Tuesday, January 19, 2010

The Cost of NOT Branding

It’s a simple formula: recession requires more tactical spending. This year’s budget = + online spend + social activity + lead generation campaigns – brand investment.

When the dollars get tight, spend shifts to more tangible, less expensive marketing programs with the promise of shorter-term returns (or at least lower costs). Not that there’s anything wrong with saving a few bucks wherever you can get the job done more efficiently. But when saving money becomes the goal instead of a guideline, something big always suffers… usually the brand.

While this is an important problem within the B2C community, it is absolutely URGENT within the B2B community. B2B marketers in large numbers have seen their marketing resources cut back dramatically for anything that isn’t expected to generate significant near-term flows of qualified sales leads. Why? Because absent good metrics to connect brand or longer-term asset development to actual financial value, these things were seen as strategic luxuries that could be postponed.

If I were a CFO looking for strategies to free up cash, I might have reached the same conclusion. Unless my marketing team could explain to me the cost of NOT investing in brand.

Here’s an example… A B2B enterprise technology player (Company X) dropped all marketing programs except those that A) specifically promoted product advantages or B) generated suitable numbers of qualified leads to offset the cost. After a few months, leads were on target, but the sales closing cycle was creeping up. What was originally a 6 to 9 month cycle was becoming 9 to 12 months. Further analysis and research amongst prospects and customers showed that indeed some of this delay was being caused by the general economic uncertainty and the need for buyers to rationalize their purchases internally with more people. But fully 45 days of this extended cycle (estimated by sales managers) was happening because the ultimate decision-makers weren’t sufficiently familiar with the strength of Company X’s product/service offering. (They thought Company X made small consumer electronics, and were not a serious player in enterprise tech.) So the sales team had to make repeated visits and presentations just to work their way into the game to compete on feature/function/price/value.

In this case, the question of the cost of NOT branding could be measured by the increased cost of direct sales associated with NOT branding. Specifically, if Company X measures the sales cost/dollar of contribution margin amongst accounts with strong brand consideration versus those with little-to-no brand perceptions, they should expect to see at least a 50% difference (nine months of effort vs. six), half of which would be attributable to low levels of brand consideration. Multiply that by the percentage of prospects in the addressable market with low levels of brand perception, and you can quickly derive a rough approximation of the cost of NOT branding, expressed either in terms of additional sales headcount required to compensate for lack of branding, or in terms of sales opportunity cost to compensate for an underdeveloped brand. Either way, an imminently measurable problem that would better illuminate the business case for investing in brand development.

There are many other ways to measure the cost of NOT branding, including relative margin realized and strategic segment penetration, amongst others. The right approach for you will depend upon your organizations key business goals.

Now I’m NOT advocating branding as a solution in every circumstance. Nor am I a proponent of the idea that marketing should generally be spending more money versus less. But as a tireless advocate for marketing effectiveness and efficiency, I think we too often fail to examine the business case for NOT doing something as a means of pushing past cultural and political obstacles in our management teams. Remember, there are always two options… DO something, and NOT do something. Each are definitive choices requiring their own payback analysis.

Pat LaPointe is Managing Partner at MarketingNPV – specialty advisors on measuring payback on marketing investments, and publishers of MarketingNPV Journal available online free at www.MarketingNPV.com.

Tuesday, January 05, 2010

Forecast for 2010: Better Forecasting

Yogi Berra said, “It’s tough to make predictions, especially about the future.” Yet the turn of the year (and the decade) makes forecasting an irresistible temptation. But what if forecasting is part of your job, not just a hobby? How do make sure your forecasts are smart, relevant, and even (dare I say) accurate?

While advanced mathematics and enormous computational power have improved forecasting potential significantly, few would argue that forecasting is an exact science. That’s because at its core, forecasting is still mostly a human dynamic where accuracy is dependent upon…

  • asking the right people the right questions;
  • their willingness to answer truthfully and completely;
  • the ability to separate the meaningful elements from the noise; and,
  • the openness of the forecaster to suggestions of process improvement.

That last point is key: process improvement.

Consistently good forecasting isn’t a mathematical exercise performed at regular intervals (e.g., quarterly) as much as it’s an on-going process of gathering and evaluating dozens or hundreds of points of information into a decision framework. Then, when called upon, this decision framework can output the best forward-looking view grounded in the insights of the contributors. While software can facilitate process structure by prompting for specific fields of information to be included, it cannot make judgments on the quality of the information being input. Garbage in; garbage out.

As marketers, our job is to consistently prepare forecasts that help our companies conceive, plan, test, build and ultimately sell successful products and services. Sound forecasting processes form the foundation of an “early warning” system to alert the rest of the organization to the need to rethink its market orientation. In essence, forecasting becomes the rudder that can help your company stay the course, change directions, or navigate uncharted waters with confidence. As such, marketing migrates from being a tactical player to a strategic resource for the CEO when forecasts become more accurate, timely, and reliable.

Five Keys to Better Forecasting

Here are a few things I’ve learned over the years which result in much better forecasts:

  1. Be Specific. Define exactly what you are trying to forecast. If you say “sales”, what do you really mean? Revenue? Unit volume? Gross Margins? Net profit? The differences are substantial and might cause you to take very different approaches to forecasting. Likewise, having some sense of how far out you need to forecast (e.g. 3 months, 12, 36, etc.) and how accurate you need to be will guide you to use forecasting methods and processes better suited to your objectives.
  2. Be Structured. Being methodical in defining all of the dimensions, variables, facts, and assumptions will pay huge dividends in several ways, including explaining your forecast to skeptics and inspiring confidence that you’ve been comprehensive and credible in your approach.
  3. Be Quantitative – With or Without Data. Regardless of how little data you have, there are scientifically developed and proven ways of making better decisions. You may not have the raw materials for statistical regression forecasting, but you surely can use Delphi techniques or other judgmental calculus tools to transform perceptions and intuition of managers into data sets which can be more fully examined and questioned. Often, the process of quantifying the fuzzier logic uncovers great insights that were previously overlooked.
  4. Triangulate – Use multiple forecasting methods and see how the results differ. Chances are that the “reality” is somewhere within the triangle of results. That level of accuracy may be sufficient. But even if it isn’t, the multiple-method approach highlights weaknesses in any single method which might otherwise be overlooked – and that in itself leads to more accurate forecasts.
  5. KISS – Keep it simple, stupid. As with most things in life, simplicity is a virtue in forecasting. Einstein said that “things should be made as simple as possible, but no simpler.” In forecasting, we interpret that to mean that an accurate and reliable forecasting process should be comprehensive enough to identify the truly causal factors, but simple enough to explain to those who will need to make decisions upon it. There is no power in a forecast if those who need to trust it cannot understand or explain the logic and process behind it.

Recognizing forecasting to be a complex human decision process is the first step towards dramatically improving your batting average and improving the accuracy and reliability of the forecasts coming out of your department.

If you’re interested in learning more, here is some expanded forecasting insight, and some great sources of forecasting methods and tools.

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