Thursday, December 21, 2006

WOM – Before You Measure, You Need to Define

If you’re unsure whether word of mouth is shaping into a highly valued tool that should be a required element in your marketing arsenal, you need look no further than the November 29th issue of The Wall Street Journal. In it, Research In Motion (RIM) — makers of the infamous BlackBerry wireless device — ran a full-page ad touting the strengths of WOM in building their BlackBerry business.

When a company is willing to spend tens of thousands of dollars in a national print publication to let the world know that word of mouth is working for them, all CMOs should sit up and take notice.

But while this gives WOM some of the respect it deserves as a media form, I’m not seeing a slew of other companies pushing to get in line behind RIM to do the same. That’s because most companies today are still struggling with the basics — things like defining what constitutes word of mouth, establishing a budget for it and defining how to measure it.

Through several interviews we conducted for the lead article in our latest issue of MarketingNPV Journal (“Is There A Reliable Way to Measure Word of Mouth Marketing?”) we found that marketers, consultants and other industry experts do not even agree yet on a definition. This is a critical first step if we are to eventually achieve the task of standardizing metrics.

The Word of Mouth Marketing Association, in its 2005 report, does a good job of clearly explaining all the elements that encompass word of mouth. We break them down for you in our article — things like defining the difference between organic and amplified word of mouth; the latter can be facilitated and controlled by companies, the former cannot, and that’s critical for companies to know and understand.

Which type of word of mouth an action or campaign falls under also affects the portfolio of metrics at a company’s disposal that can be used to track and measure them. For instance, organic WOM can be measured through traditional brand tracking devices, reputation surveys and customer experience monitoring, while amplified WOM lends itself more toward direct response-type campaign measurement tools.

To access the full article and learn more about how to define and measure word of mouth marketing:

Tuesday, December 05, 2006

Building Actionable Performance Dashboards

No single metric — especially not ROI — will suffice in providing all the data a company needs for making appropriate day-to-day and long-term decisions about marketing resource allocations. Instead, dashboards — which integrate a company’s key performance indicators into a centralized strategic view — are crucial to a firm’s ability to understand overall effectiveness and efficiency, as well as identify which efforts affect the bottom line.

We’re constantly looking for best practices on building marketing dashboards to impart to our readers. In a recent issue of MarketingNPV Journal, we presented the results of a Marketing Leadership Council study in which we participated that does just that.

The study presents a robust roadmap for marketers to follow when building a dashboard based upon some real case studies of Global 1000 companies, including critical steps common to all dashboards, pitfalls to watch out for and best practices for moving forward.

To read a full-text copy of our summary of the report, click here.

To learn more about the Marketing Leadership Council, go to:

For additional articles on marketing dashboards:

5 Keys to an Effective Marketing Dashboard

The Balanced Scorecard: Prelude to a Marketing Dashboard

Marketing Performance Out of Alignment? A Good Marketing Dashboard Will Focus and Inspire

Interview with Arun Sinha, CMO — Pitney Bowes

Timken Rolls Out a Marketing Dashboard for Industrial Bearing Group

Friday, November 10, 2006

Getting More Than Goodwill From Corporate Reputation

How do your employees feel about your firm? Are you getting the most favorable analyst ratings? Do your investors and shareholders approve of your vision and direction?

How your constituents — customers, employees, investors, shareholders, financial analysts, the media, interest groups, regulators, partners/resellers, and suppliers — view your corporate reputation directly affects, either positively or negatively, your bottom line.

Each group is unique in how its behaviors can positively or negatively affect a company’s reputation and bottom line. For instance, favorable employee opinions can result in longer employee retention and higher morale, which reduces employee acquisition and training costs and improves productivity. Bad morale or publicity can cause an employee exodus. Favorable ratings from financial analysts can help improve share price, but more tangibly, they can lower the cost of capital and generate greater interest in the company’s bonds amongst the investment community. Meanwhile, an endorsement from an influential community interest group can open doors for powerful partnerships, increase acceptance among customers, employees, and analysts, and could even generate increased interest within the investment community.

The chart below shows examples of profitable behaviors by constituency group. Each of these constituent behaviors is trackable, measurable, and can be directly related to a desired financial outcome. The key to achieving those outcomes is to set reputation goals that tie in directly with your business goals, then to create metrics that measure performance against them.

Constituency groups are not "one size fits all", however. Some companies have unique needs and adjust the groups within the circle to fit. For instance, Bill Margaritis, senior vice president of worldwide communications and investor relations at FedEx, includes “emerging markets” as a distinct constituency group because he feels you have to communicate differently with people in markets you are entering than you would with people in markets in which you already have an existing reputation.

Judi Mackey, senior vice president and director of the U.S. corporate and financial practice of public relations firm Hill & Knowlton, splits consumer customers and B2B customers into separate buckets because she feels consumers seldom base their purchase decisions on a corporate brand (unless there is a scandal). Conversely, she’s found that if a corporation behaves badly, it influences B2B customers more.

To truly understand the benefit of cultivating positive constituent behaviors and maximizing them to your company's advantage, consider the following example:

Retail investments giant Company A invests $2 million in a public relations campaign in a mid-sized market centered around a donation to revitalize youth sports facilities, in return receiving naming rights on a prominent Little League complex. Its rationale for making this gesture is to enhance the image of the company as a community-minded local organization and to associate its brand with the youth and vitality of sports.

Given these objectives, Company A measures the effectiveness of its investment in terms of the change in attitudes amongst the local customer, prospect, employee, agent, legislator, and vendor constituent groups. It develops elaborate surveys on key brand equity attributes and measures the pre-post differential in the affected market vs. nearby control markets where there are no such sponsorships. It also measures the number and nature of media “hits” received in the local press and calculates the value of that exposure if it were paid at rate card for each media.

So when all these indicators respond positively, what does Company A tell the shareholders? “The campaign was a huge success! The attitudinal shifts are through the roof. And we generated over $2.5 million in free media exposure, giving us an ROI of 25% on the media value alone!”

Compare Company A’s approach to retail investments giant Company B, which makes a similar investment in a different market, but does so against the stated goals of:

  1. increasing the number of “power agents” (those doing more than $10 million annually in sales) from 38 to 54;

  2. improving employee retention in their local call centers from 70% to 85%; and

  3. getting a local ballot initiative on the legislative calendar to create greater flexibility for the introduction of new products.

Company B’s strategy is to achieve the objectives above by influencing the agents to carry more of its products, giving employees more reasons to feel pride in their association with the company, and providing legislators with a basis for supporting legislation that some may consider controversial.

Like Company A, Company B painstakingly measures shifts in key brand attributes amongst the key audiences. And it measures the amount and nature of media coverage it receives in the local press. But the firm also measures the number of agent-to-power-agent migrations, employee retention rates, and the week-by-week progress of its target legislation. So when it comes time to report back to the board on the campaign effectiveness, the board can relate not just that attitudes have improved amongst the key constituency groups, but more tangibly that:

  1. the firm increased the number of power agents to 57, which has a forecasted net present value (NPV) of $1.4 million;

  2. employee retention fell slightly short of the 85% goal at 82%, but the expected savings in recruiting and retraining are still worth $1.8 million NPV based on employee tenure and productivity; and

  3. the ballot initiative is in the right committee of the state assembly and a straw poll of legislators suggests a 65% likelihood of passage within the next six months, which would translate into a probability-adjusted $4.2 million in incremental net profits from new product sales.

Bottom line: The managers in Company B can report to shareholders that not only have they improved attitudes among key audiences, but the investment they made in enhancing the company’s reputation has achieved short-term payback of $3.2 million, for an ROI of 60%, plus the prospect of a longer-term payback of an additional $4.2 million. And that’s before the value of any incremental media exposure is taken into account — which sophisticated investors know is not really worth the rate-card value of the exposure, unless the company had intentionally planned to forego other advertising or communications expenses in achieving it.

So what did Company B do differently than Company A? It set expectations for the investment it was making in more financial, tangible terms, and then developed the framework for measurement in terms of the expected economic behaviors it intended to create. Sure, it included the attitudinal shift surveys to diagnose the effectiveness and consistency of its message. It just didn’t stop there.

Have you had any bottom line success from tracking, measuring and cultivating the benefits received from positive constituent behavior? Feel free to share your story here. MarketingNVP and your industry peers would love to hear from you.

Thursday, November 02, 2006

Have You Measured Your Reputation Lately?

We've seen all too clearly in recent years how having a negative reputation can cost companies millions...or worse, can destroy them entirely (think Union Carbide, Enron, Arthur Andersen and Cendant). But for most companies, the effects of a negative reputation to their bottom line are much more subtle and 'under the radar' -- perhaps even creating a perception of weakness rather than negativity. These are the worse kind, however, because they go unnoticed and unmeasured for long periods of time, yet can create as much damage against a company's shareholder value and bottom-line profits as a single catastrophic event.

