10 New Resolutions for the 2010 Planning Process

As we approach the 2010 planning season, I always like to take a few moments and reflect on the horrors of last year's planning cycle, making some commitments on how I can do it better this year:

1. I will lead this process and not get dragged behind it.

2. I recognize that many of our business fundamentals may have recently changed, so I commit to anticipating the key questions likely to define our strategy and, using research, analytics, and experiments, gather as much insight into them as I can in advance of making recommendations.

3. I will approach my budget proposal from the ground up, with every element having a business case that estimates the payback and makes my assumptions clear for all to see.

4. I will not be goaded into squabbling over petty issues by pin-headed, myopic, fraidy-pants types in other departments, regardless of how ignorant or personally offensive I find them to be.

5. The person who wrote number 4 above has just been sacked.

6. I will proactively seek input from others in finance, sales, and business units as I assemble my plan, to ensure I understand their questions and concerns and incorporate the appropriate adjustments.

7. I will clearly and specifically define what "success" looks like before I propose spending money, and plan to implement the necessary measurement process with all attendant pre/post, test/control, and with/without analytics required to isolate (within reason) the expected relative contribution of each element of my plan.

8. I will analyze the alternatives to my recommendations, so I am prepared to answer the inevitable CEO question: "Compared to what?"

9. I will be more conscious of my inherent biases relative to the power of marketing, and try not to let my passion get in the way of my judgment when constructing my plan.

10. If all else above fails, I promise to be at least 10% more foresighted and open-minded than I was last year, as measured by my boss, my peers in finance, and my administrative assistant. My spouse, however, will not be asked for an opinion.

How are you preparing for planning season? I'd like to hear what your resolutions are.

It's All Relative

Brilliant strategy? Check.

Sophisticated analytics? Check.

Compelling business case? Check.

Closing that one big hole that could torpedo your career? Uhhhhhhh....... Most new marketing initiatives fail to achieve anything close to their business-case potential. Why? Unilateral analysis, or looking at the world only through your own company's eyes, as if there was no competition.

It sounds stupid, I know, yet most of us perform our analysis of the expected payback on marketing investments without even imagining how competitors might respond and what that response would likely do to our forecast results. Obviously, if we do something that gets traction in the market, they will respond to prevent a loss of share in volume or margin. But how do you factor that into a business case?

Scenario planning helps. Always "flex" your business case under at least three possible scenarios: A) competitors don't react; B) competitors react, but not immediately; C) competitors react immediately. Then work with a group of informed people from your sales, marketing, and finance groups to assess the probability of each of the three possibilities, and weight your business case outcomes accordingly.

If you want to be even more thorough, try adding other dimensions of "magnitude" of competitive response (low/proportionate/high) and "effectiveness" of the response (low/parity/high) relative to your own efforts. You then evaluate eight to 12 possible scenarios and see more clearly the exact circumstances under which your proposed program or initiative has the best and worst probable paybacks. Then if you decide to proceed, you can set in place listening posts to get early warnings of your competitor's reactions and hopefully stay one step ahead.

In the meantime, your CFO will be highly impressed with your comprehensive business case acumen. Check

How do You Know if it's Time to Spend MORE?

In times like these, budgeting and resource allocation decisions tend to get made fast and furious, with little time for clear thinking. Unfortunately, it’s exactly these times when some real discipline is required to both make smart decisions and build credibility with the rest of the senior management team. So if you’re thinking about recommending that your firm should be spending MORE on marketing right now, STOP.

If you’re thinking “let’s spend more now to gain share”…

Good luck. Headline-grabbing stories of marketing heroes who have taken this approach tend to emphasize the few who have succeeded and gloss over the vast majority who have simply squandered more by throwing money into an economic hurricane. The fact is that there’s not much empirical data to prove the merits of this strategy beyond a reasonable doubt. Many “studies” have been done, but none have derived their conclusions from projectable samples which account for the primary risk factors, nor have any led to any high-probability “formula” for succeeding with this strategy. The margin of error between success and failure tends to be very narrow. It’s a roll of the dice against pretty long odds.

