how measure marketing roi

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You can also dial in to hear audio: Participants (US & Canada, Toll Free): 800.901.4804 Participants (international): +1 212.231.2901 The audio portion of today’s presentation is available via broadcast audio.

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Page 1: How Measure Marketing ROI

The audio portion of today’s presentation is available via broadcast audio.

You can also dial in to hear audio: Participants (US & Canada, Toll Free): 800.901.4804

Participants (international): +1 212.231.2901

Page 2: How Measure Marketing ROI

Meeting of the Minds features the MarketingNPV Academic Advisory Board,a world-class group of some of the best-known marketing professors from leading business schools, assembled to share their thoughts and observations from experience in the boardrooms and the classrooms of the world about how marketers can better demonstrate the value marketing creates for shareholders.

Page 3: How Measure Marketing ROI

Commonly Asked Questions

1. Will I be able to get copies of the slides after the event?

2. Is this web seminar being taped so I or others can view it after the fact?

Yes

Yes

Continue today’s discussion on Twitter: #MeetingoftheMinds

Page 4: How Measure Marketing ROI

Your Host

• Highly Specialized Advisory Firm• Exclusive focus on marketing measurement,

budgeting, and resource allocation• Publishers of the MarketingNPV Journal• Advisors to Global 1000 clients including:

Qwest

Pat LaPointeManaging Partner

Page 5: How Measure Marketing ROI

There is No Silver Metric for Marketing Measurement

Tim Ambler

Honorary Senior Research Fellow

London Business School

Page 6: How Measure Marketing ROI

There is No Silver Metric for Marketing Measurement

Tim AmblerHonorary Senior Research Fellow

London Business School

Page 7: How Measure Marketing ROI

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Agenda

How not to measure marketing performance:Discounted Cash Flow (DCF)Return On Marketing Investment (ROMI)

Why brand equity is the keyMeasuring brand equity

Summary & Discussion

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Top Management Perspective

Marketers are slippery people who move the goalposts

Never mind soft numbers like attitudes; let’s see the financial return

i.e. “hard” numbers

Keep it simple: what is the bottom line?

Page 9: How Measure Marketing ROI

The Hard Number Myth

Numbers are hard or soft according to how precise, certain and reliable they are

Putting a $ sign in front of a number does not make it any harder or softer

Enron published hard numbers?

Page 10: How Measure Marketing ROI

Why Measure Marketing Performance Anyway?

Most marketers want to be out there making it happen, not just keeping score.

Yet we need to learn from what went right and wrong to improve future performance.

NB Measurement will not improve short term performance.

And planning should involve the comparison of alternative quantified outcomes.

And you need a “dashboard” to monitor progress toward objectives.

Page 11: How Measure Marketing ROI

What “Marketing” are we Measuring?

Identified marketing expenditure?

That’s only a part, maybe a small part

What the marketing department does?

NB Their responsibilities vary from company to company

The whole company’s satisfaction of consumers and thereby sourcing and harvesting of cash flow?

Page 12: How Measure Marketing ROI

Financially Driven Marketing“Accenture Marketing Sciences is a world leader in marketing

analytics consulting. Using sophisticated analytical techniques and advanced software technology, we help Fortune 500 CMOsoptimize marketing investments to improve shareholder value.

We measure the impact of marketing variables and improve marketing ROI effectiveness and efficiency through a full range of services and software:

Customer-Centric Analytics Product Portfolio Allocation Market Investment Optimization Marketing Mix Optimization Trade Promotion Management Demand Planning Decision Support Tools”

Accenture WebsiteAccenture Website

Page 13: How Measure Marketing ROI

The Two Main “Silver Metrics”

A “silver metric” (see silver bullet) is a single number top management can use to track marketing performance

Discounted Cash Flow (DCF)Customer Lifetime Value

Customer equity

Net present value

Brand valuation

Return on [Marketing] Investment (RO[M]I)

Lesser used silver metricsPayback

Return on Customer (Peppers & Rogers 2005)

Page 14: How Measure Marketing ROI

What the Silver Metric Merchants Want to do

Marketing performance =

Either Silver Metric for period (ROI)

Or Short term financial results plus or minus change in marketing asset expressed financially as a silver metric

Page 15: How Measure Marketing ROI

A Word on Brand Valuation

It gets top management attention and that’s great.

We are looking at big numbers

(Next slide)

Even if these numbers are internally consistent,

The rankings of the main three valuers (Interbrand, Brand Finance & Millward Brown Optimor) are very inconsistent

Page 16: How Measure Marketing ROI

Millward Brown Optimor – Top 10 Global Brands

Rank +/- Brand % up 2010 2009 Value $M 2009

1 Google 114,260 14

2 IBM 86,383 30

3 Apple 83,153 32

4 -2 Microsoft 76,344 0

5 -2 Coca Cola 67,983 1

6 -1 McDonald’s 66,005 -1

7 +3 Marlboro 57,047 15

8 -1 China Mobile 52,616 -14

9 -1 GE 45,054 -25

10 -1 Vodafone 44,404 -17

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Problems with DCF as a Performance Metric

Lack of independence of forecasters from those whose performance is being judged.

Subjective bias based on relationships.

Lack of confidence in the accuracy of forecasts.