A well thought out and planned reputation management strategy, with clear metrics, should be part of every company's overall business plan. However, until such an internal plan is put in place, there are a number of tools at companies' disposal that can be implemented immediately or almost immediately. They include:

1. Public Rankings. Many best-practice leaders consider public annual rankings such as Fortune’s “Best Companies to Work For” and “Most Admired Companies” critical measures of how they are perceived in the marketplace. Rankings such as these directly affect a company's ability to draw in the best employees, generate positive analyst ratings and secure favorable financing terms.

2. Reputation Indexes. One public dashboard used to track and measure reputation is the annual Reputation Quotient(SM) by Harris Interactive. Reputation Quotient metrics fall into six categories, each with 20 attributes rated on a 7-point scale. The study culminates in a list of the top 100 companies ranked by revenue. The ranking is based on up to 8,000 general public interviews identifying the companies with the most visible (best and worst) reputations. Then, approximately 20,000 people are each given about six company names from the list and asked if they are familiar with the companies. If they are familiar, they are asked to rate up to two companies on each of the 20 attributes. Each company is rated by approximately 650 people. Out of this ranking comes the Reputation Quotient score.

Other organizations providing similar tools with different methodologies include the Reputation Institute’s RepTrack®, CoreBrand, Millward Brown, and Young & Rubicam.

3. Media Content Analysis. MCA tools have advanced greatly from the days of manually cutting out articles with a scissor. Today, vendors in this space such as Biz360 and Delahaye provide robust analysis of what media mentions actually mean. For instance, Delahaye gathers news from major news sources, then scores and ranks the top 100 U.S. companies by measuring how many positive and negative reputation-driving attributes are found within each story. The attributes are classified into five dimensions: stakeholder relations, financial management, products and services, organizational integrity, and organizational strength. Delahaye looks at such things as tone, whether key messages or graphics were used, whether the company name was in the title, and where it appeared in the publication. Each component carries a different weight. The summary measure, called the Net Effect, provides an all-inclusive bottom-line figure of news measurement. The firm publishes a quarterly index. Clients also get customized reports that show how they compare against industry leaders in the index.

4. Reputation Mix Models. Like the now commonplace media mix models, some companies are beginning to develop reputation mix models that feed detailed attitudinal scores from multiple constituent groups into regression algorithms along with sales, margin, and share-price data to see where the correlations are. Simulation tools can then be developed to “forecast” the impact on one or all of the economic output variables if the reputational attributes could be enhanced by various degrees. These models provide a basis for attempting to assess the utility of investment in developing specific reputation components amongst key constituent groups.

Regardless of which tools you use, every company should have a clear, well constructed reputation management measurement system that ties back to a board-level dashboard. A negative or weak reputation can have significant financial ramifications. Conversely, a well-structured program will provide companies with benefits tied to improved shareholder value.

Monday, August 07, 2006

100 Measurement Stories Don’t Add Up to Any Great Insight

Most large marketing organizations have made significant strides in the development of sophisticated methods to improve marketing measurement. Ph.D. mathematicians are commonly on staff, stewarding elaborate survey research, media-mix models, and analytical models for assessing the return from proposed initiatives.

But step back from the complexity and one can’t help but wonder if all that measurement is being approached in too tactical a way to credibly tell the overall story of marketing effectiveness and efficiency. With few exceptions, marketing departments appear to be measuring payback in a disjointed series of technically sound but ad-hoc ways in four distinct measurement silos: customer metrics, unit metrics, cashflow metrics, and brand metrics.

The customer metrics silo often looks at how prospects become customers. From awareness to preference to trial to repeat purchase, many companies track progression through a “hierarchy of effects” model to track evolution of broad market potential to specific revenue opportunities. Satisfaction with the customer experience is measured by surveys and reported by channel and touchpoint, although rarely in correlation to specific customer behaviors.

In some companies, the customer metrics silo includes robust attitudinal data on customer segments — why they want what they want or buy what they buy — which is often correlated with actual customer transactional data to create a robust segmentation model. The segments are then monitored for “mobility” (the directional progression of prospects/customers from one segment to a presumably more valuable one) and velocity (the speed with which customers are moving between segments). In many B2B organizations, this customer pathway can go all the way to developing a customer-specific P&L.

The unit metrics silo is the one likely to be at an advanced state of maturity in most companies, owing to the underlying IT systems ability to tell what was sold, where, and at what price. Most marketers have fairly good information on how many redheaded, left-handed, overweight men in their 40s have purchased a minimum number of units in the prior six months with an “r” in them. (Yet surprisingly few know the identity of the individual they actually sold it to.) With some quick math, they can figure out the marketing cost per unit as a gross method of measuring efficiency. Some further mathematical gymnastics can get to pricing optimization analysis, which in turn can provide some insight (albeit a bit oblique) into the value of branding.

The cash-flow metrics silo focuses on efficiency of marketing expenditures in achieving short-term returns. Program and campaign ROI models measure the immediate impact or net present value of profits expected to be derived from a given investment initiative. Media-mix models use statistical regression techniques to identify which combinations of media placements, integrated media elements, and even copy executions generate the most profitable response from customers. And armed with those insights, the marketing department can demonstrate how it is optimizing resource allocations toward the activities and executions with the greatest forecast return in a sort of “portfolio management” exercise.

The brand metrics silo often tracks the development of the longer-term impact of marketing through brand health. Survey-based tracking studies gauge customer and prospective customer perspectives on the brand — its functionality, personality, accessibility, and value propositions. Brand scorecards monitor the evolution of these perspectives over time within market segments and across multiple constituencies like employees, regulators, and community influencers to get a full view of brand equity drivers. And many have taken the successful leap to develop financial models for estimating the financial value of the brand as a means of determining the aggregation of assets on the balance sheet as an outcome of marketing investments.

Yet despite the implementation of effective measurement systems within one or more of the silos, most marketing departments still struggle to synthesize insights gained across silos in a manner that helps one silo explain another or clarifies the predictive drivers of the business on a broader level.

For most companies, it’s not possible to do this scientifically since it’s not an econometric modeling problem solvable by equations and computers. Each silo measures very different components of marketing effectiveness in very different ways. Some are shorter term and some longer term. Linking them algorithmically forces you to make some very large assumptions that may be unreliable in the face of actual marketplace dynamics.

Even if you can solve the problem algebraically, you will likely have to employ statistical techniques of such sophistication that few people in either marketing or finance will understand sufficiently to embrace and defend the method.

The net effect of all this uncoordinated measurement is that marketing gets lost trying to divine the true story of effectiveness of resource allocation from 100 data points on a three-dimensional scatter plot with no clear picture emerging. And while it may have been accepted practice in the past to throw this measurement spaghetti at the wall when asked about the payback on spend, today’s CEOs and CFOs have little patience for the fog of complexity.

To tell the complete story of effectiveness and efficiency of marketing investments, consider developing a marketing dashboard. A dashboard can structure many disparate sources of information in a comprehensive, organized manner and present the insights derived from each silo in a graphically related view that facilitates the human brain’s incredible power to find subtle, contextual links. A well-designed dashboard suggests to the user that the many individual component metrics are actually all part of one single story, not a jumble of dozens.

The debate on the “art” or “science” nature of marketing is over. It’s both.
The science is reflected in the mathematical, cognitive, and behavioral tools we employ to identify opportunities and gauge our success at exploiting them. Our repertoires are expanding with every passing year as more researchers develop better tools and techniques.

The art has historically been defined as the creative spark of imagination behind our execution of marketing messages in words, pictures, and forms used to engage the customer.

Today, the art is increasingly needed to help make sense of the science. The best scientific measurement techniques are lost on the audience that suffers through dry and uninspired soliloquies of interpretation, or, worse yet, death by 100 pages of charts and tables.

As true marketers, we should be able to paint a picture to tell a better story. The dashboard can be a powerful canvas.

Monday, July 31, 2006

Engagement: The Emperor’s New Clothes?

After much buzz, the Advertising Research Foundation (ARF) came forth at their annual conference recently with a proclamation about the new way to measure advertising effectiveness. They called it "engagement."

When I think of customer "engagement," I tend to think in terms like repeat purchasing, loyalty, customer referrals, or perhaps even just an inquiry. As you can probably tell, I’m hung up on the idea of actually making profits from mutually beneficial customer interactions.

The ARF, a learned and highly professional organization dedicated to the study of advertising effectiveness, took a different approach. In a press release issued last week they said: "Engagement occurs as a result of a brand idea or media the consumer experiences which leaves a positive brand impression. It is now a critical advertising model to replace GRPs in the 21st century. It is important that we think hard about engagement to develop a robust measurement of when consumers are strongly engaged in brands, brand ideas, and their surrounding environments.”

