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.

Where Have All the CMOs Gone?

If I had to sum up in a phrase what I heard Monday at the ANA Accountability Forum in Palm Beach, Fla., it would be “hard work.”

We heard several stories of marketers (IBM, VF Corp., Johnson & Johnson, Kimberly Clark, Siemens, and Discovery Networks) who are at various stages of understanding the payback on their marketing investments. Some have established impressive abilities to ascertain directional returns via marketing mix models supplemented with online research panels. Others have defined their vision, building the requisite foundation - aligning roles, goals, and expectations – and beginning to see some results. Yet many of the attendees still appear to be circling around the need for better measurement, looking for a point of entry.

Depending upon how one interprets the survey of measurement and accountability practices released at the ANA event, somewhere between 20% and 40% of large marketing organizations are doing measurement reasonably well. Another 20% to 40% are making some progress, but still addressing large gaps of a cultural, organizational, or technical nature. And the remaining 20% to 40% are, apparently, selling far more product than they can produce, ergo they’re not interested in measurement.

Sadly, these numbers do not seem to have improved from surveys done in the past.

I have two theories on why we may have stalled.

First, the truth is getting out: Measurement is hard work. And now that all the low-hanging fruit of defining metrics and building models using available data has been picked, the real insights have proven to be hiding higher up the tree. It’s one thing to know you have a data gap in an all-important metric, but quite another to secure the resources to close it while developing a credible proxy in the interim. If you’ve bought all the relevant syndicated data and are still left with gaping holes in your spend-to-return equation, you face the possibility of having to build your own data, from scratch, to travel that all-important last mile. And if you’ve been standing on the periphery looking for a cheaper, faster, less organizationally intrusive approach to give you great insight at little cost (financially or politically), it’s not going to happen. Get out your ladder and start picking fruit.

Second, the actions of CMOs indicate that they may be losing interest in the topic. Events like the one I’m attending this week used to attract a strong following of CMO types. This year, very few. Have they lost interest? Do they know something the rest of us don’t? Is measurement fading as an issue with CEOs and CFOs? Do CMOs not like Florida in September?

The CMO’s absence in the dialogue suggests they’re delegating really difficult organizational problems to smart, hard-working people who unfortunately lack the political clout necessary to solve them. Maybe the CMO has sufficiently “checked the box” by assigning people to work the issue. Or maybe it’s just not a very fun project to work on relative to the excitement of strategic planning or shuffling the organizational chart. If the CMO is losing interest, progress will be measured in minor increments and marketing is unlikely to ever achieve critical mass of enlightenment.

Whatever the reason, the result is the same: Marketing loses credibility and influence in each passing quarter in which the CMO can’t answer the difficult questions about the relationship between spend and returns. The opportunity cost, both to the company and to the career of the marketer, is staggering.

Bottom line: This measurement stuff is hard work. As I see it, the CMO has two choices: Roll up your sleeves and get into the thick of it, or start calling the recruiters and let the next person worry about it.

Marketing and Finance on the Same Team: Building the Dashboard Together

I meet with dozens of marketing executives every year, and in the vast majority of these meetings, I hear frustration over an inability to effectively communicate marketing program value to the CFO. The two departments often disagree on which metrics — and which programs — are the most significant to the bottom line, as well as on the interpretation of results.

The problem is that when the chemistry isn’t just right, the personal relationship bridges aren’t strong, and the awareness of the range of solutions is limited, the collaborative spirit surrounding marketing measurement devolves quickly into a power struggle. And in that environment, everything stalls and nobody wins.

We recently had a chance to talk to a few marketers, including KeyCorp, Bank of America, Yahoo! and Home Depot, among others. Common to all was an effort to build joint ownership between marketing and finance over marketing measurement responsibility. The result seems to include setting goals that are better aligned up front with the P&L, as well as enhanced interdepartmental communication and an improved ability to interpret and act on results.