Confounding forecasting error with performance varianceIs exceeding forecast a good result or a bad forecast?

Which of the multiple forecasts should be used?A large company, Kraft for example, may forecast the same period many times before the results are in.

Taking credit today for future marketingi.e. marketing by a new team not yet hired

Page 18: How Measure Marketing ROI

Problems with RO[M]I as a Performance Metric

1. Ratio developed for capital projects. Marketing expenditure is an expense, not an investment.

It belongs to the P&L, not the balance sheet

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Problems with RO[M]I as a Performance Metric

2. All other performance measures, e.g. profits, subtract costs from revenue; ROI divides revenue by costs.

So the ROI on zero expense is infinite

OK if costs are constant but then the metric is pointless

Page 20: How Measure Marketing ROI

Problems with RO[M]I as a Performance Metric

3. Sub-optimal performance

Maximizing ROI means lower sales and expenditure than is required for maximizing profitability

Page 21: How Measure Marketing ROI

Problems with RO[M]I as a Performance Metric

4. To measure the incremental R and I, we need the baseline, i.e. what revenue, costs and profits would have been without this marketing.

“Counterfactuals”, i.e. what would have been are notoriously difficult to establish but without them, ROI makes no sense.

Page 22: How Measure Marketing ROI

Problems with RO[M]I as a Performance Metric

5. ROI has become a fashionable term for any performance measurement without regard for what it actually means.

E.g. AMA 6 “ROI Measures Currently Used”(2005), none of which are actually ROI.

Try asking a marketing practitioner to define it.

Page 23: How Measure Marketing ROI

Problems with RO[M]I as a Performance Metric

6. Short-term measure which ignores the ongoing marketing asset – brand equity

Brand equity (Aaker 1991) is arguably the most important marketing concept since the 4 Ps.

Ignoring brand equity will destroy an industry, e.g. British car manufacturing 1950 – 1970.

Page 24: How Measure Marketing ROI

What is “Brand Equity”?

It is the asset created by good marketing.

similar to reputation but more than that

It is not a financial valuation, nor “customer equity”

Assets have different values in different contexts

A “brand” is what a company sells: it transfers

“Brand equity” is retained and grows with every sale

“Brand” and “brand equity” include the commodity

how else can quality matter?

Page 25: How Measure Marketing ROI

How does Marketing Work?

Two stages:

Creating demand, i.e. building brand equity

Converting brand equity to sales

Brand equity more from usage and satisfaction than promotion

Cash is the outcome of marketing, not the driver

It helps but success comes from DMC, & time rather than money

Dynamic Marketing Capabilities:

Empathy with the consumer

Energy in pursuing customer satisfaction

Page 26: How Measure Marketing ROI

Keller (2010) MOM presentation, Slide 16: Dimensions of Brand Feelings

Brand feelings can be divided into two broad categories:

Experiential – immediate, short-lived during purchase/consumption

Enduring – private, possibly part of day-to-day life

Brands should have one, or ideally both, types of feelings

Experiential Feelings

• Warm

• Fun

• Exciting

Increasing level of intensity

Enduring Feelings

• Sense of Security (Inner-directed)

• Social Approval (Outer-directed)

• Self-Respect (Actualization)

Self-Respect

Sense of Security Social Approval

Inner-Directed Outer-Directed

Higher level of values & needs

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Measuring Brand Equity

It is a multidimensional assetSo it needs more than one metric to describe it

One of them could well be its valueIf there is a reliable methodology for that

Indicators of future consumer behavior?E.g. Perceived relative quality, Brand feelings?

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Measuring Brand Equity 2

Is the metric’s variance steady?Too volatile and it will mislead

Too stable (e.g. total awareness) and it will not indicate change

Do the top execs all understand the metric the same way?

Did past movements predict current performance?

Page 29: How Measure Marketing ROI

What Any Organization Should Do

Marketing performance =

NEVER Silver Metric for period (ROI)

BUT Short term financial results plus or minus changes in marketing asset expressed financially and non-financially as a dashboard

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Agenda

How not to measure marketing performance:Discounted Cash Flow (DCF)Return On Marketing Investment (ROMI)

Why brand equity is the keyMeasuring brand equity

Summary & Discussion

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Marketing Accountability

Most great businesses got there without formal measurement of marketing performance.

They were far more concerned with feelings – the consumers’ and their own.

They were empathetic first,Energetic second,And keeping score was a long way down the list.

No problem with that, but owners do not have to be accountable.

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Marketing Accountability: The Moral

Do it right or don’t do it at all.Doing it wrong wastes resources and misleads.

Understanding the measurement model focuses attention on the company’s most valuable asset: brand equity.

UK research showed, on average, the top exec groups used 90% of their time spending their company’s money or counting it.

And only 10% wondering where it came from or how to grow it.

Page 33: How Measure Marketing ROI

Thanks!

Page 34: How Measure Marketing ROI

To download today’s presentation, go to

MarketingNPV.comand look for

“Meeting of the Minds”

Questions?

Page 35: How Measure Marketing ROI

Get the SlidesTo download the slides from today’s webcast, visit www.MarketingNPV.com

Questions for the AMAEmail: [email protected]

Continue the Conversation on Twitter#MeetingoftheMinds

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