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“P&G and HP are leading the marketing RoI wave”
Measuring marketing performance, specifically its financial impacts, is valuable, declares the reputed RoMI sepcialist James Lenskold
By
Amit Agnihotri
James D Lenskold is the foremost proponent of marketing RoI. In his book, Marketing RoI: The Path to Campaign, Customer and Corporate Profitability, he asks marketers to inculcate financial discipline by evaluating the return on marketing investments. Lenskold is credited with developing innovative and holistic marketing RoI processes and tools.In this interview, he talks about the demarcation between marketing and business goals, the business relevance of ‘softer’ aspects of marketing, and the need for marketers to look beyond just building a strong brand equity.
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| Why there is such a stress on measuring marketing performance today? Till as late as the 90s, there was little talk of this issue. But now many media stories, books (such as your Marketing RoI) and academic journals are writing a lot about the need to make marketing deliver measurable results. |
| I credit the increased accountability for marketing to advancements in both technology as well as measurement techniques. With greater data access and data mining tools, chief executive officers are expecting marketing to step up and demonstrate its financial contribution with the same discipline as other departments in the company.
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| How can marketing performance be measured on the basis of financial numbers? What is the approach that you recommend? |
| Marketing investments are made for the ultimate purpose of acquiring, growing and retaining profitable customers. Other metrics such as brand awareness, response rates, cost per sale, leads generated and customer loyalty are important performance indicators to guide strategies but are not the business goals that marketing must deliver on.
The marketing RoI process brings new insight into the marketing decision process to help marketers understand how their role in influencing customers leads to incremental profits for the company. There are a number of approaches that are used to align marketing measurements with financial business goals. My preference is to map out the customer funnel which details the different stages that a buyer progresses through starting as an unaware prospect and continuing through purchasing activity and long-term retention. With this in place, marketers have a framework for measuring the incremental contribution that different marketing initiatives make and the RoI on an aggregated set of tightly integrated marketing initiatives.
The two primary components of the marketing RoI process are establishing the infrastructure necessary to accurately calculate marketing impact on financial outcomes and then constructing the measurement plan to capture the data necessary to run those calculations.
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| Much of the impact of marketing is on ‘softer’ aspects like brand awareness, equity, and loyalty. Is it possible to factor in these while measuring marketing returns? |
| These are metrics that are very critical to business success, but they must be used as performance indicators and not as the ultimate goals for marketing. Ask marketers to explain how much it is worth to improve brand awareness or customer loyalty? Most cannot answer that question. Brand awareness is one step at the top of the customer funnel. It’s important because you cannot generate new sales without first generating awareness. But incremental awareness does not necessarily lead to incremental sales. The solution is to design and measure marketing that is tightly integrated and addresses the entire customer funnel. You then want to your measurements to establish a learning environment where you understand the correlation between changes in key metrics in the funnel and the subsequent financial outcomes. This takes time but will only be successful if the marketing puts the right framework in place.
Brand equity is slightly different. Just to quickly touch on this subject, brand equity is an asset of the company that represents a future stream of revenue and profits. When marketers focus on building brand equity, they must understand how and when this asset will be converted into a profit stream. It is valuable to run a long-term RoI analysis to ensure that the investments into building brand equity will result in a positive return from future profits.
I get the impression that some marketers believe building brand equity is the ultimate goal and that profits will automatically flow with a strong brand. Marketing strategies must be comprehensive and include tactics that convert brand equity into incremental sales. Brand equity is an asset that has the potential to build over time, or depreciate very quickly based on competitive activity.
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| Is this focus on measuring marketing performance good for the discipline? Many argue that marketing is not an exact science, and instinct and gut have an important role while developing big ideas. Your comments. |
| Measuring marketing performance, and specifically the financial impact of marketing, is incredibly valuable. This process presents marketers with ‘financial intelligence’ that compliments their customer intelligence, market intelligence and competitive intelligence. The analysis does not deliver the exact answer but is great insight into how to design and deliver the next marketing initiative. I stress that the entire marketing RoI process must be structured to support the strategic role of marketing. We want measurements to indicate the financial outcomes and how that relates to the customer behavior as tracked within the progressive stages of the customer funnel.
No marketing organisation is likely to measure everything and all analysis is subject to a certain level of interpretation. Here’s where instinct comes in to play. Marketers with good instincts and driven by a deep understanding of the customer, will be able to leverage the insight gained from marketing measurements into more effective marketing strategies.
Keep in mind that instinct is driven by experience. Many marketers have limited experience in financially-driven marketing measurements. I have seen many who are surprised when they find some of their core marketing programs have little or no chance of ever being profitable. Our goal is to provide marketers with new insights that over time will further improve their instincts.
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| Given the stress on marketing RoI in the business today, finance and procurement departments are involving themselves on purchases of core marketing items like advertising, MR and promos. Will this make marketing more effective? |
| The key to a solid marketing RoI process is pulling together measurements and financial analysis that can be used strategically. Marketers are in the unique role of understanding how to develop strategies that motivate customer behaviours.
Companies are not simply buying media packages that automatically come with given results. The marketing organisation is developing messages and offers for delivered to reach specific target segments with a certain degree of intensity, expecting certain behaviours to follow.
Finance and procurement may be able to support this process, but certainly not lead it. If they want to make an impact on marketing, encourage greater spending on research and analysis.