Here’s a snapshot of some of the things Marketing is doing. They:
• Build shared goals up front;
• Get up-front buy-in from Finance and corporate executives;
• Align marketing metrics with the P&L;
• Involve Finance in dashboard design;
• Provide them with full transparency;
• Give Finance partial ownership of the dashboard;
• Have the corporate scorecard mirror the LOB scorecards;
• Go beyond deciding which metrics to track to deciding how to distribute the results and to whom;
• Focus on the things that are really going to make a difference in company performance;
• Reach out to all stakeholders and LOBs and ask what’s important to them; then build in different levels for different stakeholders;
• Are realistic about trying to solve things they don’t have control over, or where there may be gaps in information; and
• Don’t leave the numbers open to interpretation; they use a narrative to explain each metric, and they publicize an action plan for the next quarter.

You can see more of this discussion online by clicking here.

The Marketing Mix Model Grows Up

I’ll be honest — a couple of years ago when marketing mix models started to catch on, I wasn’t entirely enthused. Like any new measurement technique or tool, I felt MMMs just skimmed the surface of tactical optimization when, to offer real value, they really needed to be used as a strategy support tool. But MMMs have gotten better at doing that. Specifically, today’s marketing mix models:

- Provide more operational guidance, aligning increases or decreases in marketing campaign spending with channel management and supply chain considerations;
- Link to trade-off analyses on a market segment or brand-equity level;
- Help companies monitor the impact of marketing programs on incremental revenue while further explaining that amorphous “baseline” number.

Improved automated functionality is also allowing marketers to react more quickly to results based on their needs by, refreshing the models monthly to allow for more frequent changes in marketing support planning.

Ever the devil’s advocate though, I still see some need for improvement. Specifically, modelers need to:

- Ensure that the organization as a whole understands the assumptions and limitations of the marketing mix model;
- Realize that laying the acceptance groundwork around those assumptions is as important and challenging as building the algorithms or collecting the data;
- Be aware of changes in the competitive environment and how they affect your results; this is an area where marketing mix models often break down;
- Understand that the model will, on occasion, fail; expect it and plan for it.

Finally, don’t stop at marketing mix models. Risk is magnified by over-reliance on a single tool. Today’s marketing measurement toolkit needs to be much broader. Deep understanding of brand drivers, customer behavior and value require input from tools and techniques outside the mix model, as well as in.

If you’re interested in more about marketing mix models, as well as how to evolve them, click here for the article on our website.

Net Promoter Score — Beware the Ceiling

The popularity of Net Promoter Scores as a means to link customer experience execution to financial value creation has been astounding. In just the past two years, American businesses of all sizes, types and structures have begun asking customers about their proclivity to recommend it and the reasons why or why not. Whether you’re a fan of NPS or prefer other methodologies, it would be difficult to dispute that, in the aggregate, this has been a very positive trend that has elevated the consciousness of executives to the link between investing in customer experience improvement and creating shareholder value.

But what happens when we, as consumers, begin getting so many surveys asking about our likelihood to recommend that we become numb? What happens when we realize en-masse that we can end the call quicker by just answering “10” and “no.”

It’s not hard to envision how the simplicity of NPS surveys will eventually lose effectiveness. Familiarity breeds contempt. Respondents will lie with greater frequency. NPS scores will begin to rise — artificially — while the relative competitive gaps begin to disappear. By that point, it will be too late. We’ll have unknowingly made some bad decisions on increasingly flawed data and be left without a transition strategy.

This scenario may not play out for some time yet. But I think it’s helpful to be aware of the inevitability of it; to build early indicators into our current NPS review processes; and to begin imagining what the next solution may look like.

If you’ve had any particular experience with this dynamic, I’d love to hear from you.

When Segmentation Loses its Meaning

Segmentation seems to be on its way to becoming one of those vendor co-opted words that is fast losing its meaning.

As I’ve painfully learned with the word “dashboard”, once a concept catches on it quickly becomes perverted beyond recognition until, on some level, everyone is doing it and all consultants and technology providers are experts in it (think CRM). I suppose this is just another benefit of living in the digital age.

Lately, I’ve seen “segmentation” used to describe approaches for:

- finding the most likely prospects for an existing product/service set;

- developing the most effective ad copy; and

- explaining the similarities and differences between competitors in a given market space.

Those of you who know me know that I’m not too hung up on definitions. But I am pretty hung up on meaning. To me, “segmentation” is the process of defining naturally occurring groups of homogenous prospects or customers who share a common need-set, determining the relative size of each group (from the perspective of profit potential), prioritizing their attractiveness, and then developing go-to-market plans best suited to appeal to each.

