Tuesday, December 22, 2009

Measuring What Matters Most

What is the most important thing in your marketing plan to measure?
A) Campaign response.
B) Customer satisfaction.
C) Brand value.
D) Media mix efficiency.
E) All of the above.

The fact is that there are so many things to measure, more and more marketers are getting wrapped around the axle of measurement and wasting time, energy, and money chasing insight into the wrong things. Occasionally this is the result of prioritizing metrics based on what is easy to measure in an altruistic but misguided attempt to just “start somewhere”. Sometimes, it comes from an ambitious attempt to apply rocket science mathematics to questionable data in the search for definitive answers where none exist. But most often it is the challenge of being able to even identify what the most important metrics are. So here’s a way to isolate the things that are really critical, and thereby the most critical metrics.

Let’s say your company has identified a set of 5 year goals including targets for revenue, gross profit margin, new channel development, customer retention, and employee productivity. The logical first step is to make sure the goals are articulated in a form that facilitates measurement. For example, “opening new channels” isn’t a goal. It’s a wish. “Obtaining 30% market share in the wholesale distributor channel within five years” is a clear, measurable objective.

From those objective statements, you can quantitatively measure the size of the gap between where you are today and where you need to be in year X (the exercise of quantifying the objectives will see to that). But just measuring your progress on those specific measures might only serve to leave you well informed on your trip to nowheresville. To ensure success, you need to break each objective down into its component steps or stages. Working backwards, for example, achieving a 30% share goal in a new channel by year 5 might require that we have at least a 10% share by year 4. Getting to 10% might require that we have contracts signed with key distributors by year 3, which would mean having identified the right distributors and begun building relationships by year 2. And of course you would need all your market research, pricing, packaging, and supply chain plans completed by the end of year 1 so you could discuss the market potential intelligently with your prospective distributors.

When you reverse-engineer the success trajectory on each of your goals, you will find the critical building block components. These are the critical metrics. Monitor your progress towards each of these sub-goals and you have a much greater likelihood of hitting your longer-range objectives.

Kaplan and Norton, the pair who brought you the Balanced Scorecard and Strategy Mapping, have a simple tool they call Success Mapping to help diagram this process of selecting key measures. Each goal is broken down into critical sub-goals. Each sub-goal has metrics that test your on-track performance. A sample diagram follows.

By focusing on your sub-goals, you can direct all measurement efforts to those things that really matter, and invest in measurement systems (read: people and processes, not just software) in a way that’s linked to your overall business plan, not as an afterthought.

Pat LaPointe is managing partner at MarketingNPV – objective advisors on marketing measurement and resource allocation, and publishers of MarketingNPV Journal available online free at www.MarketingNPV.com.

Tuesday, December 08, 2009

Making the "Best" Business Case for Marketing Investments

More than ever before, the approval of any significant marketing initiative is dependent upon a compelling business case. A business case is meant to function as a logical framework for the organization of all of the benefit and cost information about a given project or investment.

Working with this definition, one might conclude that a “good” marketing business case is one that increases the quality of decision making. Yet many of us in marketing have come to believe that a good business case is one that predicts a significantly positive ROI, IRR, and/or NPV for a given investment. Strangely, we tend to water-down any assumptions that actually seem to make the case “too good,” lest someone in finance really begin questioning our assumptions. Have you ever found yourself…

  • Using aggressive, moderate, and conservative labels on business case scenarios to show how even the most conservative view provides a strong potential return, and anything beyond that is gravy?
  • Identifying the always-low break-even point at which expenses are recaptured fully, and showing how this point occurs even below the conservative outcome scenario?
  • Taking a “haircut” in assumptions to show how, “even if you cut the number in half, the result is still positive.”

Every time you use one of these approaches in an effort to build credibility with finance or other operating executives, you paradoxically wind up undermining it instead. These tactics all have been shown to communicate subtle messages of inherent bias and manipulative persuasion which, intended or not, are noticeable to non-marketing reviewers – even if only on an instinctive level versus a conscious one.

In my experience, business cases get rejected most often for one of the following reasons:

  • Bias – senior management perceives that marketing is trying to “sell” something rather than truly understand the risk/reward of the proposed spending recommendations.

  • Jumping to the Numbers – showing final forecasts which contradict executive intuition before they have had a chance to reconsider the validity of those instincts.

  • Credibility of Assumptions – forecasts seem to ignore the effect of key variables or predict unprecedented outcomes.

Successful business-case developers recognize that there is more at stake than just getting funding approved. In reality, there are several objectives which must all be achieved with every business case:

  1. Protecting personal credibility. Any one program or initiative may be killed for many possible reasons. But you will still need to come to work tomorrow and be effective with your executives, peers, and team members. Preserving (and strengthening) your personal credibility is therefore the paramount objective.

  2. Enhancing the role of marketing. If you have personal credibility, you will want to use it to take smart risks to help the company achieve its objectives, and to influence matters relating to strategy, products, markets, etc. In the process, you need to be thinking about the role of the marketing function; how it can best serve the firm; and how you need to evolve it from what it is today.

  3. Bringing attractive options to the CEO – the kind that forces him/her to make hard decisions choosing between financially appealing alternatives.

There are always two dimensions to business case quality – financial attractiveness, and credibility of assumptions. In the end, it takes more than just financial attractiveness for a successful business case. It takes:

  • Thoughtfulness: demonstrating keen understanding of the role marketing plays in driving business outcomes and reflecting the input of the most critical stakeholders throughout the organization.
  • Comprehensiveness: including all credible impacts of spending recommendations, and calculating benefits and costs at an appropriate level of granularity.
  • Transparency: Clearly labeling all assumptions as such and presenting them in a way that encourages healthy discussion and challenge.

There are many ways to build a successful business case. But the most important learning is to understand the context in which your proposal will be evaluated BEFORE you put the numbers on the table.

Pat LaPointe is managing partner at MarketingNPV – objective advisors on measuring payback on marketing investments, and publishers of MarketingNPV Journal available online free at www.MarketingNPV.com.