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| Globally, which firms are moving forwards on the path of marketing RoI? What are the results? How have they benefited from this approach? |
| P&G and HP come to mind first. Their CMOs, Jim Stengel and Mike Winkler respectively, have made marketing measurements and RoI a priority. They’ve certainly made progress but my understanding is that both of these leaders believe they have much more to do. I know from my own clients that using rough assumptions to project RoI in the planning stage provides immediate benefits from shifting strategic and tactical plans. There is also a long-term path needed to build a solid history of results to improve accuracy of assumptions.
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| Are marketing professionals well equipped to understand and apply the financial terms like net present value, gross margin, discount rate and so on. Is there a need for re-training marketing minds? What’s the best way to infuse number sensitivity in marketing? |
| As an organisation, marketing needs to become more familiar with these terms as well as how marketing initiatives contribute to financial outcomes and business objectives. On an individual level, I try to structure marketing RoI solutions.
Most financial calculations and terms are somewhat hidden from marketing. Good planning and measurement tools will help marketers use their campaign details and analyse impact assumptions, besides understanding how modifications to their plans and performance relate to increased profits.
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| Where do you think is the movement towards marketing RoI headed, say 10 years down the line? |
| In the next 10 years I expect to see new techniques in measurement that blend existing methodologies of modeling, market testing and survey research. We will definitely see new technologies emerge that automate the data mining, statistical analysis, and financial calculation components of the process.
The adoption of marketing RoI has been somewhat slow but is picking up momentum. Many companies are still trying to figure out how to get started. The most significant change I expect is in the mindset of the marketing organisation. New employees coming in from graduate schools expect measurements to be part of the process.
As companies achieve some initial success and understands the value of the new insights gained, it will be much easier to make marketing RoI a standard part of the planning and assessment process.
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- “Marketing has to re-examine all of its central concepts”: Philip Kotler
Philip Kotler is a brand, and an iconic brand at that. The author of Marketing Management; the definitive textbook read by every business school student across the world, Kotler is currently the SC Johnson & Son Distinguished Professor of Interna- tional Marketing at the Kellogg School of Management, Northwestern University, US.
The maverick marketing academic talks in detail about the changing marketplace and what it means for marketers, the threatened state of marketing as a function and emerging paradigms.
- “Marketers are still stuck in the memories of golden 60s & 70s”: Jagdish Sheth
One of the most erudite scholars and copious writers on various aspects of marketing and consumer behaviour today, Dr Jag Sheth is the proponent of the 4As framework, which lobs the consumer at the very centre of the entire marketing spectrum.In this freewheeling interview,Prof Sheth speaks at length on the whys and hows of refashioning marketing-moving away from the product-and-brand-centricity to one that of consumer-centricity.
- “A great product is the starting point of a strong brand”: Kevin Keller
It’s not everyday that you get to co-author a marketing Bible. But Dr Kevin Lane Keller, the EB Osborn Professor of Marketing at the Amos Tuck School of Business Administ- ration, Dartmouth College, has just done that—the 12th edition of Marketing Management with Dr Kotler. It more than justifies his status as a marketing maven with an enviable reputation in strategic brand management and integrated marketing communications.
- “Customers see higher value when they can co-create”: Venkat Ramaswamy
The rising flow of information and the resultant knowledge that customers have about various products and services, together with their increasing demand for customisation, have put an ever-increasing burden on marketers. In fact, this essentially is a call for letting customers co-create value and thus provide them with product experience that can a last lifetime, says Venkat Ramaswamy, professor of marketing at the Stephen M Ross School of Business at the University of Michigan.He says it’s high time that companies shifted from the traditional 4Ps of marketing and allowed customers to become part of their marketing process so that they can give the product an altogether different meaning. He insists on delivering unique experience to customers by engaging them in a personal way thereby making product purchase a memorable event.
- “All communication is an incentive”: Don Schultz
Don Schultz is the Professor of Integrated Marketing Communi- cations at the Medill School of Journalism, Northwestern University, and is a renowned name in the field of marketing. He is more known for highlighting the importance of integrating marketing communication (IMC).In this interview, he talks about why IMC is necessary, how marketing needs to move out from a narrow definition to become a strategic planning function!
- “Experiential marketing gives you a competitive edge”: Bernd Schmitt
Bernd Schmitt is the Robert D Calkins Professor of International Business at the Columbia Business School, where he also directs the Centre for Global Brand Leadership. A prominent name in the world of branding, he is best known for his unique call to marketing to look beyond the selling model and instead focus on experience as the next big 'differentiator'. In this email interview, he talks about the alternative approach of experience being the pivot of marketing, the five-step process to achieve it and how the consumer is at the end of the day human and like all humans oftentimes it's the heart that rules the head.
- “Markets undergo changes faster than marketers”: Nirmalya Kumar
A formidable authority on marketing, Nirmalya Kumar is the Professor of Marketing and Co-Director of the Aditya Birla India Centre at the London Business School. In his latest book Marketing As Strategy: Understanding the CEO's Agenda for Growth and Innovation, he speaks about the interesting paradox of the marginalisation of marketing as a function while the need for marketing is being increasingly voiced.In this email interview, Kumar speaks about the 'century of retail', its implications for marketers and more specifically what domestic marketers can do to build and sustain strong brands with the advent of organised retail.
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| July, 2006 |
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| June, 2006 |
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| May, 2006 |
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