First off, this can’t be done without quantitative research of some sort. There are many techniques with different circumstantial strengths. But if someone is talking about segmentation based on “some interviews”, run. Fast.

Second, segmentation based on attitudes, beliefs, or perceptions is fine for writing copy or creating positioning statements, but what does it really tell you about the not-so-subtle trade-offs in constructing the real value proposition of the product/service?

A focus on feelings may cause you to miss the importance of making your product easier to spot on the shelf, or modifying your distribution-channel structure, or even extending credit to achieve competitive advantage. Incorporating attitudes into segmentation is smart. Basing the entire segmentation on them can be tragically flawed.

Finally, segmentation without sizing is irrelevant. Whether you size on revenue or contribution margin (preferred) opportunity, you need segmentation to help you understand the relative opportunity of allocating your resources one way versus another. Good segmentation forces you to make hard decisions because it shows you multiple viable pathways. Great segmentation helps you quantify the risk/reward propositions and leads you to the best choice.

How, you may be asking, does this relate to marketing measurement? Segmentation is the basis of all resource allocation. Segment your market properly, and your most meaningful metrics will emerge from your understanding of how to create customer value.

Let the marketer beware, though. The sad paradox of segmentation is that declining standards of imagination and process discipline increasingly mean that all segments are created equal.

Understanding the Accounting and Marketing Benefits of Customer Franchise Value

It can often be difficult — sometimes down right impossible — for marketing and finance to coexist when finance needs short-term results to satisfy their generally accepted accounting principles (GAAP) and marketing is trying to build overall brand equity, which leads to long-term customer relationship value.

In the diagram below, you can see that there is much involved in arriving at ROI from the marketing point of view. However, the accounting department only sees that the shortest distance to any destination is a straight line — i.e., 2007 marketing activity should lead directly to 2007 sales.

Customer Franchise Value (CFV) can help bridge the gap between the two departments and help marketing give finance what they need. CFV is a metric that gives the CFO a tangible number to get his hands around that explains payback on marketing efforts today — key emphasis on the word today. In short, it’s a “net present value” snapshot of your current customer base.

At the same time, it serves as a more disciplined way of helping marketers understand the tangible, financial value being created over time — not just the strategic value. Basically, it gives marketers the breathing room they need to invest in longer-term sales growth.

In our latest issue of MarketingNPV, you’ll find a robust discussion on this subject that will help you create your own customer franchise value metric system.

Click here for the article on our website.

Big News in the World of Marketing Measurement

I don’t spend a lot of time talking about our firm and what we do – but I need to share some big news….

Dave Reibstein, William S. Woodside Professor of Marketing at Wharton, past Executive Director of the Marketing Science Institute, and co-author of the recent book - Marketing Metrics: 50+ Metrics Every Executive Should Master – is joining our firm.

I’m delighted to be working with Dave and his colleague from CMO Partners, Peter McNally. They are world-class marketing strategists with a strong financial orientation and great expertise at selecting the right marketing metrics to diagnose and predict performance. Working together – aside from having some fun - we’ll be looking to conquer the challenges of effective and efficient marketing resource allocation.

If you’d like to get a sense of the things that will be driving our work, check out “10 Immutable Laws of Marketing Measurement”, a new piece co-authored by Dave and yours truly.

Beware Bogus Surveys That Kill Credibility

The popularity of the marketing measurement movement seems to have every PR-hungry consultant jumping on the “survey says” bandwagon to create some “content”. You know the type. “We asked 1,000 people what they thought about….”

The answers are supposed to provide you, the marketing executive, with a benchmark of what your “peers” are doing, so you can gauge the relative performance of your own company or department. Only they don’t. They just manipulate your desire to know and play off of your lack of technical knowledge in reading research results.

It’s ironic, isn’t it, that people who supposedly specialize in credible marketing measurement resort to scientifically flawed methods in their own marketing efforts:

- The survey samples are drawn from convenience and are representative of no larger group (except the group of people who happened to respond to the survey).

- The motivations of the respondents to be truthful seem to pass without question.

- There is no attention paid to the non-respondents (whom one might presume are protecting some real, non-public insights).