The ARF deserves applause for trying to push beyond the GRP as the standard measure of advertising. Imagine how difficult it must be for an association like theirs to straddle the incredibly diverse and often conflicting interests of its membership. But this definition of "engagement" appears to leave the emperor shivering naked in the cold.

For starters, the term "engagement" implies an active level of involvement with the brand. Yet their definition suggests that achieving a passive "positive brand impression" fills the bill. It doesn't. Advertising history is chock-full of examples in which famous campaigns have created favorable impressions but failed to make the registers ring sufficiently enough to cover the investment.

Further, the proposed definition of engagement doesn't even require achieving a level of brand preference. It stops at favorability. The implication is that an advertising campaign could be deemed successful in engagement terms if it created widespread favorability without actually engendering any incremental preference for the brand on an emotional or rational level. When faced with the actual purchase decision, and confronted with variables of price, convenience, competitive presence, etc., a consumer who is only "engaged" at the level of favorability is highly unpredictable. Even those who have actually developed a brand preference will defect in significant numbers in the face of actual buying conditions.

It would be difficult to argue that creating engagement as they define it is a worthwhile goal for many brands — particularly those mired in the perennial parity of mature categories with few distinguishing product/service characteristics. But while the recommended shift from the exposure-driven concept of ratings to the consumer-centric element of favorability is a step in the right direction, it stops far short of being a practical measure of success.

Rather than adopt a single, broad-sweeping, lowest-common-denominator definition of "engagement," the advertising community would be better served to recognize engagement as a progression from awareness to interest to favorability to preference to purchase to repeat purchase. True, this linear relationship doesn't always reflect the reality of the consumer buying process in every category, but it is an effective starting point for companies to begin to ask themselves what they really know about the patterns of progressive engagement in their key categories. Some will need to add elements of "participation" to the chain to reflect voluntary dialogue pre- or post-purchase. Others will want to include referral as a crucial measure of engagement. It can (and should) be customized to the needs of the circumstances.
The key is to recognize that "engagement" isn't a stage, it's a process. It should be measured in a time series with frequency distribution of prospects and customers at various points along the evolution spectrum. Volume, mobility, and velocity of movement between stages should be the key metrics of engagement. Taken together, they tell a story of continuous improvement and help to predict the economic value of investments targeted at promoting movement earlier in the process.

Contrary to debate within the research community, the greatest challenge for the ARF model of engagement will not be engineering a technically valid and reliable mechanism for reporting (and pricing) on engagement. Rather, if the favorability-focused definition is adopted as the emerging metric for the effectiveness of advertising in the 21st century, marketers (and media and agencies) will cement their positions nearer the bottom of the credibility ladder in the eyes of their C-level peers who will struggle mightily to understand the very subtle differences in the proposed approach vs. the broadly discredited ones of the past. It will not help marketing (or finance) get a better grip on advertising effectiveness. Only efforts focused on bridging the gap between the spending and financial value recognition can do that. Short of that, we’re just shifting the traditional marketing vs. finance argument to a new set of words.

The ARF deserves recognition and thanks for having steered their members onto the right train. Let’s just be careful that we’re not getting off a few stops too early to really help advertisers understand the economic value of further investment in advertising.

Monday, July 24, 2006

Myths and Truths About Advertising Effectiveness – Part 2


Continued from my last post ...

Based on nearly 50 years of industry research, Tellis has developed several conclusions about advertising's effect on sales. Here are a few.

1. Weight alone is not enough. Very often, when an ad campaign is not meeting its goals, the first "fix" that comes to mind is to extend the flight length, or "weight," of the campaign. But studies have shown that increasing campaign weight is not enough to affect a change in sales, particularly in mature, saturated markets.

2. Advertising is a subtle force. Research has shown that, on average, sales increase 0.1% for every 1% increase in advertising spending. Tellis calls this "advertising elasticity," and the small amount shows that advertising is a "subtle" rather than powerful force, especially when compared to price changes, which have been found to have about 20 times the impact on sales. The point is that advertising has to be carefully planned and executed over an extended period of time.

3. The effects of advertising are fragile. By this, Tellis means that the effect of advertising may not be correctly measured by using the wrong analysis or method. The slightest misassumption or miscalculation can be caused by:

  • advertising's subtlety, compared with price or promotion;

  • lack of immediacy in effect; and

  • bias, caused by the fact that ads don't run in isolation, making it nearly impossible to determine whether the ad, something else, or a mixture caused a lift.

4. Firms often persist with ineffective ads. There are several reasons for this conclusion, including lack of sufficient testing, fear of the effects of cutting back, and competitive pressures. In addition, ad managers may boost advertising to help spike sales to hit topline goals, or may use up unspent ad dollars rather than risk losing the money in the following year's budget. This behavior often results in running unprofitable advertising, since ad managers don't always know how effective (or not) their campaigns really are.

5. Advertising's effects are not instantaneous. A portion of an ad campaign's effect can extend beyond the life of the campaign for several reasons. First, consumers take time to absorb (and trust) messages that interest them. Ads will resonate even further if they hear positive comments about them from their peers. Yet, even if interest in a product or company develops, consumers often are not motivated to make a purchase until they have a need for that item. These carryover effects allow advertisers to stop advertising for brief periods without suffering immediate sales loss. In fact, research shows that taking breaks in-between flights may work better than continuous long-term runs, and those that don't take breaks can actually overuse an effective campaign.

6. Advertising carryover is generally short. Despite common beliefs that the effects of advertising are long-lasting, research shows that the carryover effects can actually be measured in weeks, days, or even hours. And while people often remember slogans, campaigns, and jingles years after they've run, there is no conclusive evidence, according to Tellis, that those memories translate into purchases.

7. Advertising is effective either early on or never. Some believe that if a campaign doesn't produce results quickly, they simply need to give it more time. Research shows this strategy to be flawed, however, noting that extending the run of an ineffective campaign will not, in and of itself, improve its effectiveness.

8. Wear-in is very rapid, while wear-out occurs early. Optimization is a mission-critical process for any advertising strategy today. Marketers must optimize run time, in addition to creative elements, media placement, and other variables. The increasing effectiveness with repetition due to increasing awareness, trial, and purchase is called "wear-in." Once over that threshold, consumer saturation sets in, also known as "wear-out." This occurs anywhere from six to 12 weeks after campaign launch. It can happen as quickly as the very start of the campaign. In general, the faster the threshold is reached, the more rapid the descent. If it is slow and steady, wear-out will be slow and steady as well.

9. Hysterisis is very rare. "Hysterisis" — the lingering effect on sales after a campaign is suspended — is rare, but does happen. This is more likely when the advertised product is far superior to those already on the market; the campaign uses a novel approach, or word-of-mouth marketing #8212; primarily from the press — creates a domino-like pass-along effect. In the latter situation, the ad simply seeds the process, which then multiplies on its own accord.

10. Emotion may be the most effective appeal. The three most common types of appeals are arguments, emotions, and endorsements. Emotional appeals tend to do a better job of cutting through the clutter and getting attention; they require less viewer concentration than the other forms; and tend to be more vivid and better-remembered than other types of appeals. In addition, most viewers have the same kind of reaction — there is no counterargument — opening the door for a more immediate call to action.

11. Advertising is more effective for new products than for mature ones. Heavy competition may push mature products to overadvertise, causing consumers to tune out. New product messages, on the other hand, can be refreshing, generating more interest. In addition, competition for new products may be light, making the ads stand out more.

12. Advertising affects "loyals" and "nonusers" differently. It takes less advertising to generate a response out of an already loyal customer than it does to capture the attention of new customers. The paradox is that loyals are likely to become saturated more quickly with repetitive ads for a brand they already prefer, while nonusers require higher ad frequencies to attract their attention.

As busy as managers are today, it's easy to get confused between the things we know and the things we think we know. Tellis' conclusions, dispassionately derived from careful study of more than 50 years of valuable insight, help us step back and put our strategies in perspective. They also persuade us to question our advertising methods, processes, and thinking to ensure they're on the right track. Using some of the observations above to critically question advertising strategies and plans can only help improve the results — even if you disagree with Tellis' findings relative to your specific circumstances.

A checklist such as this can also be very helpful in developing a framework for parsing out the critical metrics for measuring the success of your advertising, and demonstrating to the rest of the organization that the advertising campaigns are well-vetted and planned to minimize the most common failure risks.

Monday, July 17, 2006

Myths and Truths About Advertising Effectiveness – Part 1

Dramatic advertising successes — defined as a huge increase or reversal of a brand's performance due to advertising — do happen, but they are rare. Heavy competition, combined with the challenges of coming up with new, winning creative, make this task difficult (though not impossible) to achieve.