If you’re thinking “we’ve got to keep up our spend to maintain our share of voice”…

Be careful. Matching competitive levels of spend (or making decisions on the basis of “share of voice”) is most often seen by CEOs and CFOs as foolish logic. How do you know the competitor isn’t making an irrational decision? What do you know about the effectiveness of your spending versus theirs? How much ground would you lose if they outspent you by a substantial amount? If you don’t have specific answers to these questions, relying on anecdotal evidence won’t help. It may get you the spend levels you’re requesting in the near term, but if it doesn’t work out, the memory of your recommendations will undermine your credibility for years to come.

When times get tough, buyers re-evaluate the value propositions of what they buy. They make tradeoffs on the basis of what is or isn’t “necessary” any more. Shouting louder (or in more places) is unlikely to break through newly-erected austerity walls.

To make a sound case for spending more, tune into what the CEO is looking for… leverage. They want to find places to squeeze more profitability out of the business. To help, focus your thinking around:

• the relative strength of your value proposition, channel power, and response efficiencies versus your competitors.
• your assumptions about customer profitability and prospect switchability as buyers cut back.
• your price elasticity to find out where the traditional patterns may collapse or where opportunities may emerge.
• the relevance, clarity, and distinctiveness of your message strategy, and your ability to defend it from copycat claims.

And make sure to check with finance to see if the company’s balance sheet is strong enough to handle higher levels of risk exposure during revenue-stressed periods. If it’s not, the whole question of spending more is moot.

If your comparative strengths seem to offer an opportunity, then increasing spend may just be a smart idea. But even so you have to anticipate that competitors aren’t just going to let you walk away with their customers or their revenues. And that may just leave you both with higher costs in times of lower sales. In technical parlance, this is known as a “career-limiting outcome”.

Taking Full Credit When Harvesting Brands

I’ve spent the past few days at the AMA’s MPlanet conference, listening to every speaker make some form of the following statement:

Now more than ever before, we need to build and nurture our brand assets.

Presumably this is intended to mean that in these times of great economic challenge, we cannot afford to let our brand standards slip, our brand equities become cloudy, or our brand experience decay.

Fair enough. But does that mean that we should be spending money to build these brand assets, even in the face of substantial cutbacks elsewhere? Or just be cautious not to cut things that would cause an undue decline in brand strength?

This had me wondering … under what conditions would we expect to be able to “harvest” some of the investment we’ve been making? How bad would things have to get before we expected the brand to “pay us back”? At what point would a CMO stand up and advocate “harvesting brand value”?

Sure, I understand that you should always be working on building your brand, and that done right, it is always paying you back. The flow is bi-directional and fluid. But it’s also transparent, and that’s the problem.

Assets, in a financial context, are a way of storing cash value for later use. You invest in stocks as assets, with the expectation that they will appreciate and return more cash to you later. Likewise, you invest in assets like manufacturing equipment, software, or other “tools” required to produce goods or services to sell. Brands could be said to play a similar role. Yet property, plant, and equipment are depreciated over time to reflect the decline of their useful life. Stocks and bonds are liquid assets for which there are markets to quickly buy and sell them, thus establishing their value.

Brands, on the other hand, aren’t depreciated. They can become “impaired” (accounting term meaning they are worth less than you paid for them, thereby triggering a write-down), but only if you purchased them from someone else. So if we marketers are going to rationalize some of our cash spending in good times by talking about “investing” in brand “assets”, at some point we are expected by the financial types to demonstrate how that asset value is being realized back into cash. I call it, “harvesting”.

So under what circumstances would you consider harvesting some of that brand equity?

Well, for starters, if you need to raise prices without adding any incremental costs associated with new features, benefits, or other value visible to the customer. In that case, you are relying on your brand asset to carry you past the danger of customer defection. To the degree that you averted attrition related to unilateral price increases (not matched by competitors immediately), you can legitimately claim that your brand “saved” you money. This is measurable.