- And the summaries exclaim how 40% of respondents said this while another 52% said that, all the while ignoring the fact that the error rates for the study may be +/- 20% or more.

If you presented such garbage information to your executive committee, chances are you’d be out on your ass quicker than your resume could get updated.

I’m not diminishing the importance of qualitative research by any means. I’m simply calling on the emerging industry of measurement consultants to adhere to the same standards they advise their clients on. If you seek publicity for qualitative work, be sure to clearly label it as such and use as many words to explain the limitations of the conclusions as you employ in proposing them.

On the client side, you should have higher standards. Ask a few key questions about anything labeled “research”:

1. Is this qualitative or quantitative? Qualitative research summaries shouldn’t be rooted in numerical comparisons across sub-samples. Their findings are only valid at the level of broad observations and hypotheses.

2. What universe is this sample representative of? Understanding the sample number of respondents in the context of the non-respondents and the group selected to receive the opportunity to respond will tell you if those who did respond are really reflective of your “peer” group and if the differentials reported are meaningful, or manufactured.

3. What is the error factor of the findings? If they can’t say for sure, then it’s not a quantitative study, which means you should pay no attention to the actual numbers and percentages reported.

If we all apply a bit higher standards for credibility in our work, we will collectively advance the credibility of the marketing discipline in its ability to self-measure. Failing that, we’ll continue to be accused of being more interested in PR than real results.

Marketing and IT: Hyatt Proves That A Team Approach Is Doable

For years, marketing has been feeling the short-end of the stick from IT in terms of support and prioritization. IT, on the other hand, has been mopping up after marketing “experiments” with outsourced, on-demand solutions that didn’t work exactly as hoped. So how do you get the CMO and the CIO to work more closely to integrate their efforts to achieve their (presumably) common goals?

Hyatt seems to have solved the problem. They named Tom O’Toole, formerly “just” the CMO, to be CIO, too.

In an interview I did with Tom recently, he offered a few suggestions for ways to solve expectation and delivery gaps that typically form in the Marketing-IT relationship. Now before you read these, keep in mind that they were coming from the mouth of someone who spent the bulk of their career in the brand marketing world…

Tom’s suggestions for CMOs are:

1. Don’t develop and staff your own applications without at least discussing it with IT. If you do, we don’t have the expertise or the staff to support them. Most often, these systems aren’t well-documented.

2. Don’t mess around with the network. There are security concerns, bandwidth concerns, and reliability concerns. You really have no idea how problematic it can be for a network manager whose job depends upon network performance and uptime to all of a sudden have major delays or outages caused by a rogue Web server he didn’t even know was connecting. It can literally bring the entire company to a standstill.

3. Try to stick with packaged solutions. If you can recommend a solution from a vendor who has already built all the interfaces with the software we run our enterprise on and has tested them with dozens of other clients, it takes a tremendous amount of work (and time) out of the assessment process.

For the entire Q&A with Tom O’Toole, go to:
http://www.marketingnpv.com/interview.asp?ix=1176

Predicting The Path of Predictive Analytics

Analytics are increasingly the lifeblood of a CMO’s accountability process. And we’ve seen marked advancements in these tools, as marketers turn up the pressure for more usable insight.

In the aggregate, I see four key trends shaping the analytics space:

1. C-level involvement. The corner office will go from interested to involved to participating in marketing decision making. The analytics underlying resource allocation recommendations will need to more clearly articulate and justify what you need, why you need it, and yes, the payback. They will have to speak for themselves, sans the geek interface.

2. Continuous marketing measurement. The near future of analytics will go beyond one-time, “what’s going on today” metrics to present real-time continuous results. This constant flow is critical to overcoming the challenges of today’s fractured media environment. A new ‘test and learn’ framework is also helping marketers capture feedback and adjust to it more quickly.

3. Cheaper, faster models. Similar to Moore’s Law, the speed of analytics models will continue to increase and the capabilities will improve, while the price will gradually decline. Specifically, we anticipate deeper support for data integration and “what if” scenarios.

4. Software tailored to your needs. You’ve been made to walk the walk. Soon, the analytics vendors will be doing it too. While this may be the trend furthest down the pike, we feel the survival of today’s analytics tools is dependent on their ability to be “componentized” to create relevance and meet the unique needs of individual marketers.