When it comes to advertising, Gerard Tellis, Ph.D., knows what works and what doesn't. For over 20 years, he has studied all aspects of advertising effectiveness as professor of marketing at the University of Southern California Marshall School of Business and in visiting positions at Erasmus University Rotterdam and the University of Cambridge. His work has been published in two books, and he has authored numerous articles in the Journal of Marketing, the Journal of Marketing Research, and Marketing Science.

His most recent book, Effective Advertising: Understanding When, Why, and How Advertising Works (SAGE Publications, Thousand Oaks, CA, 2003), is a meta-analysis of 50 years of research in the fields of advertising, marketing, consumer behavior, and psychology. In it, he summarizes the body of scientific evidence to debunk numerous myths about advertising effectiveness and lay out some well-documented findings that experts and novices may not know.


"Where's the Beef?" "Just Do It." "It's the Real Thing." Some advertisements are clearly more memorable than others. But does being memorable mean they are also successful? Following are 10 myths about advertising widely believed by consumers or the public at large. Marketers, according to Tellis, perpetuate these myths when they fall back on their personal experiences or casual observation rather than on research findings.

1. Advertising creates consumer needs. There are more than 30 million iPods in play today. Did advertising create that need, that mass enthusiasm? Certainly, before iPods existed, consumers didn't go around saying, "For heaven's sake, would somebody pleeeease invent a little portable box that plays a ton of music?" They didn't know they needed or wanted portable music until it was available to them. Situations like this push marketers toward the dangerous conclusion that advertising can create a need, when at best it can be used to exploit one already emerging.

2. Advertising's effects persist for decades. Coca-Cola is well-known by nearly all consumers due to its longevity in the market. But is it the advertising that drives Coke's market share or is it simply that some people love the flavor? The former statement leads to the misnomer that some long-surviving brands are still around because they have been heavy and consistent advertisers, which drives a dangerous tendency to conclude that consistent advertising over an extended period of time equates to long-term brand success.

3. Even if advertising doesn't work at first, repetition will ensure ultimate success. The "frequency" part of the reach-and-frequency formula guides how many times consumers need to see a message to fully absorb it. As a result, if an ad doesn't resonate well with an audience, advertisers will sometimes blame lack of sufficient frequency, concluding mistakenly that more frequency will solve the problem.

4. Three exposures are enough for effective advertising. Speaking of frequency, there is a long-held belief that three impressions are optimal for viewing an ad, after which effectiveness of that ad drops off. Tellis attributes this theory to General Electric researcher Herbert Krugman, who theorized that the first ad would draw attention, the second would stimulate interest, and the third would push the consumer to buy. Since then, we've seen examples in which even one exposure was enough, and many others in which the optimal was considerably higher.

5. Firms often use subliminal advertising. Tellis feels the myth may be propagated by a general lack of trust for big business or a lack of consumers' understanding of what subliminal really means. Anyway, this practice may not be legal because the Federal Trade Commission outlawed this form of advertising in 1974.

6. Humor in advertising trivializes the message. Humor in advertising is often weakly related or even unrelated to the brand, leaving some advertising professionals to question whether humor gets in the way of the message. In reality, humorous ads may do several positive things, including relaxing an audience, opening their mind to the message, distracting them from counterarguing, and leaving them in a positive mood. Indiscriminant use of humor, however, may do more to hinder than help the acceptance of the message.

7. Sex sells. Or does it? Ads centered around sex appeal draw attention, but not always positive attention that stimulates the desired perceptions or behaviors.

8. The most effective ads offer strong, logical arguments. This myth centers on the belief that consumers — even loyal ones — make decisions by comparing the performance or characteristics of competing brands, in which the preferred brand's attributes stand out. Sometimes true; often not.

9. Unique creative execution drives results. Constantly pressured to think outside the box, many advertisers (and their agencies) believe that ads must be entirely unique to capture attention. There is no scientific correlation between uniqueness of the message and sales of the product being advertised. Novelty in your message, media, target segment, product, or creative is more likely to foster sales increases than simply increasing ad intensity would. But novelty alone is not a prescription for success.

10. Advertising is very profitable. There is a widely held assumption that, with all the money spent on advertising, it must be very profitable, or companies wouldn't be spending such large sums on it. In reality, the huge levels of spending are more likely a reflection of continuation of past practices than superior ROI.

All about the truths in my next post.

Monday, June 26, 2006

Causes of Marketing Misalignment

Marketing carries with it a lot more challenges today than it did even five years ago. Many internal and external forces work to undermine the prospects of marketing alignment in ever more subtle ways.

  • Target audiences are fractured into smaller and smaller segments, each with unique needs and definitions of value.
  • Media options, already highly fragmented, show every indication of becoming more so (perhaps by yet another factor of 10) over the coming decade.
  • Data, which only a few years ago was unavailable to marketers, is readily accessible to almost everyone in the organization and consequently open to interpretation by nearly every parochial interest.
  • An explosion in the number of marketing programs or initiatives spawned by these factors makes it increasingly difficult to determine the results of any single effort; a melting pot of tactics all lay claim to the desired outcomes.
  • Web-enabled data sharing has given birth to geographically scattered work teams that may be closer to the customers but often are held together only by a common logo on their paychecks.

Peer Pressure
As if these factors weren’t enough, today’s marketing organization likely attracts the keen interest of the CMO’s peers on the executive committee as they all struggle under the weight of escalating topline growth expectations.

These new realities are corrosive influences on old marketing organization models, eating away at both effectiveness and productivity while simultaneously causing marketers to work harder to protect the illusion of control.

Today’s model organization seems to create customer value in a matrixed collaboration of all major functions of the company. The departments work together on strategic development, value propositions, channel management, information and communications management, and performance measurement.

Many of these historically marketing-driven activities have expanded to include finance, human resources, information technology, operations, and other internal disciplines, putting quite a few cooks in the kitchen. And while it would be difficult to argue that the end product isn’t bettered by cross-discipline scrutiny, “efficient” isn’t often a word applied to this collaborative effort.

Conforming Amid Complexity
So how do you stay focused and aligned in a world requiring the assimilation of more facts, more data points, more options, and more opinions than ever before? How do you continue to improve efficiency and effectiveness when the very definitions of both seem to be in a perpetual state of flux? And how, in the era of Sarbanes-Oxley, do you maintain the proper balance of controls and freedoms to juggle discipline and responsibility with creativity and innovation?

A few ideas and examples of reorganizing marketing for greater success follow. If you haven’t already read it, you might also want to re-read the entry titled “Note to CMOs: Get a Contract.”

Monday, June 19, 2006

Alignment: The First Ingredient of Marketing Accountability

Psst. Want to know the secret to better marketing ROI? Just hire a statistician, add some complex analytical models to measure the marketing mix, and VOILA! you’ve got it.

That is overly simplistic and wrong, isn’t it? If it were that easy, we’d all know exactly what we were getting for our marketing dollars. The truth is that it isn’t even close to being that easy.

Many ascribe the difficulty of marketing measurement to the unique art/science blend of marketing. This is partially true. Marketing is certainly not as much of a quantifiable science as we’d sometimes like to believe. However, marketing is not alone in that boat. Information technology, operations, and even finance feel similar pressures to and pain from quantification. Yet what separates these other functional areas from marketing and gives them the appearance of greater accountability is the degree to which they have organizationally, culturally, and operationally embraced the acceleration of science within their disciplines to reduce uncertainty.

If marketing is to make a successful transition from its creative roots to its true strategic calling, we need to look at how we use our political capital to organize, structure, train, and manage our human capital. We need to establish an irrefutable reputation for accountability and gain recognition as excellent stewards of the company’s resources.

The very first ingredient of marketing accountability is alignment — alignment between CMO and CEO; alignment between company goals and marketing goals; alignment between marketing and the rest of the organization; and, last but not least, alignment within the marketing organization itself. After all, absent strong alignment behind a shared set of clear and measurable goals, no one is really accountable for more than his or her own interpretation of his or her individual job responsibilities.

Monday, June 12, 2006

Satisfaction is NOT Loyalty

Over the years, most companies have acknowledged that happy customers are more likely to be repeat customers than unhappy ones. Owing to the difficulty of defining “happy,” loyalty indicators predominantly have been linked to satisfaction measurement. Some have even gone further, setting their sights on nothing less than “delighting” customers or eliciting the rare reaction of “wow.”

Yet none of these descriptors has proven sufficiently objective to span business units, channels, or customer touchpoints so as to create a consistent standard for managers to achieve. Nor has any been more than loosely correlated to incremental profitability because few attributes are so distinct that they exceed the matching efforts of competitors. Nevertheless, the majority of mid-sized to large companies today have some sort of measurement system for customer satisfaction, if for no other reason than to ensure continued performance at or above their category’s competitive standard.

Satisfaction = Loyalty?