Likewise, when a competitor announces a new product/feature/benefit that you cannot match, thereby taking an advantage in perceived value, you rely on your customers’ relationship with your brand to carry you through until you can once again restore your value proposition to its rightful state. This too is measurable.

And finally, when some aspect of your customer experience is deficient – a poor interaction with a call center agent, an inaccurate statement, or maybe a data privacy mishap – you rely on the strength of the overall brand relationship to carry you through. The value of this too is measurable.

So in this economy, while your budget is getting cut again and again, be sure to take the necessary steps to earn credit for how you’re now “spending” some of that “asset” value you built up over time. Done correctly, it will underscore what a good steward of company resources you are, and how far-sighted you’ve been all these years.

Just be careful not to overspend that brand asset account along the way (also measurable).

Yes We Can - The Marketing Renaissance Moment

It strikes me that the spirit of "Yes We Can" is very applicable to marketing at this particular point in time when many have recently suffered significant cuts in marketing budgets owing to their lack of ability to demonstrate the financial value derived from those investments.

Yes We Can apply more discipline to how we measure the payback on marketing investments without increasing the workload proportionately.

Yes We Can embrace this discipline without harming the creative energy so critical to marketing success.

Yes We Can measure those "softer" elements like branding, customer experience, innovation, and word-of-mouth, and link them to impacts on company cashflows.

Yes We Can overcome gaps in data and find ways to build reasonable approximations which even the CFO will embrace.

Yes We Can align the entire company on a single set of marketing metrics and all use the same yardsticks to measure success.

Yes We Can forecast the impact of changes in spending amount or allocation in ways that will inspire confidence instead of criticism.

Yes We Can anticipate the challenges ahead with reasonable certainty and act now to prepare ourselves to meet them head-on. And most importantly,

Yes We Can restore credibility and confidence in marketing as a means of driving profitable growth in our companies, regardless of industry, sector, corporate politics, culture, structure, or market dynamics.

The present economic environment offers a unique opportunity to re-invent the role of marketing in the organization, and to re-establish the critical links between our marketing efforts and the bottom-line shareholder value they create.

Believe it. If you're not doing it, your competitors likely are. There are no more good excuses. There is only "Yes We Can".

Gaining More Than "Experience" from Measurement

I recently did some in-depth interviews with CMOs from 6 multi-billion dollar companies which revealed these key measurement challenges and obstacles still looming large in 2009:

1. Lack of clarity - not having a specific definition of what they're trying to measure, and getting lost in the ambiguity of the process. HINT: define and prioritize the key questions you're trying to answer BEFORE you set out to measure them. Read this.
2. Inability to measure the "brand" impact - having great difficulty getting funding for branding activities/initiatives due to absence of any hard financial evidence of how brand drives value. Here are a few ideas. NOTE: solve this one now, or what's left of your branding budget may well disappear in the tough year ahead.
3. No or bad data - this is not a reason, it's an excuse. There are dozens of ways to overcome short-term data gaps IF you realize that doing so is a people/politics challenge and not a technical one.
4. Low credibility in the board room - the chickens have come home to roost. In the good times, we should have been working on building your knowledgebase of how marketing drives shareholder value. Now, all we can do is move funds from the more intangible activities to the more quantifiable. That's not a strategy. That's an outcome. How to NOT lose the battle next time around.

If you're still struggling to get an insightful and credible measurement program off the ground (or to see it reach a higher level of value), look here to see what your symptoms are, and then find the prescribed cure.

On the bright side, out of this economic crisis marketers are sure to gain some valuable experience ("experience" is what you get when you don't get what you want). As a community, we will learn from it and do better next time. At least, those of us who are actively working hard to get better will.

Fools Rush In - Searching for Magic ROI

If the current economy is encouraging you to think about shifting resources from traditional media to digital alternatives in search of cost effectiveness and overall efficiency, beware: nearly EVERYONE ELSE HAS THE SAME IDEA.

Implication: you will be moving into an increasingly cluttered marketplace, where broad reach options will continue to lose effectiveness and highly-targeted delivery will come at a higher price as demand outstrips the supply of good inventory and good people to execute. Consumers too will become increasingly savvy with respect to their digital media usage patterns, and harder to “impress” with incrementally new ideas or executions.