None of these trends will cause a definitive paradigm shift next week, or even next month. Rather, the change will be subtle and incremental. But a look back 12 months from now should show considerable advancements beyond today.

For a deeper analysis of these four predictions, go to:
http://www.marketingnpv.com/article.asp?ix=1180

WOM Measurement – The Wild, Wild West

As one of the newest media (and one that is still very much evolving), there’s quite a bit of measurement snake-oil surrounding the links between word-of-mouth marketing and financial value creation.

I don’t think we’re far off from bringing respectability to it, because all the necessary tools are there. But we won’t progress unless marketers stop being satisfied with simple “stroke counting” measures — like message delivery and open and pass along rates — and start building a roadmap that more clearly links WOM to revenue and profit.

Here’s a 6-step prescription for WOM measurement progress:

1. Define Objectives. Clearly and succinctly state the intended outcome of the campaign expenditure in economic or behavioral terms.

2. Test the effectiveness of your message strategy to determine the recipients’ behavioral outcome.

3. Develop test-and-control constructs to determine the true predictive value of the awareness or attitude change, and its effect on behavior.

4. Conduct post-campaign interviews with current and new customers, and those who still resist your value proposition to find out what did or didn’t influence their decision to act or not act.

5. Review your proposed measurement methodology with key constituents of the outcome (i.e., the CFO and CEO) in advance to get their feedback and to tighten any loopholes and gaps.

6. Be clear on your expectations. State them in as tangible of financial terms as you can. Then ask yourself the tough questions: Did you succeed in achieving your goals and expectations? Continue to adjust as you move forward.

As word of mouth grows into a recognizable line item on the budget, the measurement practice must improve along with it. Otherwise, it’s the wild, wild west all over again.

If you want to see more on measuring word of mouth marketing, read:
Is There a Reliable Way to Measure Word of Mouth Marketing?
http://www.marketingnpv.com/article.asp?ix=1175

Prediction for 2007… Pain

With all the hype surrounding the resurgence of legendary on-screen boxer Rocky Balboa, I couldn’t help but borrow a line from the old Clubber Lang (Mr. T) in anticipation of what 2007 will bring for marketing measurement. He said, “My prediction… pain.”

In the case of marketers, that pain is likely to be felt most by some of the late adopters to measurement discipline. In fact, marketers who haven’t yet made a concerted effort to get a suitably comprehensive and properly stakeholdered measurement process in place are likely to feel the pain more than ever in 2007. Why?

First, CEOs and CFOs are hearing more and more about how measurable marketing is these days. They’re seeing it at conferences, reading about it in their trade journals and hearing it firsthand from their peers. These seeds, once planted, can’t help but grow up through the most hardened sidewalks of resistance. And when they crack through the foundation of credibility, the crumbling is impossible to stop.

Second, unless you’re lucky enough to be in a high-growth business spinning out exceptional shareholder returns, the die is likely already cast for another year of cuts to the marketing budget. The best you can hope for is that the slashes will be swift and sharp. But chances are, they will more likely resemble death by a thousand small incisions. And you can forget about defending your turf. If you had the insights the CEO needed to be more confident, you wouldn’t be the one who’s budget they look to begin with.

Third, if you’re entering the “opportunity zone” of your tenure with the company (somewhere between months 20 and 30), you may have but one more chance to put a sound foundation behind your next budget recommendation. But you’ll need to start now. It takes a minimum of nine months, and more often 18, before you can really get a good historical handle on marketing performance drivers and be able to correlate them to spending with any predictive validity.

The good news is that, if you start in January while the year is fresh and new, you’ll have a fair chance of making a big difference for 2008. You can build a foundation that will serve you immediately and for many years to come. But by April, your window will close. So the question for many marketers isn’t whether or not there will be pain in 2007, but whether it will be the pain of progress or the pain of avoidance. Either way, the choice is deliberate.

Wishing you the very best (and a full bottle of Advil or Tylenol) in 2007.

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:
http://www.marketingnpv.com/article.asp?ix=1175

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: http://www.marketingleadershipcouncil.com.

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

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.

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.

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.

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.

Myths and Truths About Advertising Effectiveness – Part 2

TRUTHS ABOUT ADVERTISING

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.