Satisfaction, though necessary, is an insufficient solo condition for loyalty. You can achieve high levels of satisfaction yet not inspire any real loyalty. For an example, look no further than your local car dealer. Automotive companies have been fast — and thorough — in their willingness to embrace satisfaction metrics. But anyone who has bought a car knows how sales reps manipulate the satisfaction scoring system. In a quiet moment during the new car delivery process, when one might reasonably expect the customer to be at the very peak of happiness, salespeople blithely inform their customers of the impending arrival of a J.D. Power satisfaction survey. Even if dealerships play it straight and work hard to meet customers’ needs, the manufacturers they represent have no better insight into customer loyalty.

That’s because functional satisfaction doesn’t necessarily ensure that either behavioral or emotional loyalty will follow. Satisfaction rates among U.S. auto buyers are often reported in the upper 80th percentile range — this past summer Toyota Motor Corp. topped the University of Michigan’s American Consumer Satisfaction Index with an 87 — but actual manufacturer repurchase rates hover in the 30th to 40th percentile range. Dealer loyalty is even worse, with only about 20% of customers returning to the same dealer to purchase their next car. This suggests that even though customers may want different car experiences every three to five years, no one auto manufacturer is meeting their needs. Loyalty is low in the category, regardless of what satisfaction scores say.

To reinforce the point, a number of academic studies in recent years have shown that satisfied customers don’t necessarily buy more or more often, in any category. Satisfaction as a proxy for loyalty is relative to each brand’s position in the market at any given time. If we accept that the perception of value most heavily influences comparative purchase decisions at any point in time, and past satisfaction is but an element of that perception, then if company B offers me greater value, all my satisfaction with company A likely will not prevent my switching for greater relative value.

Monday, June 05, 2006

Making Six Sigma Work IN Marketing: 7 Things the Black Belt Can Do

According to marketers who are admitted reluctant converts to Six Sigma, there are a few things the Black Belts can do to ensure a faster adoption curve and achieve better results within marketing.

  1. Learn the language. Six Sigma is as foreign a language to most marketers as marketing is to Six Sigma. If your background is in operations, engineering, IT, finance, or any related functional area, you had an easier time absorbing the concepts and lexicon of Six Sigma than the marketers will. Your ability to understand the key drivers and challenges of the marketing department will springboard your acceptance. You need to make the effort first.

  2. Emphasize the common ground. Both Six Sigma and marketing place a premium on getting at the voice of the customer and seeing it reflected throughout the company. Work to understand the perspective marketing has on that voice and compare your notes (and the notes of others around the organization) with theirs. Frame your questions, observations, and suggestions in the context of the customer and you will be readily accepted.

  3. Start with some visible victories. Nothing builds success like success. So when it comes to defining and selecting projects, start with a few that seem tailor-made for quick success. Start small if necessary. It’s important that the first few projects be seen as quick, focused, and relevant. It also helps if your initial focus is on topline growth vs. efficiency so your efforts aren’t seen as a prelude to budget-cutting. Be careful not to get drawn into trying to solve the biggest, hairiest problems facing the marketers — many of them appear seductive but are sinkholes with ambiguous outcomes. It’s unlikely (and maybe unwise) that you’ll succeed immediately where generations of MBAs and Ph.D.s have fallen on swords before.

  4. Don’t preach, teach. If your audience was infected with Six Sigma enthusiasm, it likely would have volunteered for training much sooner. Enthusiasm will build in proportion to the relevancy of your examples, not the abstract appeal of the concepts. Introduce tools in the context of pursuing projects with the highest priority. Otherwise, leave them in the bag.

  5. Avoid the square peg/round hole syndrome. Evaluate projects to determine their fit with Six Sigma. If the fit isn’t right, don’t force it. Find ways to help adapt your Six Sigma skills to solving the problem, even if the approach isn’t right out of the playbook.

  6. Embrace variability. Black Belts have been taught to see variability as a process defect and stamp it out in favor of standardization and reliability. Marketers have been taught to avoid standardization (which they equate with commoditization) in favor of differentiation. Find ways to separate good variability from bad without being seen as the enemy of creativity and innovation.

  7. Promote the learning dialogue. Remember that the value in analytical models is rarely found in the numbers themselves, but often in the dialogue they stimulate.

Overall, recognize that your marketing audience has skills very different from yours. Marketers are more likely to be goal-oriented than task-oriented, conceptual than analytical, and appear unstructured or undisciplined when in reality they are processing decisions on the basis of years of experience, filtered by a large community of conventional wisdom.

Tuesday, May 30, 2006

Making Six Sigma Work FOR Marketing: 2 Good Places to Start

Few people are opposed to implementing Six Sigma processes, if the right areas can be found within the Company. The challenge is even greater within marketing departments with their ad hoc processes and short timelines. There are, however, a couple of Six Sigma "tools" that can be immediately implement in marketing with almost guaranteed success. Better yet, no statistics are required!

Process Mapping

Want to get 25% to 33% more accomplished with the same resources? That is a typical outcome from a Six Sigma process-mapping exercises.

For most marketers, the very word “process” conjures up images of deathly boring navel analysis and lint extraction by committee. So don’t use it. Think of it as “experience mapping,” “value graphing,” “frustration charts,” or some other creative moniker. But whatever you call it, recognize that most of the people on your staff may never have taken the time to step back from their day-to-day execution to really draw out on a whiteboard exactly how things get done from start-to-finish. How are local market campaigns executed? How are events planned and implemented? How are promotions moved from concept to market to assessment? Invariably, when they do they gain a whole new perspective on why some tasks are so frustrating, time-consuming, or unreliable.

Mapping the work process helps people see that there are, in fact, patterns buried in the seemingly random nature of the things they undertake each week. This pattern identification helps break down the emotionally filtered perceptions of where time, money, and energy are misspent and forces a re-examination of just how they are adding value (or not) at each stage.

In the end, process mapping shines a bright light on the value-destroying steps which slow down execution, add cost, or obscure the real opportunities. It illuminates the path to greater profitability or efficiency and draws your attention to things you can do NOW to have a big impact.

Voice of the Customer

At the very heart of Six Sigma lies an emphasis on ensuring that customer requirements are satisfied to the optimally profitable level. To do so, the company must know the customer's requirements, how well they are being met, and what opportunities for improvement exist.

While there are many passive ways to gather this information (i.e. complaints, returns, credits, warranty claims, etc.), gaining a full perspective requires a proactive apprioach, involving market research, customer/prospect interviews, and the like.

By leading the dialogue on how the voice of the customer is heard and measured throughout the organization, marketing can ensure that customer-centric business decisions become the norm and inspire the organization to higher levels of challenge in producing better products and services. This in turn creates more opportunities for differentiation in brand marketing and better coordination through all owned and third-party sales channels.

Marketers who embrace what Six Sigma really stands for (growth, efficiency, and customer-centricity) see ways to use the tools and training to inspire new levels of creativity and innovation, while helping the rest of the company build and maintain more profitable customer relationships. CMOs who’ve gone through that initial “oh no, not in my department” phase will tell you that if you plan the implementation carefully, choose the right tools, and get off to a strong start, Six Sigma jumstart marketing effectiveness and efficiency improvements that you’ve only been able to dream about up till now.

Tuesday, May 23, 2006

Setting Priorities to Succeed

The surest way to realize the role of marketing you seek is to begin with the right vision. That means dissecting the customer value chain and finding all the places where marketing can and should play a role in improving it. But before you launch headlong into such an initiative, here are some thoughts on common pitfalls that await...

4 Ways to Lose Your Way

  1. Losing track of your base. Before you seek to expand into new areas of influence, make sure you have strong process and people managing the current scope of marketing responsibilities. You’ll also need strong measurement abilities to get early warnings of problems within the marketing department. Identify the biggest risks to your present activities, and develop mitigation strategies for each. You can’t open new frontiers while fighting wars on the homefront.

  2. Sticking your nose where it isn’t welcome. Before you leap to conclusions about how something outside your traditional scope can be better, ask the people managing that part of the company. Find out what worries and frustrates them. Ask them how they measure success, and see if there are more customer-centric ways of doing so that engage them. Use your credibility and capacity in customer research to help them achieve their goals. If they perceive that your interest is motivated by self-aggrandizement, you can forget about cooperation. The door will close hard, and your swollen nose will be on display for the rest of the company to see. Ground your interest in achieving measurably better results for everyone. It’s a difficult entreaty to resist.

  3. Stretching your skill supply lines too far. Apart from the two gaffes listed already, the biggest mistake in seeking to expand influence is to get enthusiastic support from other functional heads and deliver well-meaning under-execution a few months later. The skill set of your staff must align with the value-added tasks for which you volunteer or your weaknesses will show themselves quickly. If you’ve taken the time to diagram where in the company you would like to get involved, take a few extra weeks to think through the skills necessary to succeed and your ability to get them into your arsenal either through hiring of staff or consultants or development of existing employees. Many times the reason the value-added activity isn’t being done (or done well) is because the current manager doesn’t have the requisite skill set on his or her team. Jumping in before sizing the challenge properly can make for a particularly unpleasant experience for everyone involved.

