too but be careful not to exaggerate, too much communication and you can turn them against you. This is also an area where the traditional marketing tools like advertising or direct marketing have little effect.
It’s interesting to note that many profitable organizations do not invest much in marketing or advertising for that matter. They generally tend to be in the business-to-business and they rely more on personal connections with their supply chain. It’s a different game in the business-to-consumer where the personal connection is often hard to create and maintain (but not impossible.)
Both methods work. Both have their own set of marketing tools and costs. Both have their drawback. The ideal strategy combines both and your budget will decide how much you can invest in them whether together or separately, it all depends on your belief and expected ROI. Which brings us to evaluating your marketing performance.
Is marketing profitable?
The main difficulty in establishing whether your marketing is profitable is the core definition of what marketing ROI is. There are no accepted definition of the concept but suffice it to say that your marketing dollar should be treated just like an investment (with its own risk analysis) and therefore a dollar invested should have a rate-of-return greater than one. The exact percentage depends on your objective. There are two ways to look at MROI, the macro view and the micro view.
NPV Gross Margin – NPV Marketing Investment
ROI = --------------------------------------------------------------------
NPV Marketing Investment
Where the NPV Gross Margin is the Discounted Cash Flow of incremental profits and costs that result specifically from the corresponding marketing investment
This simple formula should be easily calculated by your accountant and will give you a top end view of your effectiveness. It won’t tell you what works but at least it will increase your confidence as to whether your marketing plays a role in creating revenue.
This are is more complex as you will need to focus on every single element of your marketing strategy and establish the proper metrics whether it be public relations, advertising, direct marketing, your web site, etc. It is important to include the cost of your marketing people in this detailed analysis (you wouldn’t want to pay more for your team than the amount you invest in your marketing strategy.)
The main reason why marketers do not measure the results of their work is simply because they do no always know how, or in some cases, prefer to keep the marketing “mystique” where no-one really knows what they do. Before you establish your marketing metrics, you will need to go back to your business plan and study it carefully. A good business plan will contain all the information needed to help you establish your marketing objectives, strategies, tactics and metrics. A lot of marketing decisions are still based on people’s wishes or needs rather than a clear analysis of what needs to be done. This is why it is crucial to make sure that your objectives are measurable, timely and achievable. This will help you turn your marketing into an ROI machine
Remember, the end game of marketing is to build the business and that can only be done if it is measured