I know I’ll get lots of letters about this post “educating” me on the infinite scalability of the digital media, and reminding me that true creativity is likewise boundless. I’m sure many of you have research that shows how the returns to digital marketing programs just keep growing as the audience of users grows across more and more platforms. Fair enough. But the laws of marketing physics suggest that more marketers and marketing dollars will rush in to the arena than proven executional avenues can accommodate in the short term. And most of them will NOT bring breakthrough new creativity with them. That will create lots of failure and un-delivered expectations, which in turn may slow adoption of otherwise valuable marketing options.

Here’s a simple suggestion as you contemplate the great digital shift towards the promise of better ROI… set your expectations based on poorer results than you may have experienced in the past, and/or ratchet-down vendor claims of look-alike results presented in “case studies”. Before committing to the “me too” plan of going digital, ask yourself if your planned online campaigns would be a good investment if they were 10% less effective than originally anticipated? Would your new social networking programs still provide good payback if they had a 20% less impact on potential customers? These may very well be the new reality when everyone rushes in.

In stark contrast, a friend who’s CMO of a packaged goods company tells me that while he is continuing to shift the balance of his total spend towards digital media, he’s doing so in a measured way built on careful experimentation. He’s working on a cycle of plan>execute>learn>expand>plan again. So he’s spending 20% more on digital media in 2009 than in 2008, but not moving huge chunks of his total budget all in one big push for magic returns. Nope. His philosophy is “hit ‘em where they ‘aint.” He’s buying more radio and magazines – media he’s developed clear success cases with in the past and places he can more accurately predict the impact on his business. He may find himself all alone there. But I suspect that’s part of the appeal.

Trying to "Justify" Superbowl Spending?

"...as a responsible employer of more than 290,000 employees and contractors world-wide, there is a time to justify such an ad spend and a time to step back."

This quote was provided by the director of advertising at FedEx, in response to a question about why they would not be advertising on this year's Superbowl - the first time in 12 years they would be absent from the annual ad-fest.

The implication from his statement seems to be that, up until now, the Superbowl ads were "justified" by something other than sound economics. Sure, there was the fabulous reach into an attractive target demo, but the price is high. So maybe the premium was being "justified" by some "softer" benefits like employee morale, channel partner collaboration, or even that most elusive of all... "brand preference". And in these days of extreme bottom-line focus, these non-economic "justifications" just weren't going to cut it. It would send the wrong message to people losing jobs and benefits.

The sad truth here is that each and every one of the "softer" benefits can, in fact, be economically measured to a reasonable degree. There are practical, credible ways to calculate the ROI of employee morale, partner collaboration, and brand preference. But they require some techniques that few marketers have yet investigated, let alone perfected.

I don't have any idea if Superbowl advertising is a sound economic decision for FedEx, and I'm not questioning their judgment. It might have been a superb use of shareholder funds, or it may have been a terrible waste. I just cringe when I hear how such important marketing decisions are still, in this age of measurement enlightenment, being made on the basis of "justifications" that suggest something less than a robust economic framework was applied.

We, the marketing industry, can do better. We can measure each and every one of those softer elements in ways that our finance partners will embrace. Those 290,000 employees and contractors need us to do better. For their sake, let's try to ramp up our measurement game in 2009, shall we?

Trading GRPs for Clicks?

Television networks are making their prime-time programming available in full-form via their websites. And not just the latest episodes of “Desperate Housewives”. CBS and ABC have both announced that they are now streaming from deep inside their programming vaults, bring back favorites like “The Love Boat” and “Twin Peaks”.

Hulu (joint venture between NBC and Fox) attracts more than 2.5 million unique viewers (distinct cookies) monthly, who stream content an average of more than 20 times each! That’s a bigger, more engaged audience than many cable stations draw in a month’s time. And anyone who knows their way around a Bass diffusion curve will tell you that adoption of online viewing is on a trajectory to achieve substantial penetration very rapidly.