  4. Dying by scope-creep. There’s only one real downside to success: popularity. Once you’re successful at creating value across many areas of the organization, the risk changes to one of having such a great reputation for results that everyone wants your help. Before you know it, your marketing team is being pulled in so many directions that it’s spending too much time on trivial requests from newfound friends around the company and not enough on high-leverage initiatives that really drive results. Protect your focus diligently, and work with sales, operations, R&D, etc., to develop some clear rules of engagement marketing.

Setting Priorities to Succeed

Once you’ve mapped out a path that avoid the pitfalls, prioritize your opportunities on the basis of the likely impact on business results and the anticipated receptivity from the current functional owners. Your two-by-two matrix of opportunities will highlight those areas in which your approach will be received warmly. From this list build your marketing scope one step at a time, ensuring that you have the permission and capacity to succeed.

Tuesday, May 16, 2006

3 Ways to Structure Marketing Measurement Resources

A common question CMOs ask each other when discussing marketing measurement is "Where did you put your measurement group?" The question underscores conflicting desires to have measurement people close, but not too close. Our research suggests that there are three primary models in broad use today relative to the organizational structure of marketing measurement resources.

Model 1 — The Internal Resource

Many marketing organizations today have at least one dedicated measurement analyst on staff. These people are sometimes academically trained statisticians and other times financial analysts. In a few rare cases both disciplines are represented for a balanced perspective.

These internal resources most often report indirectly to the CMO through a vice president of advertising, vice president of database marketing, or vice president of strategic planning. In a few instances, CMOs have created dedicated VP-level jobs for marketing performance planning and given that person responsibility for coordinating back-end effectiveness measurement with strategic planning, developing HR performance, and managing business-case requests for resources.

Model 2 — The Shared Resource

Another, less frequently found model is a stand-alone analytical group shared between any two or more functional groups like marketing, finance, sales, and operations. These stand-alone groups most often report into finance but have dedicated resources supporting the partnering functions. Sometimes, they report into a COO or president, primarily to support corporate planning and development, and are staffed to provide centralized support for the other functions as well.

The skills in these shared resource groups tend to be a blend of those with advanced degrees in statistics and those with strong backgrounds in finance or accounting. By their nature, these groups tend to be larger and have better software tools. For capacity and expertise reasons, they work directly with marketing personnel on front-end planning and back-end measurement and with some of the more marketing-specific analytics outsourced to vendors.

Model 3 — Informal Marketing/Finance Collaboration

The most common organizational approach to marketing measurement — informal collaboration — is characterized by no one person or group having responsibility for marketing measurement. Marketing staff work with finance staff whenever they see the need for a business case to be developed or a program ROI to be determined. Finance, on the other hand, asks randomly-timed questions about assumptions, returns, and resource allocation plans.

Some of these informal collaborations work on the strength of the friendships between individuals. Others survive in an environment where corporate expectations for marketing accountability are still low enough that measurement is an afterthought more than a decision process.

Each one of these models has merits and downsides. Informal models and shared resources are lower cost, but also lower on specific expertise. Internal resources are potentially most useful to marketing, but often resource constrained. No matter which model your company may have or be considering, understanding the tradeoffs and evolution path with help you manage the function for optimal benefit.

Tuesday, May 09, 2006

The Business Case for Loyalty

The key to loyalty measurement is having a very clear picture of the economic value you are trying to create. If there is no expectation of superior economic value in either the short or long term, then initiatives intended to inspire customer loyalty can't possibly pass the basic business-case test that returns must exceed investment.

For most businesses, the promise of customer loyalty implies potential economic value creation with some combination of the following five dimensions:

  • First, many companies invest disproportionately in customer acquisition at the beginning of the relationship, placing themselves in a negative economic position. The hope (a.k.a. "the plan") is to pay off the initial investment many times over through retaining customers and capturing the lion's share of their spending in the category year after year.

  • Second, loyal customers may be inclined to buy more types and more volume of products and services from you (cross-selling and up-selling), thereby generating an enhanced return over the life of the relationship.

  • Third, loyalty can be a strategy for reducing ongoing expense. A company that is retaining customers is one that can, in theory, reduce its investment in customer replacement. By closing the proverbial hole in the bottom of the bucket through which customers leak out, the company can improve profitability substantially. If you hear a lot of companies talking about the importance of customer retention, it's because they have good reason. Competition in most industries is brutal. Customers are promiscuous. Couple these trends with the old-but-true saw that it costs more to acquire a customer than it does to retain one, and focusing your marketing efforts on existing customers makes sound business sense. This was amply demonstrated by Frederick Reichheld in his breakthrough 1996 study, The Loyalty Effect. It analyzed the bottom-line value of an additional five percentage points in retention rate, across a variety of industries.

  • Fourth, customer loyalty can be associated with lower price elasticity. By trusting and engaging with your company and its offerings, customers may be willing to pay more for the privilege of doing business with you. And, higher margins almost always drop to the bottom line.

  • And finally, loyalty can be equated with the mother of all profitability engines — referrals. If loyal customers are happy customers, then it's likely they are unpaid ambassadors for your company, spreading the word on how wonderful it is to do business with you. That saves you real money in reduced customer acquisition costs.

To arrive at the financial benefit, you must be clear on which of the dimensions above your investments are designed to affect. Once you've made the investment decision, you should do the modeling and analysis required to measure how well the investments performed. Investing without goals and measurement leaves you vulnerable to questions that you cannot answer, undermining your credibility even if the results are ultimately positive.

Tuesday, May 02, 2006

CMOs: Get a Contract

We've all read that CMO job longevity is presently, on average, something less than two years. The 22 months or so CMOs last on the job hardly gives one tenure enough to see initiatives through. The implication seems to be that either CEOs feel CMOs fail to achieve what they were brought in to do or CMOs depart frustrated that they couldn't do what they thought they were brought in to do.

A recent study by the Association of National Advertisers and Booz Allen Hamilton suggests that CMO success is highly correlated to five key components.

1. Knowing What Role You're Signing Up for

The study identified three basic types of roles for marketing.

Knowing which of the three the CEO has in mind will clearly outline what lies ahead.

2. Getting It in Writing

Although it's best to do this before you even accept the job offer, a marketing contract between CMO and CEO is a good idea any time there isn't perfect alignment between the two on what's getting done and how. Too many times, both assume that they're on the same track when in fact they have very different perspectives.

A good marketing contract details how you plan and execute your charter. Without a contract, it is difficult to impossible for either you or the CEO to measure performance and unlikely that either of you will be satisfied.

3. Developing Organizational Linkages

Unique in the organization, CMOs influence not only their direct reports, but many others throughout the organization, including such traditionally unaligned groups as sales, manufacturing, R&D, even marketers within other divisional profit centers. That exposes the marketing group to lots of entropy from the rest of the organization. Set boundaries on clear responsibilities and decision-making autonomy with functional peers on the executive committee to avoid letting the pressure of "urgent" issues drive out collaboration on the important ones.

4. Driving a Marketing Capability Agenda

Because CEOs (and CFOs) are asking more of marketing these days, marketing definitely needs a team capable of meeting high and escalating expectations of financial returns, measurement, and accountability. Blending data collection, analysis, and planning adaptability takes on paramount importance. Without a rigorous assessment of the team's ability to succeed on these dimensions, you're metaphorically walking into a gunfight with a pocket knife.

5. Taking More, Smarter Risks

Marketing, almost paradoxically, also needs to take some bigger risks. Driving topline growth is job No. 1 for most CEOs these days, and CMOs just can't get there from within the protective cocoon of the current marketing processes. Marketing has to let the glow of innovation and creativity in, and develop feedback and measurement systems that temper the risk and forecast the profit potential of bigger initiatives.

Of course it's not always practical to get all of these understandings written out in the form of a contract. Our advice is just to make sure you get them committed to writing and shared in one form or another. Take notes during discussions and send e-mail summaries after the meeting. Casual. Informal. Then over time aggregate the understandings to build on one another until you have a more comprehensive document that you can share as a "summary of understanding."

Thursday, April 27, 2006

Increase Brand Measurement Frequency for Relevancy

Brand perceptions aren’t static — consumer loyalties can last over a lifetime or end in a few short days. And that often runs counter to a company’s own brand perception, which can remain pointlessly unchanged. Most companies, even many with huge research budgets, don’t carefully monitor the clarity, or lack of clarity, their brand has with customers and prospects at any given point in time. A brand value proposition that made a lot of sense under one set of industry circumstances may degrade to irrelevance and become a commodity position if it stays too long in one place.

