Tuesday, March 30, 2010

Memo from CFO: Ad Metrics Not Good Enough

Following is a sanitized version of an actual email from a CFO to a CMO in a global 1000 company…

TO: Susan James – Chief Marketing Officer

FROM: Amy Ivers – Chief Financial Officer

RE: Congratulations on your recent recognition for marketing efficiency

Susan –

Congratulations on being ranked in the top ten of Media Weeks’ most recent list of “most efficient media buying organizations.” It is a reflection of your ongoing commitment to getting the most out of every expense dollar, and well-earned recognition.

But I can’t help but wonder, what are we getting for all that efficiency?

Sure, we seem to be purchasing GRP’s and click-thru’s at a lower cost than most other companies, but what value is a GRP to us? How do we know that GRPs have any value at all for us, separate from what others are willing to pay for them? How much more/less would we sell if we purchased several hundred more/less GRPs?

And why can’t we connect GRPs to click-thrus? Don’t get me wrong, I love the direct relationship we can see of how click-thrus translate into sales dollars. And I understand that when we advertise broadly, our click-thrus increase. But what exactly is the relationship between these? Would our click-thru rate double if we purchased twice as much advertising offline?

Also, I’m confused about online advertising and all the money we spend on both “online display” and “paid search”. I realize that we are generally able to get exposure for less by spending online versus offline, but I really don’t understand how much more and what value we get for that piece either.

In short, I think we need to look beyond these efficiency metrics and find a way to compare all these options on the basis of effectiveness. We need a way to reasonably relate our expenses to the actual impact they have on the business, not just on the reach and frequency we create amongst prospective customers. Until we can do this, I’m not comfortable supporting further purchases of advertising exposure either online or offline.

It seems to me that, if we put some of our best minds on the challenge, we could create a series of test markets using different levels of advertising exposure (including none) in different markets which might actually give us some better sense of the payback on our marketing expenditures. Certainly I understand that just measuring the short-term impact may be a bit short-sighted, but it seems to me that we should be able (at the very least) to determine where we get NO lift in sales in the short term, and safely conclude that we are unlikely to get the payback we seek in the longer term either.

Clearly I’m not an expert on this topic. But my experience tells me that we are not approaching our marketing programs with enough emphasis on learning how to increase the payback, and are at best just getting better at spending less to achieve the same results. While this benefit is helpful, it isn’t enough to propel us to our growth goals and, I believe, presents an increasing risk to our continued profitability over time as markets get more competitive.

I’d be delighted to spend some time discussing this with you further, but we need a new way of looking at this problem to find solutions. It’s time we stop spending money without a clear idea of what result we’re getting. We owe it to each other as shareholders to make the best use of our available resources.

I’ll look forward to your reply.

Thank you.

So how would you respond? I’ll post the most creative/effective responses in two weeks.
Pat LaPointe is Managing Partner at MarketingNPV – specialty advisors on marketing metrics, ROI, and resource allocation, and publishers of MarketingNPV Journal available online free at www.MarketingNPV.com.


ryankoke said...

I have the perfect response but it is just over the 4096 character limit. How do I get it to you?

Pat LaPointe said...

Please send a shorter version. We can't really absorb longer responses here. Thanks.