All this is causing pre-revolution heartburn in the media departments of major ad agencies today. They’re trying to figure out which metrics best equate clicks (or streams) to GRiPs (gross rating points), so they can compare the costs of advertising online to advertising on TV. Apples-to-apples.

Wrong mission.

Online content streaming is, by its very nature, an active participation medium, while television is passive. As such, the metrics should reflect the degree to which advertisers actively engage the consumer: streams launched; ads clicked; games played; surveys completed; dialogue offered; etc. Selecting passive metrics encourages the content owners to use the computer to stream like they broadcast, thereby replacing one screen with another. In time, that will teach consumers to use it as a passive medium like TV.

If we (the marketers) want to capture the true potential of an active medium, we have to demand performance against active metrics. We have to design ads that give the multi-tasking consumer of today something else to do while they’re watching the show – enter contests on what will happen next; decide who’s telling the truth; test their show knowledge against other fans; shop for that cute skirt – you get the idea.

Effectiveness in this new realm is a function of the actual (active) behavior generated versus the expected amount. And the expected amount is that degree of behavior shift necessary to make the business case for spending the money show a clear and attractive return. Efficiency is then how much more positive behavior we’re generating per dollar spent than we did last month/quarter/year.

Sure, we need to have some sense of which content is attracting people who “look” like customers or prospects, but that’s just the basis upon which we decide where to test and experiment. The real decisions on where to place our big bets will come once we learn what execution tactics are most impactful.

Until then, be careful what you measure, or you will surely achieve it..

Use It or Lose It

Do you have any leftover 2007 budget dollars that are burning a hole in your pocket that you have to spend by the end of the year or lose? Here’s an idea: Consider investing in the future.

By that, I mean consider investing in ways to identify some of your key knowledge gaps and prioritize some strategies to fill them. Or investing in development of a road map toward better marketing measurement: What would the key steps look like? In what order would you want to progress? What would the road map require in terms of new skills, tools or processes?

It seems kind of odd, but while the pain of the 2008 planning process is still fresh in your mind, start thinking about what you can do better for 2009. By orienting some of those leftover available 2007 dollars toward future improvements, you might make next year’s planning process just a bit less painful.

Knowing Is Believing

Now that 2008 budget season is upon us, it’s time to identify knowledge gaps in the assumptions underlying your marketing plan – and to lay out (and fund) a strategy for filling them.

We recently published a piece in MarketingNPV Journal which tackles this issue. In “Searching for Better Planning Assumptions? Start with the Unknowns” we suggested:

A marketing team’s ability to plan effectively is a function of the knowns and the unknowns of the expected impact of each element of the marketing mix. Too often, unfortunately, the unknowns outweigh the hard facts. Codified knowledge is frequently limited to how much money lies in the budget and how marketing has allocated those dollars in the past. Far less is known (or shared) about the return received for every dollar invested. As a result, marketers are left to fill the gaps with a mix of assumptions, conventional wisdom, and the occasional wild guess – not exactly a combination that fills a CMO with confidence when asked to recommend and defend next year’s proposed budget to the executive team.

Based on our experience and that of some of our CMO clients, we offer a framework to help CMOs get their arms around what they know, what they think they know, and what they need to know about their marketing investments. The three steps are:

1. Audit your knowledge. The starting point for a budget plan comes in the form of a question: What do we need to know? The key is to identify the knowledge gaps that, once filled, can lessen the uncertainty around the unknown elements, which will give you more confidence to make game-changing decisions.

2. Prioritize the gaps. For each gap or unanswered question, it’s important to ask how a particular piece of information would change the decision process. It might cause you, for example, to completely rethink the scope of a new program, which could have a material impact on marketing performance.

3. Get creative with your testing methods. Marketers have many methods for filling the gaps at their disposal; some are commonly used, others are underutilized. The key is determining the most cost-effective methods – from secondary research to experimental design techniques – to gather the most relevant information.

Don’t let the unknowns persist another year. Find ways to identify them, prioritize them, and fund some exploratory work so you’re legitimately smarter when the next planning season rolls around.