Most often, brand attributes are monitored in large-scale tracking studies conducted in waves three, six, or 12 months apart. If your category evolves faster than the frequency of your tracking studies, these periodic reads may provide irrelevant historical information and present a picture that bears little resemblance to today’s reality — especially when you consider that it often takes four to six weeks from the end of survey fielding until the report gets on your desk.

Many organizations are today migrating towards “continuous” brand tracking, with smaller samples fielded each week or month that are then read in the aggregate over a rolling six, eight, or 12 weeks. While a bit more expensive, this approach can repeatedly check the temperature of customers and prospects to ensure you are maintaining a healthy relationship, in addition to potentially measuring the impacts of marketing stimulus programs on brand attributes with greater reliability.

The bottom line is you need to clearly know what your brand is and what it means to the target customer. If you don’t, you are prone to serious over- or underestimations of your brand strength. Without an effective brand scorecard, you might not have an accurate picture of where your brand stands or where it’s headed. With one, you have no excuses not to.

Thursday, April 20, 2006

Market Knowledge: Part 2 - Smarts Alone Don’t Count for Much

In my last entry, I discussed research conducted at Case Western Reserve University and published in the Journal of Marketing that explored how a company’s market knowledge and strategic actions drive its innovation and performance over time. I have one more point to make before we leave this study.

Knowledge is interpreted information — beliefs, understandings, commitments, etc. We create meaning by distinguishing and valuing information.

In the research, decision makers’ knowledge about customer preferences was assessed through a series of questions that they answered immediately after they had made decisions but before they had seen the performance outcomes. They marked the location of various customer segments' ideal points on a perceptual map. The accuracy of their knowledge was judged by the distance between the points they specified on the map and the ideal points for each customer segment, provided by a simulation tool.

The results confirmed that if there is little shared knowledge in a firm, an increase in an individual’s overall market knowledge has no impact on innovation effort. On the flip side, more dynamic shared knowledge environments act as catalysts for higher individual levels of market knowledge, generating significantly greater levels of innovation.

The results also suggest that innovation effort takes shape over time under the influence of opposing forces: market knowledge diffusion, which propels innovation, and a “complacency” with past performance, which hinders it.

For the whole story, check out "Actualizing Innovation Effort: The Impact of Market Knowledge Diffusion in a Dynamic System of Competition" by Detelina Marinova from the July 2004 Journal of Marketing at

Thursday, April 13, 2006

Market Knowledge: Part 1 - Use It or Lose It

Companies act on the basis of market knowledge: the knowledge of customers and competitors as garnered by individual employees. An organization's ability to recognize the value of new information, assimilate it, and use it strategically accounts for its success in performance and innovation.

Research conducted at Case Western Reserve University and published in the Journal of Marketing explored how a company’s market knowledge and strategic actions drive its innovation and performance over time.

Knowledge for Improvement ... and Apathy

Intelligence about the market is necessary to satisfy customers better than the competition can. However, researchers discovered that when decision makers find a useful nugget of knowledge, they tend to rely on it and avoid updating it to accommodate new developments. In many instances, it's counterintuitive, let alone time-consuming, resource-zapping, etc., to update knowledge that works.

Similarly, decision makers may resist reconsidering their individual market knowledge after communicating with others in the organization. This is particularly troublesome when you consider that new and improved products get to market only by swapping information and surfacing new know-how.

They also found that changes in the quantity of market knowledge are likely to intensify the need to adjust marketing and general business strategy. Marketers may say, "Whoa, we don’t have that data anymore? We'd better make some changes." Or they may draw inward: "We have no new data. We'd better stick with our current product line-up and marketing strategy. Anything new would be a shot in the dark, and we certainly don't want to risk whatever good we have going now." Worse yet, they may delight in a data deluge and push to use the new information somehow to a competitive advantage.

More in Part 2 Above

Monday, April 03, 2006

Is ROI Misleadingly Simple?

In a word, perhaps.
The simple formula for calculating ROI is:

ROI = NPV of Incremental Profits (Incremental Revenue – Expenses)
Initial Expenses

Where “NPV” is the net present value of a series of profits realized over a period of time, discounted back to current dollars.

Many marketers and academics have denounced the use of an ROI formula in measuring marketing effectiveness as “too limiting” or possibly “misleading.” I agree. Used in the wrong way or poorly manipulated, ROI calculations can be as imprecise and subject to misinterpretation as any other statistical or financial assessment tool. (Check out Tim Ambler’s opinion on the subject.). And pursuing alternatives that offer the highest ROI can often expose you to significant risks of short-sighted resource allocation.

However, when used properly in the context of driving more profit — not just getting the highest possible ROI score — ROI measurement is a reasonable way to standardize the process of gauging the relative value of one marketing investment against another.

If every marketing investment is held to the standard of ultimately creating some profitable change in customer or market behavior, then we can successfully compare all proposed investments using a standardized assessment process to identify those offering the greatest potential for driving profits. Sure, we might need to make some assumptions, but if we place some significant effort on trying to anticipate the intended behavior changes upfront in the planning stages, we can often identify ways to better structure our investments to help promote reliable measurement of results. This in turn helps us see where our assumptions were accurate, where they were less so, and why. Over time, our assumptions get better and better in planning our investments and achieving maximum return.

A consistent framework for assessing marketing returns allows marketing executives to:
  • identify places where spending is most effective;
  • correlate the individual and collective impact of marketing initiatives on prospect or customer behaviors, then link those behaviors to the financial value drivers;
  • reallocate people or dollar resources towards greater impact — for example, this can include taking an underperforming initiative and retargeting it toward a high-value segment, eliminating unprofitable channel gaps and addressing identified leaks in the funnel progression; and
  • extend campaign-level profitability to customer-level profitability across multiple acquisition, retention, and cross-sell campaigns that will optimize customer value.

Just be careful not to get trapped into believing that the ROI calculation gives you this insight. It's the process of asking the right questions and applying the best measures that generates insight. ROI is only one possible measure. Others are discussed in other posts in this blog.

Monday, March 27, 2006

Integrated Marketing - Careful What You Wish For

When they see the word “integrated,” most marketers think “communications.” They envision public relations, advertising, direct marketing, and promotions all working together harmoniously to deliver a concerted message across channels. That’s the ’90s definition.

In this limited-but-still-common structure, marketing has a box on the org chart reporting to the CEO. Implicit in the functions of that box are the usual marketing responsibilities like advertising, promotions, sponsorships, trade shows, direct, and database management — all the traditional elements of managing the brand.

Communications programs are managed for ROI against benchmarks. Media-mix models may be employed to maximize efficiency of advertising dollars, and brand equities may be tracked to gauge progress at favorably influencing perceptions.

Chances are that few, if any, of these measures get much play outside the marketing department. Yet each year marketing budgets reflect the desire of the rest of the company to minimize marketing waste.

The new meaning of “fully integrated” for the marketing department is one that places the emphasis on active collaboration with most, if not all, other departments in the company to improve the appeal, volume, and profitability of the company’s products or services to achieve the maximum value from each customer relationship. A quick glance at the chart below will tell you how your marketing department stands with respect to other roles in the fully integrated organization.

The fully integrated marketing department of today manages the brand on a much more expansive level, taking a clear role in defining and handling many aspects of the customer value proposition from product or service conception to forecasting to sales effectiveness to touchpoint experience. The fully integrated marketing department is much more likely to be linked closely with the overall organizational planning process, in many instances helping to set the strategic agenda for the entire company and establishing key cross-functional milestones like customer satisfaction, share-of-customer penetration, and perceptions of quality. It is more likely to be speaking the same language as the rest of the organization — revenues, operating margins, efficiencies, and process improvement. And the budgeting process for the fully integrated marketing department uses the company’s overall sales and strategic goals as an input variable, not an afterthought.

For those of you thinking, “Yeah, I’d like to get my marketing organization more integrated with the rest of the company and stop being the kid with the nose pressed up against the candy-store window,” be warned: Many marketing careers have been ruined when ambition and a sense of entitlement outstripped organizational ability.

Successfully integrating marketing into other parts of the organization often is not something for which other functional department heads are clamoring. It might not even be on the CEO’s list of good things to do this year. You may need to commit yourself to a slow, steady, and stealthy path of gaining the permission to contribute and building a reputation for adding value without usurping control … which is exactly where your marketing dashboard comes in.

By promoting a cross-functional approach to developing your dashboard, you demonstrate the desires to be both objective and accountable in measuring marketing performance, as well as the leadership skills to reach out to groups with whom you might historically have been in conflict. Requesting (and respecting) their perspectives in how to define and measure marketing success can illuminate the areas where your peers take a different view of the role of marketing and facilitate the dialogue necessary to bridge the gaps, or at least begin the healing.

In short, the process of developing and implementing your dashboard can be the perfect “cover” for redefining the role of marketing in the broader organizational context and further integrating marketing into the core of the business operation.

Monday, March 20, 2006

The Right Metrics Emerge From the Role of Marketing

By now we've all heard about the Spencer Stuart survey that found that the average CMO’s tenure is about 22 months — hardly long enough to see any major initiative through. The key toward longevity, however, may be setting a role for the marketing department that fits the goals of the CEO.

A recent study by the Association of National Advertisers and Booz Allen Hamilton suggests that CMO success is first and foremost a function of knowing what role you’re signing up for. They suggested that there are three different roles of marketing organizations within companies.

Role #1: A Marketing Services Organization
The marketing department is a service provider to the rest of the organization. It provides the benefits of centralization in:
  • media buying;
  • advertising and marcomm materials development and production; and
  • coordination of vendors and agencies.

Role #2: The Marketing Department as Advisor
As a corporate marketing function, the marketing department helps align marketing plans of multiple business units with overall corporate strategies in terms of:

  • brand development, uniformity, and compliance;
  • best-practice sharing across business units; and
  • training/education to improve the breadth and depth of marketing skills throughout the company.

Role #3: Marketing as Growth Driver
The marketing department is the engine of growth for the CEO in driving the corporate agenda; it is responsible for alignment of all necessary resources including:

  • brand strategy and execution;
  • customer touchpoint and customer experience management;
  • product development and innovation;
  • customer value development; and
  • marketing accountability and ROI.

There may be other models or hybrids of the ones above. Regardless, knowing what role marketing is playing in pursuit of the company objectives and confirming it with the CEO and the rest of the executive committee sets the boundaries of the playing field on which marketing is expected to perform. In the process, it suggests some clear opportunities for important dashboard metrics.

Once you have better clarity on how marketing fits into the company strategy map and once you’ve confirmed the role of marketing in the organization, you need to identify the critical performance objectives for the marketing organization. It’s impossible to build a relevant dashboard without knowing what those objectives are.

A good performance objective has three components: direction, magnitude, and timeframe.

Here’s an example: “I will achieve a 20% increase in market share in the next 12 months.” Increasing market share is the direction. Twenty percent is the magnitude. Twelve months is the timeframe. If you take any one of those three components away, you're left with an ineffective statement of objectives open to subjective interpretation. If you take away the magnitude and just say, “I’m going to increase market share,” you have no way to judge how much money you should invest in trying to achieve your goal or how much risk (i.e., spending) you should undertake to do so. If you take away the timeframe and just say you're going to achieve a 20% market share increase, you might be thinking that five years is a reasonable timeframe, while the CEO is thinking one year.

The three parts of a critical performance objective force you to close all the doors of subjectivity. And much like building a dashboard on forecast vs. “rear window,” the process forces you to really think about what exactly it is that you plan to accomplish and how well your strategies and tactics are aligned to do so.

It’s also fairly apparent how the three specific dimensions of critical objectives establish some potentially important candidates for dashboard metrics.

Monday, March 13, 2006

Siloed Measures = Fractured Knowledge

Many of today’s marketing organizations have made significant strides in the development of sophisticated analytical approaches to improve marketing measurement. Ph.D. statisticians are now common in most large marketing departments, as are research departments, media-mix models, and models for assessing the return from a proposed initiative.

But what are they really measuring?

The image below shows the three most common measurement “pathways” marketers are pursuing today.

The customer metrics pathway looks at how prospects become customers. From awareness to preference to trial to repeat purchase, many companies track progression through a “hierarchy of effects” model to track evolution of broad market potential to specific revenue opportunities. This customer pathway also tends to include robust attitudinal data on customer segments — why they want what they want or buy what they buy — which is often correlated with actual customer transactional data to create a robust segmentation model. The segments are then monitored for “mobility” — the directional progression of prospects/customers from one segment to a presumably more valuable one. In many B2B organizations, this customer pathway can go all the way to developing a customer-specific P&L.

The cash-flow metrics pathway focuses on efficiency of marketing expenditures in achieving short-term returns. Program and campaign ROI models measure the immediate impact or net present value of profits expected to be derived from a given investment initiative. Media-mix models use statistical regression techniques to identify which combinations of media placements, integrated media elements, and even copy executions generate the most profitable response from customers. And all of those inputs feed a focus on optimizing resource allocation in the context of generating near-term results.

The brand metrics pathway seeks to track the development of the longer-term impact of marketing through brand health. Survey-based tracking studies gauge customer and prospective customer perspectives on the brand — its functionality, personality, accessibility, and value propositions. Brand scorecards track the evolution of these perspectives over time within market segments and across multiple constituencies like employees, regulators, and community influencers. And many have taken the successful leap to develop financial models for estimating the financial value of the brand as a means of determining the aggregation of assets on the balance sheet as an outcome of marketing investments.

While most larger marketing departments have managed to build effective measurement systems within one or more of the three pathways, few have been able to synthesize across pathways in a manner that helps one pathway explain another or clarifies the predictive drivers of the business on a broader level.

For most companies, it’s actually not possible to do this scientifically because it’s not an econometric modeling problem solvable by equations and computers. Each pathway measures very different components of marketing effectiveness in very different ways. Some are shorter term and some longer term. Linking them algorithmically forces you to make some very large assumptions that may be unreliable in the face of actual marketplace dynamics. And even if you can solve it algorithmically, you will likely have to employ statistical techniques of such sophistication that no one in either marketing or finance will understand sufficiently to embrace and defend the method.

A marketing dashboard helps present the insights from all three of the pathways in a graphically related view that facilitates the human brain’s incredible power to find subtle contextual links. This is the point where the “art” and “science” of marketing need to blend.

Most CMOs still struggle to close the gap and embrace the scientific measurement practices and the remaining “art” components that seemingly defy measurement in any reasonable fashion yet are highly correlated with success. As with most other aspects of business, the science enables greatness, but the application of imagination and innovation is what delivers it.

It is this very “art” component of marketing that requires the CMO to have the full confidence and trust of his or her CEO and the executive committee. To win this credibility, today’s CMO needs to find ways of measuring risk that are transparent and understandable to all. If you want top management to accept the art you bring to the process, you have to do a better job of quantifying the chances for success. Only in the rarest organizations will marketing chiefs get by with the words “trust me.” These days, leaps of faith come with pretty heavy price tags.

Monday, March 06, 2006

Getting Past "Don't Have the Data"

Not having the right data is no longer a valid excuse for leaving key business drivers off your dashboard. Find a disciplined way to get at best estimates of the data you seek. Create a continuous improvement path to begin collecting and validating it. And look to the intersection of quantitative research and basic statistical tools to help refine and enhance both your diagnostic and predictive capabilities.

While many may be concerned with the validity and reliability of these methods, the alternative of doing nothing should be of greater concern. If our approach to filling data gaps involves key stakeholders from finance, sales, and operations, the resulting models are much more likely to be both accurate and accepted as the “best we can do.”

Remember that credibility is a function of accountability and perceived objectivity. Letting your executive committee know you’re taking all possible steps to answer the key measurement questions will go much further towards establishing that credibility than a dozen analysts working in secret to crack the elusive code of marketing effectiveness.

Before you try to understand why you don’t have data, it makes sense to try to understand the reasons why the data you think you need to measure marketing isn’t available. Asking this question may force some essential critical thinking about what you’re really trying to accomplish and the staffing and resource issues at the root of the problem.

The fishbone exercise is an analysis tool that provides a systematic way of looking at problems and the contributing factors. It’s also called a “cause-and-effect diagram.”

Here’s how it works:
  1. Decide on the main problem or issue you want to study — and put it at the head of the fish. You might define that problem as “Inability to Measure Marketing Effectiveness” and use the rest of the skeleton to highlight obstacles to be overcome. You can also take a more positive spin by using a label like “Achieving Full Accountability for Marketing Investments” at the head and using the rest of the diagram to identify all the required steps and sub-components of success.

  2. As you can see, each bone of the fish has a category label. Major categories might include people, process, tools, resources, systems, or suppliers. Use whatever headings relate to what you’ve written at the head of the fish.

  3. Start brainstorming with your team to identify the factors within each major category that may be affecting the problem. The question to ask is: "What are the issues affecting this category?” Be particularly careful to not let the dominant personalities in the group steer the exercise in parochial directions.

  4. Work backward up each fishbone to write down sub-factors. Keep asking, "Why is this happening?” until you no longer get useful information.

  5. Analyze the results of the fishbone after team members agree that the chart is complete. Do this by looking for those items that appear in more than one major category. These repeaters become your most likely causes. These discoveries should create the foundation for an action plan for how to proceed without data.
Another good thing about the fishbone exercise is that it’s a great way to bring in constituents from outside the marketing department — finance, sales, or SBU leaders — to get them to talk about their own departmental measurement challenges. You listen to their problems, they listen to yours, and soon you have allies in your process to overcome obstacles to measurement. Most importantly, they may have already come up with some novel metrics you can adapt for your specific purposes.